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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: (800) 624-6782
Date of fiscal year end: October 31
Date of reporting period: April 30, 2014
Item 1. | Reports to Stockholders. |
MainStay Unconstrained Bond Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2014
This Page Intentionally Left Blank
Message from the President
Stocks and bonds generally advanced during the six months ended April 30, 2014, but results varied across different markets, asset classes and regions.
According to Russell data, mid-capitalization stocks tended to provide the strongest returns, outperforming large-cap stocks overall. As a group, small-cap stocks tended to underperform their larger-capitalization counterparts. Value outperformed growth at all capitalization levels as the 2013 market rally ended and investors moved from rapid-growth stocks toward utilities, real estate investment trusts (REITs) and other stocks that tend to be more defensive.
The reporting period opened with investors still reacting to the government shutdown and asking questions about the debt ceiling and the so-called fiscal cliff. Even so, U.S. stocks climbed relatively steadily through the end of 2013. After reaching a high point in January, the U.S. stock market tumbled to its low point for the reporting period in early February, hurt by weaker economic data and severe weather in the Northeast. From that point, domestic stocks generally recovered, advancing to new highs before the end of the reporting period.
International stocks benefited from the European Central Bank’s accommodative policies and an improving European economy, despite high levels of debt and unemployment. In Japan, a weaker currency and accommodative central bank policies had fueled a stock rally in 2013, but Japanese stocks began to decline in mid-January on concerns about the Prime Minister’s economic policies, including a substantial increase in the nation’s sales tax. International stocks also felt the effects of tensions in Ukraine and slowing growth in China.
Throughout the reporting period, the Federal Reserve held the federal funds target rate in a range close to zero. On December 18, 2013, the Federal Open Market Committee announced plans to begin tapering its direct security purchases (widely known as quantitative easing) in January of 2014. The announcement led investors to anticipate rising interest rates.
According to U.S. Department of the Treasury data, yields did rise through the early part of 2014. After peaking early in the year, however, U.S. Treasury yields generally trended downward. As of April 30, 2014, yields at the short and long ends of the U.S. Treasury yield curve1 were slightly lower than at the beginning of the reporting period, while yields on 1- to 10-year U.S. Treasury securities had moved slightly higher.
In harmony with these trends, extensive tax-loss harvesting in the municipal market tended to push municipal yields higher in November and December. Redemptions slowed as the new year progressed, and a scarcity of municipal supply pushed municipal bond prices higher—and yields lower—during the last four months of the reporting period.
Throughout the reporting period, our portfolio managers pursued the investment objectives of their respective Funds within the investment strategies outlined in the Prospectus. Using time-tested security-selection, portfolio-monitoring and risk-management techniques, they sought to maximize exposure to potential opportunities while seeking to minimize exposure to unnecessary risks.
The report that follows provides additional information about the decisions, securities and market forces that affected your MainStay Fund during the six months ended April 30, 2014. We encourage you to read this information carefully. It can help you evaluate your diversification and assess your asset allocation as you pursue your long-range financial goals.
We thank you for choosing MainStay Funds, and we look forward to a lasting and productive relationship.
Sincerely,
Stephen P. Fisher
1. | 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 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. Past performance is no guarantee of future results.
Not part of the Semiannual 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 Period Ended April 30, 2014
Class | Sales Charge | Six Months | One Year | Five Years | Ten Years | Gross Expense Ratio2 | ||||||||||||||||||
Investor Class Shares3 | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges |
| –1.48 3.16 | %
|
| –1.56 3.08 | %
|
| 9.03 10.04 | %
|
| 5.70 6.19 | %
|
| 1.27 1.27 | %
| |||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges |
| –1.53 3.11 |
|
| –1.44 3.20 |
|
| 9.21 10.22 |
|
| 5.80 6.29 |
|
| 1.12 1.12 |
| |||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges |
| –2.28 2.72 |
|
| –2.72 2.25 |
|
| 8.92 9.20 |
|
| 5.39 5.39 |
|
| 2.02 2.02 |
| |||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within | With sales charges Excluding sales charges |
| 1.83 2.83 |
|
| 1.37 2.36 |
|
| 9.23 9.23 |
|
| 5.39 5.39 |
|
| 2.02 2.02 |
| |||||||
Class I Shares | No Sales Charge | 3.23 | 3.45 | 10.52 | 6.60 | 0.87 | ||||||||||||||||||
Class R2 Shares4 | No Sales Charge | 3.06 | 3.10 | 10.11 | 6.18 | 1.27 |
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 R2 shares, first offered on February 28, 2014, include the historical performance of Class A shares from through February 27, 2014, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class R2 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 | Six Months | One Year | Five Years | Ten Years | ||||||||||||
Barclays U.S. Aggregate Bond Index5 | 1.74 | % | –0.26 | % | 4.88 | % | 4.83 | % | ||||||||
Bank of America Merrill Lynch U.S. Dollar 3-Month LIBOR Constant Maturity Index6 | 0.12 | 0.27 | 0.39 | 2.09 | ||||||||||||
Morningstar Nontraditional Bond Category Average7 | 1.90 | 0.17 | 6.81 | 4.96 |
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 Fund has selected the Morningstar nontraditional bond category average as an additional benchmark. Total returns assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
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 November 1, 2013, to April 30, 2014, 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 November 1, 2013, to April 30, 2014.
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 April 30, 2014. 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 11/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/14 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/14 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,031.60 | $ | 5.54 | $ | 1,019.30 | $ | 5.51 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,031.10 | $ | 5.19 | $ | 1,019.70 | $ | 5.16 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,027.20 | $ | 9.30 | $ | 1,015.60 | $ | 9.25 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,028.30 | $ | 9.25 | $ | 1,015.70 | $ | 9.20 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,032.30 | $ | 3.93 | $ | 1,020.90 | $ | 3.91 | ||||||||||
Class R2 Shares2,3 | $ | 1,000.00 | $ | 1,006.70 | $ | 1.88 | $ | 1,006.50 | $ | 1.88 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.10% for Investor Class, 1.03% for Class A, 1.85% for Class B, 1.84% for Class C, 0.78% for Class I and 1.12% for Class R2) multiplied by the average account value over the period, divided by 365 and multiplied by 181 days for Investor Class, Class A, Class B, Class C and Class I (to reflect the six-month period) and 61 days for Class R2 (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 April 30, 2014. Had these shares been offered for the full six-month period ended April 30, 2014, and had the Fund provided a hypothetical 5% annualized return, expenses paid during the period would have been $5.61 for Class R2 and the ending account value would have been $1,019.20 for Class R2. |
3. | The inception date for Class R2 shares was February 28, 2014. |
mainstayinvestments.com | 7 |
Portfolio Composition as of April 30, 2014 (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 April 30, 2014 (excluding short-term investment) (Unaudited)
1. | Morgan Stanley, 4.875%–5.45%, due 11/1/22–12/29/49 |
2. | Bank of America Corp. |
3. | HCA, Inc., 5.00%–9.00%, due 12/15/14–3/15/24 |
4. | JPMorgan Chase & Co., (zero coupon)–7.90%, due 5/5/15–12/29/49 |
5. | Citigroup, Inc. |
6. | Chesapeake Energy Corp., 4.875%–7.25%, due 12/15/18–4/15/22 |
7. | Clear Channel Communications, Inc., 6.90%–9.00%, due 1/30/19–3/1/21 |
8. | Chubb Corp. (The), 6.375%, due 3/29/67 |
9. | International Game Technology, 5.50%, due 6/15/20 |
10. | Plains All American Pipeline, L.P. / PAA Finance Corp., 4.70%, due 6/15/44 |
Short Positions as of April 30, 2014 (Unaudited)
1. | Levi Strauss & Co., 7.625%, due 5/15/20 |
2. | ACCO Brands Corp., 6.75%, due 4/30/20 |
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 six months ended April 30, 2014?
Excluding all sales charges, MainStay Unconstrained Bond Fund returned 3.16% for Investor Class shares, 3.11% for Class A shares, 2.72% for Class B shares and 2.83% for Class C shares for the six months ended April 30, 2014. Over the same period, the Fund returned 3.23% for Class I shares and 3.06% for Class R2 shares. For the six months ended April 30, 2014, all share classes outperformed the 1.74% return of the Barclays U.S. Aggregate Bond Index,1 which is the Fund’s broad-based securities-market index; the 0.12% 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 1.90% return of the Morningstar Nontraditional Bond Category Average,2 which is an additional benchmark for the Fund. See page 5 for Fund returns with applicable sales charges.
Were there any changes to the Fund during the reporting period?
Effective February 28, 2014, the Fund’s principal investment strategies were modified to allow investments in municipal bonds and to increase the percentage of net assets that the Fund can invest in swaps.
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 resulted primarily from an overweight position in spread product,3 specifically high-yield corporate bonds. The Federal Reserve’s willingness to pump liquidity into the market (by keeping short-term interest rates close to zero) continued to stimulate lending and investments, as well as investors’ appetite for yield. The Federal Reserve’s accommodative stance strengthened the performance of credit-related assets, such as high-yield and investment-grade corporate bonds, during the reporting period.
High-yield corporate bonds represented the Fund’s largest risk-weighted position and performed well as spreads compressed during the reporting period. (The Barclays U.S. Aggregate Bond Index consists entirely of investment-grade bonds.) Though the April 2014 default of Energy Future Holdings marked the largest
single high-yield default on record, default rates were still trending at or close to all-time lows, which served as a tailwind for the sector.
Investment-grade corporate bond spreads compressed to a post-financial crisis low of 98 basis points by the end of the reporting period. (A basis point is one-hundredth of a percentage point.) Lower-quality bonds (i.e., those rated BBB)4 and longer-duration bonds (i.e., those with 8- to 15-year maturities) outperformed, partly because of declining U.S. Treasury yields. During the first four months of 2014, investment-grade corporate bond issuance remained strong. Approximately $92 billion in new investment-grade corporate bond issues was priced in April, bringing the year-to-date total to $445 billion, according to data provided by Barclays.
Throughout the reporting period, the Fund held underweight positions relative to the Barclays U.S. Aggregate Bond Index in U.S. Treasury securities and assets with high correlations to them. Although these underweighted asset classes have rallied since the beginning of 2014, the Fund still managed to outperform the Index.
What was the Fund’s duration5 strategy during the reporting period?
The Fund’s duration was shorter than that of the Barclays U.S. Aggregate Bond Index, in 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 low correlation to U.S. Treasury securities, so they have a lower sensitivity to interest rates, although they 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 duration relative to the Barclays U.S. Aggregate Bond Index. At the end of the reporting period, the Fund’s effective duration was approximately 2.5 years.
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 implementation of its
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” refers to asset classes that typically trade at a spread to comparable U.S. Treasury securities. |
4. | An obligation rated ‘BBB’ by Standard & Poor’s (“S&P”) is deemed by S&P to exhibit adequate protection parameters. In the opinion of S&P, however, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. 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. |
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 |
decision to taper bond purchases. Although the Fund experienced some periods of volatility, we did not make any material changes to the Fund’s positioning. We did, however, selectively, opportunistically and modestly increase the Fund’s weightings in both bank loans and emerging-market corporate debt. 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 have maintained a credit risk profile that is relatively higher than that of the Barclays U.S. Aggregate Bond Index, specifically through the Fund’s overweight position in high-yield corporate bonds.
During the reporting period, which market segments were the strongest positive contributors to the Fund’s relative performance and which market segments were particularly weak?
An overweight position in high-yield corporate bonds, which outperformed the Barclays U.S. Aggregate Bond Index, drove the Fund’s outperformance of the Index during the reporting period. 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 also positive contributors to the Fund’s relative performance. (Contributions take weightings and total returns into account.) 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. Our decision to underweight these sectors contributed positively to the Fund’s relative performance, as U.S. Treasury securities and agency mortgages underperformed high-yield corporate bonds during the reporting period.
Did the Fund make any significant purchases or sales during the reporting period?
We selectively increased the Fund’s weight in bank loans in an effort to keep the Fund’s duration shorter than that of the Barclays U.S. Aggregate Bond Index, even as we remained cautious regarding the Fund’s position in bank loans because the loans tend to lack call protection. During the reporting period, we purchased a first lien loan in Ardagh Holdings USA, a global leader in glass and metal packaging solutions. We also purchased a loan in SBA Communications, a wireless tower owner and operator, because we liked the company’s strong free cash flow.
During the reporting period, the Fund exited positions in financial companies Banque PSA Finance Peugeot and LBG Capital (Lloyds). We sold the Fund’s Banque PSA Finance Peugeot bonds, as the spread narrowed significantly upon the bonds becoming fully valued. The position in LBG Capital (Lloyds) was eliminated given an attractive tender/exchange offer in which the Fund participated.
How did the Fund’s sector weightings change during the reporting period?
We made no significant changes to the Fund’s sector weightings relative to the Barclays U.S. Aggregate Bond Index, but, as already mentioned, slightly increased its weightings in both bank loans and emerging-market corporate debt. The Fund’s largest position remained in high-yield corporate bonds, as we believed that the compensation, or spread, for the risk associated with the sector was still adequate.
How was the Fund positioned at the end of the reporting period?
As of April 30, 2014, 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.
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 April 30, 2014 (Unaudited)
Principal Amount | Value | |||||||
Long-Term Bonds 90.2%† Asset-Backed Securities 0.5% |
| |||||||
Airlines 0.1% |
| |||||||
Continental Airlines, Inc. | $ | 86,646 | $ | 98,776 | ||||
Northwest Airlines, Inc. | 335,328 | 382,274 | ||||||
United Airlines, Inc. | 489,795 | 563,264 | ||||||
|
| |||||||
1,044,314 | ||||||||
|
| |||||||
Home Equity 0.3% | ||||||||
Carrington Mortgage Loan Trust | 462,116 | 416,367 | ||||||
Citigroup Mortgage Loan Trust | 239,918 | 183,781 | ||||||
Equifirst Loan Securitization Trust | 60,056 | 59,214 | ||||||
First NLC Trust | 441,077 | 227,186 | ||||||
GSAA Home Equity Trust | 936,971 | 478,197 | ||||||
Home Equity Loan Trust | 218,859 | 197,653 | ||||||
HSI Asset Securitization Corp. Trust | 285,688 | 254,509 | ||||||
JP Morgan Mortgage Acquisition Corp. | ||||||||
Series 2007-HE1, Class AF1 | 238,828 | 170,196 | ||||||
Master Asset Backed Securities Trust | 115,568 | 49,514 | ||||||
Merrill Lynch Mortgage Investors Trust | 664,393 | 397,860 | ||||||
Morgan Stanley ABS Capital I, Inc. | ||||||||
Series 2006-HE6, Class A2B | 387,962 | 209,030 | ||||||
Series 2006-HE8, Class A2B | 206,876 | 119,791 |
Principal Amount | Value | |||||||
Home Equity (continued) | ||||||||
Morgan Stanley ABS Capital I, Inc. (continued) |
| |||||||
Series 2007-HE4, Class A2A | $ | 106,017 | $ | 49,031 | ||||
Series 2007-NC2, Class A2FP | 410,561 | 226,341 | ||||||
Renaissance Home Equity Loan Trust | ||||||||
Series 2007-2, Class AF1 | 908,725 | 507,978 | ||||||
Securitized Asset Backed Receivables LLC Trust | 506,436 | 305,897 | ||||||
Soundview Home Equity Loan Trust | ||||||||
Series 2007-OPT1, Class 2A1 | 430,206 | 249,393 | ||||||
Series 2006-EQ2, Class A2 | 284,417 | 179,333 | ||||||
Specialty Underwriting & Residential Finance Trust | ||||||||
Series 2006-BC4, Class A2B | 1,064,608 | 508,656 | ||||||
|
| |||||||
4,789,927 | ||||||||
|
| |||||||
Student Loans 0.1% | ||||||||
Keycorp Student Loan Trust | 1,783,419 | 1,672,061 | ||||||
|
| |||||||
Total Asset-Backed Securities | 7,506,302 | |||||||
|
| |||||||
Convertible Bonds 2.3% | ||||||||
Airlines 0.1% | ||||||||
Airtran Holdings, Inc. | 647,000 | 1,278,229 | ||||||
United Airlines, Inc. | 356,000 | 778,750 | ||||||
|
| |||||||
2,056,979 | ||||||||
|
| |||||||
Auto Manufacturers 0.0%‡ | ||||||||
Navistar International Corp. | ||||||||
4.75%, due 4/15/19 (c) | 360,000 | 376,200 | ||||||
|
| |||||||
Biotechnology 0.1% | ||||||||
BioMarin Pharmaceutical, Inc. | ||||||||
0.75%, due 10/15/18 | 311,000 | 320,136 | ||||||
Cubist Pharmaceuticals, Inc. | ||||||||
1.125%, due 9/1/18 (c) | 278,000 | 317,441 |
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings or issuers held, as of April 30, 2014, 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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Convertible Bonds (continued) | ||||||||
Biotechnology (continued) | ||||||||
Gilead Sciences, Inc. | ||||||||
1.625%, due 5/1/16 | $ | 356,000 | $ | 1,229,092 | ||||
|
| |||||||
1,866,669 | ||||||||
|
| |||||||
Coal 0.0%‡ | ||||||||
Alpha Natural Resources, Inc. | 246,000 | 244,155 | ||||||
|
| |||||||
Commercial Services 0.1% | ||||||||
Hertz Global Holdings, Inc. | 95,000 | 327,751 | ||||||
ServiceSource International, Inc. | 667,000 | 583,208 | ||||||
|
| |||||||
910,959 | ||||||||
|
| |||||||
Computers 0.1% | ||||||||
Cadence Design Systems, Inc. | 192,000 | 398,040 | ||||||
SanDisk Corp. | 206,000 | 234,582 | ||||||
Spansion LLC | 332,000 | 477,665 | ||||||
|
| |||||||
1,110,287 | ||||||||
|
| |||||||
Distribution & Wholesale 0.0%‡ | ||||||||
WESCO International, Inc. | 178,000 | 555,360 | ||||||
|
| |||||||
Electronics 0.0%‡ | ||||||||
Fluidigm Corp. | 148,000 | 157,343 | ||||||
|
| |||||||
Entertainment 0.0%‡ | ||||||||
International Game Technology | 470,000 | 470,000 | ||||||
|
| |||||||
Environmental Controls 0.1% | ||||||||
Covanta Holding Corp. | 603,000 | 706,641 | ||||||
|
| |||||||
Health Care—Products 0.1% | ||||||||
Teleflex, Inc. | 788,000 | 1,347,972 | ||||||
|
| |||||||
Health Care—Services 0.0%‡ | ||||||||
WellPoint, Inc. | 276,000 | 405,030 | ||||||
|
|
Principal Amount | Value | |||||||
Home Builders 0.0%‡ | ||||||||
Ryland Group, Inc. (The) | $ | 117,000 | $ | 109,395 | ||||
|
| |||||||
Household Products & Wares 0.5% | ||||||||
Jarden Corp. | ||||||||
1.125%, due 3/15/34 (c) | 7,300,000 | 7,304,562 | ||||||
1.875%, due 9/15/18 | 534,000 | 726,240 | ||||||
|
| |||||||
8,030,802 | ||||||||
|
| |||||||
Insurance 0.0%‡ | ||||||||
Radian Group, Inc. | 140,000 | 203,175 | ||||||
|
| |||||||
Internet 0.1% | ||||||||
HomeAway, Inc. | 178,000 | 171,659 | ||||||
Priceline Group, Inc (The) | ||||||||
0.35%, due 6/15/20 (c) | 186,000 | 221,573 | ||||||
1.00%, due 3/15/18 | 532,000 | 746,462 | ||||||
Shutterfly, Inc. | 261,000 | 258,064 | ||||||
Yahoo!, Inc. | 428,000 | 440,037 | ||||||
|
| |||||||
1,837,795 | ||||||||
|
| |||||||
Iron & Steel 0.0%‡ | ||||||||
Steel Dynamics, Inc. | 36,000 | 39,083 | ||||||
United States Steel Corp. | ||||||||
2.75%, due 4/1/19 | 267,000 | 337,254 | ||||||
4.00%, due 5/15/14 | 190,000 | 190,950 | ||||||
|
| |||||||
567,287 | ||||||||
|
| |||||||
Lodging 0.0%‡ | ||||||||
MGM Resorts International | 398,000 | 568,891 | ||||||
|
| |||||||
Machinery—Diversified 0.1% | ||||||||
Chart Industries, Inc. | 560,000 | 691,600 | ||||||
|
| |||||||
Media 0.0%‡ | ||||||||
Liberty Interactive LLC | 124,000 | 64,635 | ||||||
Liberty Media Corp. | 234,000 | 226,395 | ||||||
|
| |||||||
291,030 | ||||||||
|
| |||||||
Metal Fabricate & Hardware 0.0%‡ | ||||||||
RTI International Metals, Inc. | 521,000 | 526,536 | ||||||
|
|
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) | ||||||||
Miscellaneous—Manufacturing 0.1% |
| |||||||
Danaher Corp. | $ | 484,000 | $ | 1,033,037 | ||||
|
| |||||||
Oil & Gas 0.0%‡ | ||||||||
Energy XXI Bermuda, Ltd. | 321,000 | 317,389 | ||||||
|
| |||||||
Oil & Gas Services 0.3% | ||||||||
Helix Energy Solutions Group, Inc. | 405,000 | 521,437 | ||||||
Hornbeck Offshore Services, Inc. | 1,900,000 | 2,168,375 | ||||||
¨JPMorgan Chase & Co. (Convertible into Schlumberger, Ltd.) | 709,000 | 1,255,355 | ||||||
SEACOR Holdings, Inc. | 105,000 | 122,063 | ||||||
Subsea 7 S.A. | ||||||||
1.00%, due 10/5/17 | 200,000 | 203,650 | ||||||
3.50%, due 10/13/14 | 200,000 | 255,840 | ||||||
|
| |||||||
4,526,720 | ||||||||
|
| |||||||
Pharmaceuticals 0.1% | ||||||||
Pacira Pharmaceuticals, Inc. | 135,000 | 382,641 | ||||||
Salix Pharmaceuticals, Ltd. | 489,000 | 869,809 | ||||||
Teva Pharmaceutical Finance Co. LLC | 515,000 | 632,484 | ||||||
|
| |||||||
1,884,934 | ||||||||
|
| |||||||
Real Estate Investment Trusts 0.1% | ||||||||
Host Hotels & Resorts, L.P. | 430,000 | 710,306 | ||||||
SL Green Operating Partnership, L.P. | 454,000 | 615,454 | ||||||
|
| |||||||
1,325,760 | ||||||||
|
| |||||||
Semiconductors 0.1% | ||||||||
Intel Corp. | 386,000 | 543,779 | ||||||
Microchip Technology, Inc. | 99,000 | 183,336 | ||||||
Novellus Systems, Inc. | 390,000 | 693,713 | ||||||
Rambus, Inc. | 119,000 | 143,618 | ||||||
Xilinx, Inc. | 202,000 | 334,815 | ||||||
|
| |||||||
1,899,261 | ||||||||
|
|
Principal Amount | Value | |||||||
Software 0.2% | ||||||||
Bottomline Technologies, Inc. | $ | 337,000 | $ | 411,982 | ||||
Citrix Systems, Inc. | 108,000 | 108,000 | ||||||
Cornerstone OnDemand, Inc. | 403,000 | 418,868 | ||||||
Medidata Solutions, Inc. | 364,000 | 371,508 | ||||||
Nuance Communications, Inc. | 611,000 | 617,110 | ||||||
Proofpoint, Inc. | 233,000 | 234,456 | ||||||
Salesforce.com, Inc. | 504,000 | 555,660 | ||||||
ServiceNow, Inc. | 122,000 | 122,763 | ||||||
|
| |||||||
2,840,347 | ||||||||
|
| |||||||
Telecommunications 0.1% | ||||||||
Ciena Corp. | 303,000 | 403,747 | ||||||
Infinera Corp. | 313,000 | 325,716 | ||||||
Ixia | 137,000 | 144,278 | ||||||
JDS Uniphase Corp. | 459,000 | 477,073 | ||||||
|
| |||||||
1,350,814 | ||||||||
|
| |||||||
Transportation 0.0%‡ | ||||||||
XPO Logistics, Inc. | 170,000 | 301,219 | ||||||
|
| |||||||
Total Convertible Bonds |
| 38,513,587 | ||||||
|
| |||||||
Corporate Bonds 74.9% | ||||||||
Advertising 0.2% | ||||||||
Lamar Media Corp. | 3,525,000 | 3,542,625 | ||||||
|
| |||||||
Aerospace & Defense 1.4% | ||||||||
Alliant Techsystems, Inc. | ||||||||
5.25%, due 10/1/21 (c) | 2,000,000 | 2,075,000 | ||||||
6.875%, due 9/15/20 | 3,889,000 | 4,229,287 | ||||||
B/E Aerospace, Inc. | 8,780,000 | 9,087,300 | ||||||
Ducommun, Inc. | 782,000 | 871,930 | ||||||
TransDigm, Inc. | ||||||||
7.50%, due 7/15/21 | 4,440,000 | 4,884,000 | ||||||
7.75%, due 12/15/18 | 815,000 | 867,975 |
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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Aerospace & Defense (continued) |
| |||||||
Triumph Group, Inc. | $ | 1,305,000 | $ | 1,380,038 | ||||
|
| |||||||
23,395,530 | ||||||||
|
| |||||||
Airlines 0.7% | ||||||||
Continental Airlines, Inc. | ||||||||
7.875%, due 1/2/20 | 419,835 | 457,620 | ||||||
9.798%, due 10/1/22 | 603,674 | 694,225 | ||||||
Delta Air Lines, Inc. | ||||||||
Series 2011-1 Class A Pass Through Trust | 1,176,495 | 1,297,086 | ||||||
Series 2010-1 Class A Pass Through Trust | 319,155 | 356,656 | ||||||
Series 2010-2 Class B Pass Through Trust | 612,000 | 656,370 | ||||||
U.S. Airways Group, Inc. | 4,233,202 | 4,783,518 | ||||||
U.S. Airways, Inc. | 2,680,243 | 2,995,171 | ||||||
|
| |||||||
11,240,646 | ||||||||
|
| |||||||
Auto Manufacturers 1.3% | ||||||||
Chrysler Group LLC / CG Co-Issuer, Inc. | ||||||||
8.00%, due 6/15/19 (c) | 1,600,000 | 1,752,000 | ||||||
8.25%, due 6/15/21 | 4,590,000 | 5,158,013 | ||||||
Ford Motor Co. | ||||||||
6.625%, due 10/1/28 | 229,000 | 275,882 | ||||||
8.90%, due 1/15/32 | 3,009,000 | 4,156,205 | ||||||
General Motors Co. | 3,000,000 | 3,063,750 | ||||||
Navistar International Corp. | 7,049,000 | 7,172,357 | ||||||
|
| |||||||
21,578,207 | ||||||||
|
| |||||||
Auto Parts & Equipment 1.0% | ||||||||
Dana Holding Corp. | 4,750,000 | 4,904,375 | ||||||
Goodyear Tire & Rubber Co. (The) | ||||||||
6.50%, due 3/1/21 | 5,325,000 | 5,764,312 | ||||||
7.00%, due 5/15/22 | 1,000,000 | 1,102,500 | ||||||
Schaeffler Finance B.V. | 3,475,000 | 3,566,219 |
Principal Amount | Value | |||||||
Auto Parts & Equipment (continued) | ||||||||
Tomkins LLC / Tomkins, Inc. | $ | 440,000 | $ | 471,900 | ||||
|
| |||||||
15,809,306 | ||||||||
|
| |||||||
Banks 8.1% | ||||||||
AgriBank FCB | 500,000 | 642,620 | ||||||
Banco de Bogota S.A. | 2,900,000 | 2,939,875 | ||||||
Banco do Brasil S.A. | 2,900,000 | 2,950,750 | ||||||
Banco Santander Mexico S.A. | 6,415,000 | 6,382,925 | ||||||
Bangkok Bank PCL | 250,000 | 263,004 | ||||||
¨Bank of America Corp. | ||||||||
3.30%, due 1/11/23 | 510,000 | 495,034 | ||||||
4.00%, due 4/1/24 | 7,320,000 | 7,356,878 | ||||||
5.625%, due 7/1/20 | 3,590,000 | 4,102,781 | ||||||
5.75%, due 8/15/16 | 1,400,000 | 1,533,102 | ||||||
7.625%, due 6/1/19 | 420,000 | 518,309 | ||||||
Bank of America NA | 2,828,000 | 3,400,514 | ||||||
Barclays Bank PLC | 8,037,000 | 8,656,267 | ||||||
BBVA Bancomer S.A. | 4,075,000 | 4,543,625 | ||||||
CIT Group, Inc. | ||||||||
3.875%, due 2/19/19 | 2,037,000 | 2,059,916 | ||||||
4.25%, due 8/15/17 | 330,000 | 345,675 | ||||||
5.00%, due 8/1/23 | 2,000,000 | 2,010,000 | ||||||
6.625%, due 4/1/18 (c) | 1,750,000 | 1,953,438 | ||||||
¨Citigroup, Inc. | 10,800,000 | 10,759,500 | ||||||
Discover Bank | 3,895,000 | 4,659,916 | ||||||
Emigrant Bancorp, Inc. | 398,000 | 400,035 | ||||||
Fifth Third Bancorp | 1,477,000 | 1,630,319 | ||||||
Goldman Sachs Group, Inc. (The) | 7,257,000 | 7,196,339 | ||||||
¨JPMorgan Chase & Co. | ||||||||
6.125%, due 12/29/49 (a) | 7,595,000 | 7,595,000 | ||||||
7.90%, due 4/29/49 (a) | 3,650,000 | 4,124,500 | ||||||
Mellon Capital III | £ | 2,950,000 | 5,172,039 | |||||
Mizuho Capital Investment, Ltd. | $ | 1,092,000 | 1,116,406 | |||||
Mizuho Financial Group Cayman 3, Ltd. | 9,300,000 | 9,490,929 |
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) | ||||||||
Banks (continued) | ||||||||
¨Morgan Stanley | ||||||||
4.875%, due 11/1/22 | $ | 4,287,000 | $ | 4,523,865 | ||||
5.00%, due 11/24/25 | 2,465,000 | 2,557,524 | ||||||
5.45%, due 12/29/49 (a) | 11,425,000 | 11,524,969 | ||||||
RBS Citizens Financial Group, Inc. | 2,270,000 | 2,254,475 | ||||||
Royal Bank of Scotland Group PLC | 856,000 | 990,816 | ||||||
Wells Fargo & Co. | 10,050,000 | 10,292,205 | ||||||
|
| |||||||
134,443,550 | ||||||||
|
| |||||||
Beverages 0.1% | ||||||||
Embotelladora Andina S.A. | 1,980,000 | 2,102,318 | ||||||
|
| |||||||
Building Materials 1.5% | ||||||||
Associated Materials LLC / AMH New Finance, Inc. | 1,223,000 | 1,284,150 | ||||||
Cemex Finance LLC | 6,810,000 | 6,818,513 | ||||||
Masco Corp. | 2,250,000 | 2,615,625 | ||||||
Texas Industries, Inc. | 4,315,000 | 4,940,675 | ||||||
USG Corp. | ||||||||
5.875%, due 11/1/21 (c) | 6,755,000 | 7,177,187 | ||||||
6.30%, due 11/15/16 | 1,245,000 | 1,344,600 | ||||||
9.75%, due 1/15/18 | 363,000 | 437,415 | ||||||
|
| |||||||
24,618,165 | ||||||||
|
| |||||||
Chemicals 1.5% | ||||||||
Dow Chemical Co. (The) | 2,099,000 | 2,690,807 | ||||||
Hexion U.S. Finance Corp. | 4,750,000 | 4,934,062 | ||||||
Hexion U.S. Finance Corp. / Hexion Nova Scotia Finance ULC | 2,898,000 | 3,017,543 | ||||||
Huntsman International LLC | 3,568,000 | 3,978,320 | ||||||
Momentive Performance Materials, Inc. | 4,650,000 | 5,027,812 | ||||||
Rockwood Specialties Group, Inc. | 5,212,000 | 5,342,300 | ||||||
|
| |||||||
24,990,844 | ||||||||
|
| |||||||
Coal 0.9% | ||||||||
Alpha Natural Resources, Inc. | 1,560,000 | 1,185,600 |
Principal Amount | Value | |||||||
Coal (continued) | ||||||||
Arch Coal, Inc. | $ | 7,000,000 | $ | 6,982,500 | ||||
Cloud Peak Energy Resources LLC / Cloud Peak Energy Finance Corp. | 5,775,000 | 6,006,000 | ||||||
Peabody Energy Corp. | 1,025,000 | 1,150,562 | ||||||
|
| |||||||
15,324,662 | ||||||||
|
| |||||||
Commercial Services 2.0% | ||||||||
Avis Budget Car Rental LLC / Avis Budget Finance, Inc. | ||||||||
5.50%, due 4/1/23 | 5,782,000 | 5,839,820 | ||||||
8.25%, due 1/15/19 | 703,000 | 748,695 | ||||||
Hertz Corp. (The) | ||||||||
6.25%, due 10/15/22 | 5,500,000 | 5,885,000 | ||||||
7.375%, due 1/15/21 | 1,630,000 | 1,795,037 | ||||||
Iron Mountain, Inc. | ||||||||
6.00%, due 8/15/23 | 2,600,000 | 2,762,500 | ||||||
7.75%, due 10/1/19 | 431,000 | 474,100 | ||||||
8.375%, due 8/15/21 | 1,293,000 | 1,364,115 | ||||||
Quebecor World, Inc. (Litigation Recovery Trust—Escrow Shares) | ||||||||
6.50% (g)(h)(i)(j) | 5,000 | 74 | ||||||
9.75% (g)(h)(i)(j) | 160,000 | 2,352 | ||||||
Rent-A-Center, Inc. | 5,800,000 | 5,437,500 | ||||||
United Rentals North America, Inc. | ||||||||
6.125%, due 6/15/23 | 4,259,000 | 4,578,425 | ||||||
8.375%, due 9/15/20 | 3,863,000 | 4,283,101 | ||||||
|
| |||||||
33,170,719 | ||||||||
|
| |||||||
Computers 0.5% | ||||||||
NCR Corp. | ||||||||
5.00%, due 7/15/22 | 3,815,000 | 3,881,762 | ||||||
6.375%, due 12/15/23 (c) | 1,500,000 | 1,605,000 | ||||||
SunGard Data Systems, Inc. | ||||||||
6.625%, due 11/1/19 | 1,050,000 | 1,099,875 | ||||||
7.625%, due 11/15/20 | 1,895,000 | 2,070,288 | ||||||
|
| |||||||
8,656,925 | ||||||||
|
| |||||||
Cosmetics & Personal Care 0.4% | ||||||||
Albea Beauty Holdings S.A. | 5,470,000 | 5,962,300 | ||||||
|
| |||||||
Diversified Financial Services 0.4% | ||||||||
Ford Holdings LLC | 127,000 | 184,415 | ||||||
GE Capital Trust II | € | 2,100,000 | 3,124,657 |
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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Diversified Financial Services (continued) |
| |||||||
GE Capital Trust IV | € | 1,223,000 | $ | 1,766,817 | ||||
General Electric Capital Corp. | £ | 815,000 | 1,508,283 | |||||
|
| |||||||
6,584,172 | ||||||||
|
| |||||||
Electric 1.6% | ||||||||
Abu Dhabi National Energy Co. | $ | 2,500,000 | 2,462,500 | |||||
Calpine Corp. | 4,275,000 | 4,686,469 | ||||||
CMS Energy Corp. | 533,000 | 683,298 | ||||||
Great Plains Energy, Inc. | ||||||||
4.85%, due 6/1/21 | 5,200,000 | 5,637,076 | ||||||
5.292%, due 6/15/22 (d) | 663,000 | 744,862 | ||||||
IPALCO Enterprises, Inc. | 2,620,000 | 2,875,450 | ||||||
Puget Energy, Inc. | 905,000 | 1,045,970 | ||||||
Wisconsin Energy Corp. | 7,793,280 | 8,056,303 | ||||||
|
| |||||||
26,191,928 | ||||||||
|
| |||||||
Engineering & Construction 0.1% | ||||||||
MasTec, Inc. | 1,704,000 | 1,644,360 | ||||||
|
| |||||||
Entertainment 1.7% | ||||||||
¨International Game Technology | 9,645,000 | 10,508,980 | ||||||
Isle of Capri Casinos, Inc. | ||||||||
7.75%, due 3/15/19 | 1,174,000 | 1,256,180 | ||||||
8.875%, due 6/15/20 | 6,815,000 | 7,172,787 | ||||||
Mohegan Tribal Gaming Authority | 5,102,000 | 5,612,200 | ||||||
Pinnacle Entertainment, Inc. | 3,000,000 | 3,255,000 | ||||||
United Artists Theatre Circuit, Inc. | 18,700 | 13,090 | ||||||
|
| |||||||
27,818,237 | ||||||||
|
| |||||||
Finance—Auto Loans 0.8% | ||||||||
Ally Financial, Inc. | 7,900,000 | 7,929,625 | ||||||
Ford Motor Credit Co. LLC | ||||||||
8.00%, due 12/15/16 | 22,000 | 25,661 | ||||||
8.125%, due 1/15/20 | 3,361,000 | 4,274,328 |
Principal Amount | Value | |||||||
Finance—Auto Loans (continued) | ||||||||
General Motors Financial Co., Inc. | $ | 670,000 | $ | 676,700 | ||||
|
| |||||||
12,906,314 | ||||||||
|
| |||||||
Finance—Commercial 0.5% | ||||||||
Textron Financial Corp. | 8,360,000 | 7,377,700 | ||||||
|
| |||||||
Finance—Consumer Loans 1.3% | ||||||||
HSBC Finance Capital Trust IX | 4,575,000 | 4,746,563 | ||||||
SLM Corp. | ||||||||
5.50%, due 1/25/23 | 2,800,000 | 2,751,501 | ||||||
6.25%, due 1/25/16 | 248,000 | 267,530 | ||||||
8.00%, due 3/25/20 | 6,068,000 | 7,008,540 | ||||||
Springleaf Finance Corp. | ||||||||
6.00%, due 6/1/20 | 2,000,000 | 2,025,000 | ||||||
7.75%, due 10/1/21 | 4,850,000 | 5,365,312 | ||||||
|
| |||||||
22,164,446 | ||||||||
|
| |||||||
Finance—Credit Card 0.6% | ||||||||
American Express Co. | 5,901,000 | 6,513,524 | ||||||
Capital One Bank USA NA | 3,000,000 | 2,963,331 | ||||||
|
| |||||||
9,476,855 | ||||||||
|
| |||||||
Finance—Investment Banker/Broker 0.1% |
| |||||||
Jefferies Group LLC | ||||||||
5.125%, due 1/20/23 | 813,000 | 858,353 | ||||||
6.45%, due 6/8/27 | 1,100,000 | 1,181,918 | ||||||
|
| |||||||
2,040,271 | ||||||||
|
| |||||||
Finance—Other Services 0.6% | ||||||||
Icahn Enterprises, L.P. / Icahn Enterprises Finance Corp. | ||||||||
5.875%, due 2/1/22 (c) | 1,850,000 | 1,877,750 | ||||||
6.00%, due 8/1/20 (c) | 6,880,000 | 7,258,400 | ||||||
|
| |||||||
9,136,150 | ||||||||
|
| |||||||
Food 3.5% | ||||||||
ARAMARK Corp. | 8,975,000 | 9,412,531 | ||||||
Grupo Bimbo S.A.B. de C.V. | 7,804,000 | 8,088,066 | ||||||
JBS Finance II, Ltd. | 4,235,000 | 4,531,450 | ||||||
JBS USA LLC / JBS USA Finance, Inc. | 2,519,000 | 2,757,045 | ||||||
Kerry Group Financial Services | 4,595,000 | 4,308,764 | ||||||
Minerva Luxembourg S.A. | 4,325,000 | 4,449,344 |
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) | ||||||||
Food (continued) | ||||||||
Premier Foods Finance PLC | £ | 4,500,000 | $ | 7,788,501 | ||||
Smithfield Foods, Inc. | ||||||||
6.625%, due 8/15/22 | $ | 845,000 | 922,106 | |||||
7.75%, due 7/1/17 | 1,361,000 | 1,575,358 | ||||||
TreeHouse Foods, Inc. | 6,125,000 | 6,201,562 | ||||||
Virgolino de Oliveira Finance, Ltd. | ||||||||
10.50%, due 1/28/18 (c) | 5,100,000 | 3,735,750 | ||||||
11.75%, due 2/9/22 (c) | 4,660,000 | 3,390,150 | ||||||
|
| |||||||
57,160,627 | ||||||||
|
| |||||||
Forest Products & Paper 0.5% | ||||||||
Domtar Corp. | 1,363,000 | 1,705,766 | ||||||
Georgia-Pacific LLC | 2,945,000 | 3,917,984 | ||||||
International Paper Co. | 693,000 | 929,952 | ||||||
MeadWestvaco Corp. | 1,800,000 | 2,166,859 | ||||||
Norske Skogindustrier A.S.A. | 255,000 | 137,700 | ||||||
|
| |||||||
8,858,261 | ||||||||
|
| |||||||
Hand & Machine Tools 0.2% | ||||||||
Mcron Finance Sub LLC / Mcron Finance Corp. | 3,188,000 | 3,514,770 | ||||||
|
| |||||||
Health Care—Products 0.6% | ||||||||
Alere, Inc. | ||||||||
6.50%, due 6/15/20 | 200,000 | 210,000 | ||||||
8.625%, due 10/1/18 | 1,093,000 | 1,169,510 | ||||||
Kinetic Concepts, Inc. / KCI U.S.A., Inc. | 7,755,000 | 8,860,088 | ||||||
|
| |||||||
10,239,598 | ||||||||
|
| |||||||
Health Care—Services 3.1% | ||||||||
CHS / Community Health Systems, Inc. | 6,950,000 | 7,089,000 | ||||||
Cigna Corp. | 875,000 | 949,884 | ||||||
DaVita HealthCare Partners, Inc. | 6,825,000 | 7,225,969 | ||||||
Fresenius Medical Care U.S. Finance, Inc. | 2,500,000 | 2,806,250 | ||||||
¨HCA, Inc. | ||||||||
5.00%, due 3/15/24 | 9,645,000 | 9,572,663 | ||||||
5.875%, due 3/15/22 | 2,500,000 | 2,681,250 |
Principal Amount | Value | |||||||
Health Care—Services (continued) | ||||||||
HCA, Inc. (continued) | ||||||||
7.25%, due 9/15/20 | $ | 83,000 | $ | 89,536 | ||||
7.50%, due 2/15/22 | 2,000,000 | 2,281,000 | ||||||
9.00%, due 12/15/14 | 220,000 | 229,625 | ||||||
MPH Acquisition Holdings LLC | 9,295,000 | 9,620,325 | ||||||
Tenet Healthcare Corp. | 8,000,000 | 8,400,000 | ||||||
|
| |||||||
50,945,502 | ||||||||
|
| |||||||
Holding Company—Diversified 0.4% |
| |||||||
Stena AB | 7,000,000 | 7,087,500 | ||||||
|
| |||||||
Home Builders 3.8% | ||||||||
Beazer Homes USA, Inc. | ||||||||
5.75%, due 6/15/19 (c) | 6,600,000 | 6,517,500 | ||||||
7.25%, due 2/1/23 | 1,000,000 | 1,030,000 | ||||||
8.125%, due 6/15/16 (f) | 819,000 | 902,948 | ||||||
D.R. Horton, Inc. | ||||||||
3.75%, due 3/1/19 | 4,750,000 | 4,738,125 | ||||||
5.75%, due 8/15/23 | 4,250,000 | 4,515,625 | ||||||
K Hovnanian Enterprises, Inc. | ||||||||
7.00%, due 1/15/19 (c) | 3,100,000 | 3,169,750 | ||||||
7.25%, due 10/15/20 (c) | 4,110,000 | 4,449,075 | ||||||
KB Home | ||||||||
7.25%, due 6/15/18 | 3,300,000 | 3,712,500 | ||||||
8.00%, due 3/15/20 | 2,250,000 | 2,548,125 | ||||||
Lennar Corp. | ||||||||
4.50%, due 6/15/19 | 5,800,000 | 5,865,250 | ||||||
6.95%, due 6/1/18 | 204,000 | 231,030 | ||||||
MDC Holdings, Inc. | ||||||||
5.50%, due 1/15/24 | 7,025,000 | 7,216,846 | ||||||
5.625%, due 2/1/20 | 1,608,000 | 1,736,640 | ||||||
Shea Homes, L.P. / Shea Homes Funding Corp. | 3,183,000 | 3,493,342 | ||||||
Standard Pacific Corp. | ||||||||
6.25%, due 12/15/21 | 1,925,000 | 2,059,750 | ||||||
8.375%, due 5/15/18 | 815,000 | 961,700 | ||||||
8.375%, due 1/15/21 | 4,560,000 | 5,403,600 | ||||||
Toll Brothers Finance Corp. | 3,850,000 | 4,389,000 | ||||||
|
| |||||||
62,940,806 | ||||||||
|
| |||||||
Household Products & Wares 0.5% | ||||||||
Reynolds Group Issuer, Inc. | ||||||||
5.75%, due 10/15/20 | 925,000 | 962,000 | ||||||
7.875%, due 8/15/19 | 1,025,000 | 1,124,938 | ||||||
9.875%, due 8/15/19 | 5,714,000 | 6,342,540 | ||||||
|
| |||||||
8,429,478 | ||||||||
|
|
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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Insurance 4.5% | ||||||||
Allstate Corp. (The) | $ | 8,525,000 | $ | 9,185,687 | ||||
American International Group, Inc. | ||||||||
Series A3 | € | 5,800,000 | 8,267,909 | |||||
Series A2 | £ | 450,000 | 778,774 | |||||
¨Chubb Corp. (The) | $ | 9,873,000 | 10,959,030 | |||||
Genworth Holdings, Inc. | ||||||||
7.20%, due 2/15/21 | 1,145,000 | 1,392,580 | ||||||
7.625%, due 9/24/21 | 4,480,000 | 5,597,993 | ||||||
Liberty Mutual Group, Inc. | ||||||||
4.25%, due 6/15/23 (c) | 390,000 | 400,438 | ||||||
6.50%, due 3/15/35 (c) | 870,000 | 1,031,388 | ||||||
7.00%, due 3/7/67 (a)(c) | 2,900,000 | 3,088,500 | ||||||
7.80%, due 3/7/87 (c) | 453,000 | 515,288 | ||||||
10.75%, due 6/15/88 (a)(c) | 938,000 | 1,416,380 | ||||||
Lincoln National Corp. | 3,537,000 | 3,670,345 | ||||||
Oil Insurance, Ltd. | 3,652,000 | 3,435,696 | ||||||
Pacific Life Insurance Co. | ||||||||
7.90%, due 12/30/23 (c) | 1,150,000 | 1,484,966 | ||||||
9.25%, due 6/15/39 (c) | 504,000 | 759,537 | ||||||
Progressive Corp. (The) | 612,000 | 678,096 | ||||||
Protective Life Corp. | 5,546,000 | 7,820,692 | ||||||
Prudential Financial, Inc. | 3,120,000 | 3,221,400 | ||||||
Swiss Re Capital I, L.P. | 571,000 | 610,970 | ||||||
Voya Financial, Inc. | 5,040,000 | 5,711,096 | ||||||
XL Group PLC | 4,116,000 | 4,054,260 | ||||||
|
| |||||||
74,081,025 | ||||||||
|
| |||||||
Iron & Steel 2.5% | ||||||||
AK Steel Corp. | 3,900,000 | 4,358,250 | ||||||
Allegheny Ludlum Corp. | 693,000 | 769,039 | ||||||
APERAM | ||||||||
7.375%, due 4/1/16 (c) | 4,601,000 | 4,739,030 | ||||||
7.75%, due 4/1/18 (c) | 3,475,000 | 3,674,813 | ||||||
ArcelorMittal | 6,175,000 | 6,838,812 |
Principal Amount | Value | |||||||
Iron & Steel (continued) | ||||||||
Cliffs Natural Resources, Inc. | ||||||||
3.95%, due 1/15/18 | $ | 4,036,000 | $ | 4,150,380 | ||||
5.90%, due 3/15/20 | 1,140,000 | 1,195,580 | ||||||
Severstal OAO Via Steel Capital S.A. | 3,000,000 | 2,696,250 | ||||||
Steel Dynamics, Inc. | 7,666,000 | 7,790,572 | ||||||
United States Steel Corp. | 4,039,000 | 4,513,583 | ||||||
|
| |||||||
40,726,309 | ||||||||
|
| |||||||
Leisure Time 0.4% | ||||||||
Royal Caribbean Cruises, Ltd. | 6,115,000 | 7,093,400 | ||||||
|
| |||||||
Lodging 1.4% | ||||||||
Caesars Entertainment Operating Co., Inc. | 8,019,000 | 6,987,264 | ||||||
MGM Resorts International | ||||||||
6.75%, due 10/1/20 | 2,794,000 | 3,087,649 | ||||||
8.625%, due 2/1/19 | 825,000 | 984,844 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | ||||||||
6.75%, due 5/15/18 | 946,000 | 1,112,606 | ||||||
7.15%, due 12/1/19 | 2,341,000 | 2,785,668 | ||||||
7.375%, due 11/15/15 | 332,000 | 361,888 | ||||||
Wynn Las Vegas LLC / Wynn Las Vegas Capital Corp. | 8,100,000 | 8,383,500 | ||||||
|
| |||||||
23,703,419 | ||||||||
|
| |||||||
Machinery—Construction & Mining 0.5% |
| |||||||
Terex Corp. | ||||||||
6.00%, due 5/15/21 | 2,860,000 | 3,060,200 | ||||||
6.50%, due 4/1/20 | 5,000,000 | 5,425,000 | ||||||
|
| |||||||
8,485,200 | ||||||||
|
| |||||||
Media 1.6% | ||||||||
CCO Holdings LLC / CCO Holdings Capital Corp. | ||||||||
5.25%, due 3/15/21 | 1,445,000 | 1,472,094 | ||||||
7.00%, due 1/15/19 (f) | 978,000 | 1,033,012 | ||||||
¨Clear Channel Communications, Inc. | 8,845,000 | 9,397,812 | ||||||
Clear Channel Worldwide Holdings, Inc. | ||||||||
Series B | 205,000 | 219,350 | ||||||
Series B | 4,683,000 | 5,045,932 | ||||||
COX Communications, Inc. | 2,241,000 | 2,637,933 |
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) | ||||||||
Media (continued) | ||||||||
DISH DBS Corp. | ||||||||
6.75%, due 6/1/21 | $ | 4,265,000 | $ | 4,819,450 | ||||
7.125%, due 2/1/16 (f) | 815,000 | 890,388 | ||||||
Time Warner Entertainment Co., L.P. | 1,087,000 | 1,459,299 | ||||||
|
| |||||||
26,975,270 | ||||||||
|
| |||||||
Metal Fabricate & Hardware 0.0%‡ | ||||||||
Mueller Water Products, Inc. | 557,000 | 621,055 | ||||||
|
| |||||||
Mining 1.4% | ||||||||
Aleris International, Inc. | 839,000 | 855,780 | ||||||
7.875%, due 11/1/20 | 2,463,000 | 2,481,472 | ||||||
FMG Resources August 2006 Pty, Ltd. | 4,630,000 | 5,116,150 | ||||||
Novelis, Inc. | 365,000 | 389,638 | ||||||
8.75%, due 12/15/20 | 4,653,000 | 5,188,095 | ||||||
Rio Tinto Finance USA, Ltd. | 1,500,000 | 1,970,245 | ||||||
Vedanta Resources PLC | 3,600,000 | 3,586,500 | ||||||
8.25%, due 6/7/21 (c) | 2,565,000 | 2,718,900 | ||||||
|
| |||||||
22,306,780 | ||||||||
|
| |||||||
Miscellaneous—Manufacturing 0.7% |
| |||||||
Amsted Industries, Inc. | 8,510,000 | 8,488,725 | ||||||
Bombardier, Inc. | 2,150,000 | 2,451,000 | ||||||
Polypore International, Inc. | 395,000 | 417,476 | ||||||
|
| |||||||
11,357,201 | ||||||||
|
| |||||||
Office Furnishings 0.1% | ||||||||
Interface, Inc. | 1,507,000 | 1,599,304 | ||||||
|
| |||||||
Oil & Gas 6.2% | ||||||||
Anadarko Petroleum Corp. | 19,735,000 | 7,252,612 | ||||||
Berry Petroleum Co., LLC | 3,523,000 | 3,721,169 | ||||||
¨Chesapeake Energy Corp. | 2,000,000 | 2,002,500 | ||||||
5.375%, due 6/15/21 | 1,500,000 | 1,571,250 | ||||||
6.125%, due 2/15/21 | 2,550,000 | 2,792,250 | ||||||
6.625%, due 8/15/20 | 2,445,000 | 2,747,569 | ||||||
7.25%, due 12/15/18 | 2,000,000 | 2,325,000 |
Principal Amount | Value | |||||||
Oil & Gas (continued) | ||||||||
Concho Resources, Inc. | $ | 1,014,000 | $ | 1,055,828 | ||||
6.50%, due 1/15/22 | 1,550,000 | 1,697,250 | ||||||
7.00%, due 1/15/21 | 2,002,000 | 2,222,220 | ||||||
Denbury Resources, Inc. | 1,535,000 | 1,460,169 | ||||||
6.375%, due 8/15/21 (f) | 6,630,000 | 7,110,675 | ||||||
ENI S.p.A. | 2,000,000 | 2,115,072 | ||||||
EP Energy LLC / EP Energy Finance, Inc. | 3,400,000 | 3,918,500 | ||||||
Frontier Oil Corp. | 571,000 | 605,260 | ||||||
Hilcorp Energy I, L.P. / Hilcorp Finance Co. | 1,823,000 | 2,000,743 | ||||||
8.00%, due 2/15/20 (c) | 2,250,000 | 2,427,187 | ||||||
Linn Energy LLC / Linn Energy Finance Corp. | 2,250,000 | 2,334,375 | ||||||
7.75%, due 2/1/21 | 815,000 | 872,050 | ||||||
8.625%, due 4/15/20 | 850,000 | 916,938 | ||||||
MEG Energy Corp. | 1,032,000 | 1,086,180 | ||||||
Murphy Oil USA, Inc. | 3,693,000 | 3,813,022 | ||||||
Petrobras Global Finance B.V. | 2,600,000 | 2,429,344 | ||||||
PetroHawk Energy Corp. | 2,550,000 | 2,770,575 | ||||||
Plains Exploration & Production Co. | 2,250,000 | 2,480,625 | ||||||
6.75%, due 2/1/22 | 2,400,000 | 2,679,000 | ||||||
6.875%, due 2/15/23 | 500,000 | 560,000 | ||||||
Precision Drilling Corp. | 1,136,000 | 1,229,720 | ||||||
6.625%, due 11/15/20 (f) | 2,417,000 | 2,598,275 | ||||||
QEP Resources, Inc. | 3,350,000 | 3,358,375 | ||||||
Rosneft Finance S.A. | 1,405,000 | 1,489,300 | ||||||
SM Energy Co. | 1,970,000 | 1,930,600 | ||||||
6.50%, due 1/1/23 | 4,665,000 | 5,026,537 | ||||||
Swift Energy Co. | 750,000 | 757,500 | ||||||
8.875%, due 1/15/20 | 658,000 | 690,900 | ||||||
Tesoro Corp. | 9,000,000 | 8,955,000 | ||||||
Whiting Petroleum Corp. | ||||||||
5.00%, due 3/15/19 | 2,350,000 | 2,473,375 |
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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Oil & Gas (continued) | ||||||||
Whiting Petroleum Corp. (continued) | ||||||||
5.75%, due 3/15/21 | $ | 6,000,000 | $ | 6,435,000 | ||||
|
| |||||||
101,911,945 | ||||||||
|
| |||||||
Oil & Gas Services 1.5% | ||||||||
Basic Energy Services, Inc. | 7,117,000 | 7,615,190 | ||||||
CGG | 1,075,000 | 1,105,906 | ||||||
CGG S.A. | 6,150,000 | 6,196,125 | ||||||
Dresser-Rand Group, Inc. | 1,292,000 | 1,375,980 | ||||||
Hornbeck Offshore Services, Inc. | 4,255,000 | 4,127,350 | ||||||
5.875%, due 4/1/20 | 3,748,000 | 3,897,920 | ||||||
|
| |||||||
24,318,471 | ||||||||
|
| |||||||
Packaging & Containers 0.8% | ||||||||
Ardagh Packaging Finance PLC | 1,000,000 | 1,112,500 | ||||||
Ardagh Packaging Finance PLC / Ardagh Holdings USA, Inc. | 4,575,000 | 4,769,438 | ||||||
7.00%, due 11/15/20 (c) | 652,941 | 680,691 | ||||||
Ball Corp. | 2,648,000 | 2,839,980 | ||||||
Sealed Air Corp. | 3,500,000 | 4,033,750 | ||||||
|
| |||||||
13,436,359 | ||||||||
|
| |||||||
Pharmaceuticals 0.5% | ||||||||
Valeant Pharmaceuticals International, Inc. | 4,800,000 | 5,160,000 | ||||||
7.50%, due 7/15/21 (c) | 2,500,000 | 2,787,500 | ||||||
|
| |||||||
7,947,500 | ||||||||
|
| |||||||
Pipelines 4.8% | ||||||||
Access Midstream Partners, L.P. / ACMP Finance Corp. | 3,560,000 | 3,604,500 | ||||||
5.875%, due 4/15/21 | 3,960,000 | 4,217,400 | ||||||
Atlas Pipeline Partners, L.P. / Atlas Pipeline Finance Corp. | 1,925,000 | 1,828,750 | ||||||
6.625%, due 10/1/20 | 3,381,000 | 3,583,860 | ||||||
Energy Transfer Partners, L.P. | 1,490,000 | 1,589,016 | ||||||
5.20%, due 2/1/22 | 1,500,000 | 1,640,058 | ||||||
7.60%, due 2/1/24 | 662,000 | 819,189 |
Principal Amount | Value | |||||||
Pipelines (continued) | ||||||||
EnLink Midstream Partners, L.P. | $ | 10,000,000 | $ | 10,295,180 | ||||
Holly Energy Partners, L.P. / Holly Energy Finance Corp. | 3,875,000 | 4,126,875 | ||||||
Kinder Morgan, Inc. | 4,555,000 | 4,555,246 | ||||||
MarkWest Energy Partners, L.P. / MarkWest Energy Finance Corp. | 1,961,000 | 2,127,685 | ||||||
Panhandle Eastern Pipe Line Co., L.P. | 2,037,000 | 2,462,802 | ||||||
¨Plains All American Pipeline, L.P. / PAA Finance Corp. | 10,475,000 | 10,439,144 | ||||||
Regency Energy Partners, L.P. / Regency Energy Finance Corp. | 2,050,000 | 2,147,375 | ||||||
6.50%, due 7/15/21 | 2,825,000 | 3,036,875 | ||||||
6.875%, due 12/1/18 | 1,750,000 | 1,857,187 | ||||||
Spectra Energy Partners, L.P. | 1,269,000 | 1,358,154 | ||||||
Targa Resources Partners, L.P. / Targa Resources Partners Finance Corp. | 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 | 936,250 | ||||||
6.875%, due 2/1/21 | 511,000 | 548,048 | ||||||
7.875%, due 10/15/18 | 1,170,000 | 1,243,125 | ||||||
Tesoro Logistics, L.P. / Tesoro Logistics Finance Corp. | 3,797,000 | 3,977,357 | ||||||
5.875%, due 10/1/20 (c) | 1,070,000 | 1,120,825 | ||||||
6.125%, due 10/15/21 | 3,500,000 | 3,701,250 | ||||||
Williams Cos., Inc. (The) | 2,000,000 | 1,846,656 | ||||||
|
| |||||||
79,512,407 | ||||||||
|
| |||||||
Real Estate Investment Trusts 0.7% | ||||||||
Geo Group, Inc. (The) | 7,023,000 | 7,549,725 | ||||||
Host Hotels & Resorts, L.P. | 472,000 | 463,962 | ||||||
5.25%, due 3/15/22 | 75,000 | 82,401 | ||||||
5.875%, due 6/15/19 | 1,910,000 | 2,068,509 | ||||||
Ventas Realty, L.P. / Ventas Capital Corp. | 1,421,000 | 1,407,893 | ||||||
|
| |||||||
11,572,490 | ||||||||
|
|
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 | |||||||
Corporate Bonds (continued) | ||||||||
Retail 1.3% | ||||||||
AmeriGas Finance LLC / AmeriGas Finance Corp. | $ | 1,200,000 | $ | 1,320,000 | ||||
AmeriGas Partners, L.P. / AmeriGas Finance Corp. | 4,467,000 | 4,779,690 | ||||||
6.50%, due 5/20/21 | 741,000 | 794,723 | ||||||
Brinker International, Inc. | 1,875,000 | 1,869,966 | ||||||
CVS Caremark Corp. | 2,445,000 | 2,710,842 | ||||||
5.789%, due 1/10/26 (c)(i) | 74,359 | 82,657 | ||||||
Macy’s Retail Holdings, Inc. | 1,925,000 | 1,999,103 | ||||||
QVC, Inc. | 6,500,000 | 6,660,036 | ||||||
Suburban Propane Partners L.P. / Suburban Energy Finance Corp. | 934,000 | 990,040 | ||||||
|
| |||||||
21,207,057 | ||||||||
|
| |||||||
Semiconductors 0.3% | ||||||||
Freescale Semiconductor, Inc. | 2,950,000 | 2,979,500 | ||||||
6.00%, due 1/15/22 (c) | 1,709,000 | 1,785,905 | ||||||
|
| |||||||
4,765,405 | ||||||||
|
| |||||||
Software 0.6% | ||||||||
Fidelity National Information Services, Inc. | 489,000 | 523,505 | ||||||
First Data Corp. | 3,500,000 | 3,736,250 | ||||||
7.375%, due 6/15/19 (c) | 3,502,000 | 3,755,895 | ||||||
8.875%, due 8/15/20 (c) | 550,000 | 609,812 | ||||||
10.625%, due 6/15/21 | 1,749,000 | 1,982,929 | ||||||
|
| |||||||
10,608,391 | ||||||||
|
| |||||||
Telecommunications 3.9% | ||||||||
CC Holdings GS V LLC / Crown Castle GS III Corp. | 2,203,000 | 2,227,962 | ||||||
Comcel Trust | 4,400,000 | 4,603,500 | ||||||
Colombia Telecomunicaciones S.A. ESP | 1,000,000 | 990,000 | ||||||
CommScope Holding Co., Inc. | 4,350,000 | 4,665,375 | ||||||
CommScope, Inc. | 2,149,000 | 2,326,293 |
Principal Amount | Value | |||||||
Telecommunications (continued) | ||||||||
Crown Castle International Corp. | $ | 2,625,000 | $ | 2,697,187 | ||||
GTP Towers Issuer LLC | 1,650,000 | 1,692,834 | ||||||
Hughes Satellite Systems Corp. | 2,500,000 | 2,750,000 | ||||||
7.625%, due 6/15/21 | 3,350,000 | 3,777,125 | ||||||
MetroPCS Wireless, Inc. | 1,000,000 | 1,067,500 | ||||||
7.875%, due 9/1/18 | 1,386,000 | 1,465,695 | ||||||
Sprint Capital Corp. | 612,000 | 671,670 | ||||||
8.75%, due 3/15/32 | 2,060,000 | 2,304,625 | ||||||
Sprint Communications, Inc. | 1,800,000 | 1,957,500 | ||||||
Sprint Corp. | 4,000,000 | 4,360,000 | ||||||
T-Mobile USA, Inc. | 4,525,000 | 4,756,906 | ||||||
6.542%, due 4/28/20 | 2,000,000 | 2,150,000 | ||||||
Telefonica Emisiones SAU | 2,550,000 | 2,666,989 | ||||||
5.462%, due 2/16/21 | 396,000 | 445,880 | ||||||
Verizon Communications, Inc. | 3,573,000 | 3,938,647 | ||||||
ViaSat, Inc. | 7,340,000 | 7,862,975 | ||||||
Virgin Media Secured Finance PLC | 5,000,000 | 5,031,250 | ||||||
|
| |||||||
64,409,913 | ||||||||
|
| |||||||
Transportation 1.4% | ||||||||
Bristow Group, Inc. | 5,390,000 | 5,780,775 | ||||||
CHC Helicopter S.A. | 7,014,600 | 7,540,695 | ||||||
Hapag-Lloyd A.G. | 500,000 | 535,000 | ||||||
PHI, Inc. | 8,280,000 | 8,404,200 | ||||||
Ukraine Railways via Shortline PLC | 1,700,000 | 1,263,726 | ||||||
|
| |||||||
23,524,396 | ||||||||
|
| |||||||
Total Corporate Bonds | 1,239,516,069 | |||||||
|
| |||||||
Foreign Bonds 1.9% | ||||||||
Ireland 0.3% | ||||||||
UT2 Funding PLC | € | 3,945,000 | 5,774,113 | |||||
|
|
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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Foreign Bonds (continued) | ||||||||
Luxembourg 0.7% | ||||||||
Ageas Hybrid Financing S.A. | € | 1,825,000 | $ | 2,569,891 | ||||
Intelsat Luxembourg S.A. | $ | 5,885,000 | 6,135,113 | |||||
8.125%, due 6/1/23 | 2,250,000 | 2,362,500 | ||||||
|
| |||||||
11,067,504 | ||||||||
|
| |||||||
Netherlands 0.2% | ||||||||
Belfius Funding N.V. | £ | 2,000,000 | 3,157,306 | |||||
|
| |||||||
United Kingdom 0.7% | ||||||||
Barclays Bank PLC | 449,000 | 1,001,652 | ||||||
Rexam PLC | € | 978,000 | 1,448,685 | |||||
Royal Bank of Scotland PLC (The) | $ | 4,290,000 | 5,034,427 | |||||
Santander UK PLC | £ | 2,700,000 | 4,285,157 | |||||
|
| |||||||
11,769,921 | ||||||||
|
| |||||||
Total Foreign Bonds | 31,768,844 | |||||||
|
| |||||||
Foreign Government Bonds 0.2% | ||||||||
Colombia 0.0%‡ | ||||||||
Republic of Colombia | $ | 200,000 | 242,500 | |||||
|
| |||||||
El Salvador 0.0%‡ | ||||||||
Republic of El Salvador | 163,000 | 169,316 | ||||||
8.25%, due 4/10/32 (c) | 163,000 | 180,930 | ||||||
|
| |||||||
350,246 | ||||||||
|
| |||||||
Indonesia 0.0%‡ | ||||||||
Republic of Indonesia | 300,000 | 328,500 | ||||||
|
| |||||||
Philippines 0.0%‡ | ||||||||
Republic of Philippines | 150,000 | 178,313 | ||||||
|
|
Principal Amount | Value | |||||||
Portugal 0.2% | ||||||||
Portugal Obrigacoes do Tesouro OT | € | 1,500,000 | $ | 2,309,679 | ||||
|
| |||||||
Total Foreign Government Bonds | 3,409,238 | |||||||
|
| |||||||
Loan Assignments 9.8% (l) | ||||||||
Advertising 0.4% | ||||||||
Acosta, Inc. | $ | 5,833,750 | 5,845,902 | |||||
|
| |||||||
Aerospace & Defense 0.1% | ||||||||
TransDigm, Inc. | 1,989,924 | 1,978,421 | ||||||
|
| |||||||
Airlines 0.2% | ||||||||
U.S. Airways Group, Inc. | 2,000,000 | 1,981,250 | ||||||
United Airlines, Inc. | 618,750 | 614,303 | ||||||
|
| |||||||
2,595,553 | ||||||||
|
| |||||||
Auto Manufacturers 0.0%‡ | ||||||||
Chrysler Group LLC | 800,000 | 792,600 | ||||||
|
| |||||||
Auto Parts & Equipment 0.4% | ||||||||
Allison Transmission, Inc. | 7,471,275 | 7,437,654 | ||||||
|
| |||||||
Automobile 0.2% | ||||||||
KAR Auction Services, Inc. | 4,000,000 | 3,980,000 | ||||||
|
| |||||||
Building Materials 0.5% | ||||||||
Quikrete Holdings, Inc. | 6,175,234 | 6,161,340 | ||||||
2nd Lien Term Loan | 1,350,000 | 1,380,375 | ||||||
|
| |||||||
7,541,715 | ||||||||
|
|
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. |
Principal Amount | Value | |||||||
Loan Assignments (continued) | ||||||||
Chemicals 0.4% | ||||||||
PQ Corp. | $ | 7,481,250 | $ | 7,489,045 | ||||
|
| |||||||
Commercial Services 0.3% | ||||||||
Allied Security Holdings LLC | 5,808,219 | 5,804,589 | ||||||
|
| |||||||
Containers, Packaging & Glass 0.2% | ||||||||
Reynolds Group Holdings, Inc. | 3,000,000 | 3,000,468 | ||||||
|
| |||||||
Electric 0.1% | ||||||||
Calpine Corp. | 1,067,000 | 1,067,000 | ||||||
NRG Energy, Inc. | 1,039,500 | 1,026,896 | ||||||
|
| |||||||
2,093,896 | ||||||||
|
| |||||||
Electrical Components & Equipment 0.5% |
| |||||||
Generac Power Systems, Inc. | 8,385,792 | 8,328,139 | ||||||
|
| |||||||
Entertainment 1.1% | ||||||||
Mohegan Tribal Gaming Authority | 2,992,500 | 3,032,713 | ||||||
Scientific Games International, Inc. | 9,226,875 | 9,192,274 | ||||||
SeaWorld Parks & Entertainment, Inc. | 5,977,425 | 5,838,450 | ||||||
|
| |||||||
18,063,437 | ||||||||
|
| |||||||
Hand & Machine Tools 0.3% | ||||||||
Milacron LLC | 4,664,699 | 4,653,038 | ||||||
|
| |||||||
Health Care—Services 0.1% | ||||||||
Community Health Systems, Inc. | 47,011 | 47,002 |
Principal Amount | Value | |||||||
Health Care—Services (continued) | ||||||||
Community Health Systems, Inc. (continued) |
| |||||||
Term Loan D | $ | 125,299 | $ | 125,633 | ||||
Davita, Inc. | 1,900,000 | 1,902,362 | ||||||
|
| |||||||
2,074,997 | ||||||||
|
| |||||||
Healthcare, Education & Childcare 0.1% |
| |||||||
U.S. Renal Care, Inc. | 2,000,000 | 2,002,500 | ||||||
|
| |||||||
Household Products & Wares 0.5% | ||||||||
KIK Custom Products, Inc. | 7,982,443 | 7,955,007 | ||||||
|
| |||||||
Iron & Steel 0.4% | ||||||||
Signode Industrial Group US, Inc. | 6,050,000 | 6,021,644 | ||||||
|
| |||||||
Leisure Time 0.4% | ||||||||
ClubCorp Club Operations, Inc. | 5,925,000 | 5,902,781 | ||||||
|
| |||||||
Lodging 0.8% | ||||||||
Boyd Gaming Corp. | 1,226,736 | 1,223,924 | ||||||
Hilton Worldwide Finance LLC | 9,402,632 | 9,363,451 | ||||||
MGM Resorts International | 2,728,684 | 2,709,924 | ||||||
|
| |||||||
13,297,299 | ||||||||
|
| |||||||
Media 0.5% | ||||||||
Charter Communications Operating, LLC | 3,000,389 | 2,949,965 | ||||||
¨Clear Channel Communications, Inc. | 1,928,771 | 1,911,894 | ||||||
Virgin Media Investment Holdings, Ltd. | 3,000,000 | 2,973,750 | ||||||
|
| |||||||
7,835,609 | ||||||||
|
|
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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Loan Assignments (continued) | ||||||||
Mining 0.5% | ||||||||
FMG Resources August 2006 Pty, Ltd. | $ | 3,822,343 | $ | 3,816,969 | ||||
Noranda Aluminum Acquisition Corp. | 2,524,242 | 2,400,133 | ||||||
Novelis, Inc. | 1,548,038 | 1,543,394 | ||||||
Oxbow Carbon LLC | 1,000,000 | 1,017,500 | ||||||
|
| |||||||
8,777,996 | ||||||||
|
| |||||||
Oil & Gas 0.8% | ||||||||
MEG Energy Corp. | 2,925,109 | 2,913,096 | ||||||
Quicksilver Resources, Inc. | 8,100,000 | 8,059,500 | ||||||
Samson Investment Co. | 3,000,000 | 2,996,874 | ||||||
|
| |||||||
13,969,470 | ||||||||
|
| |||||||
Packaging & Containers 0.1% | ||||||||
Ardagh Holdings USA, Inc. | 1,246,875 | 1,246,875 | ||||||
|
| |||||||
Pharmaceuticals 0.1% | ||||||||
Valeant Pharmaceuticals International, Inc. | 2,069,033 | 2,066,447 | ||||||
|
| |||||||
Pipelines 0.4% | ||||||||
Energy Transfer Equity, L.P. | 6,250,000 | 6,177,950 | ||||||
|
| |||||||
Real Estate 0.0%‡ | ||||||||
Realogy Corp. | 99,291 | 99,043 | ||||||
|
|
Principal Amount | Value | |||||||
Telecommunications 0.4% | ||||||||
SBA Senior Finance II LLC | $ | 6,037,354 | $ | 5,992,074 | ||||
|
| |||||||
Total Loan Assignments | 163,024,149 | |||||||
|
| |||||||
Mortgage-Backed Securities 0.3% | ||||||||
Commercial Mortgage Loans |
| |||||||
Banc of America Commercial Mortgage, Inc. | 359,967 | 316,349 | ||||||
Bayview Commercial Asset Trust | 50,353 | 44,071 | ||||||
Continental Airlines, Inc. Pass Through Trust | 3,278,293 | 3,724,960 | ||||||
Deutsche ALT-A Securities, Inc. Alternate Loan Trust | 132,361 | 123,138 | ||||||
Wells Fargo Mortgage Backed Securities Trust | 217,586 | 210,531 | ||||||
|
| |||||||
Residential Mortgage (Collateralized Mortgage Obligation) 0.0%‡ |
| |||||||
WaMu Mortgage Pass-Through Certificates | 183,651 | 159,614 | ||||||
|
| |||||||
Total Mortgage-Backed Securities | 4,578,663 | |||||||
|
| |||||||
U.S. Government 0.0%‡ | ||||||||
United States Treasury Notes 0.0%‡ | ||||||||
2.125%, due 8/15/21 | 70,000 | 69,192 | ||||||
|
| |||||||
Total U.S. Government | 69,192 | |||||||
|
|
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. |
Principal Amount | Value | |||||||
Yankee Bond 0.3% (n) | ||||||||
Insurance 0.3% | ||||||||
Validus Holdings, Ltd. | $ | 2,973,000 | $ | 4,212,078 | ||||
|
| |||||||
Total Yankee Bond |
| 4,212,078 | ||||||
|
| |||||||
Total Long-Term Bonds |
| 1,492,598,122 | ||||||
|
| |||||||
Shares | ||||||||
Common Stocks 0.2% | ||||||||
Auto Manufacturers 0.1% |
| |||||||
General Motors Co. | 38,729 | 1,335,376 | ||||||
Motors Liquidation Co. GUC Trust (h) | 11,598 | 319,525 | ||||||
|
| |||||||
1,654,901 | ||||||||
|
| |||||||
Banks 0.1% | ||||||||
¨Citigroup, Inc. | 41,400 | 1,983,474 | ||||||
|
| |||||||
Media 0.0%‡ | ||||||||
ION Media Networks, Inc. (g)(i)(j) | 22 | 8,322 | ||||||
|
| |||||||
Total Common Stocks | 3,646,697 | |||||||
|
| |||||||
Convertible Preferred Stocks 0.4% | ||||||||
Aerospace & Defense 0.0%‡ |
| |||||||
United Technologies Corp. | 12,500 | 826,750 | ||||||
|
| |||||||
Banks 0.1% | ||||||||
¨Bank of America Corp. | 781 | 888,973 | ||||||
Wells Fargo & Co. | 800 | 955,588 | ||||||
|
| |||||||
1,844,561 | ||||||||
|
| |||||||
Food 0.0%‡ | ||||||||
Post Holdings, Inc. | ||||||||
3.75% (c) | 1,700 | 205,190 | ||||||
2.50% (c) | 1,100 | 115,489 | ||||||
|
| |||||||
320,679 | ||||||||
|
| |||||||
Hand & Machine Tools 0.1% | ||||||||
Stanley Black & Decker, Inc. | ||||||||
4.75% | 6,100 | 792,756 | ||||||
6.25% | 1,700 | 190,111 | ||||||
|
| |||||||
982,867 | ||||||||
|
|
Shares | Value | |||||||
Insurance 0.1% | ||||||||
Maiden Holdings, Ltd. | 2,500 | $ | 119,225 | |||||
MetLife, Inc. | 24,075 | 733,084 | ||||||
|
| |||||||
852,309 | ||||||||
|
| |||||||
Iron & Steel 0.1% | ||||||||
ArcelorMittal | 48,000 | 1,156,320 | ||||||
|
| |||||||
Oil & Gas 0.0%‡ | ||||||||
Sanchez Energy Corp. (h) | 2,700 | 189,466 | ||||||
|
| |||||||
Telecommunications 0.0%‡ | ||||||||
Crown Castle International Corp. | 2,200 | 219,648 | ||||||
|
| |||||||
Total Convertible Preferred Stocks |
| 6,392,600 | ||||||
|
| |||||||
Number of Warrants | ||||||||
Warrants 0.1% | ||||||||
Auto Manufacturers 0.1% |
| |||||||
General Motors Co. | ||||||||
Strike price $10.00 | 36,805 | 910,188 | ||||||
Strike price $10.00 | 19,248 | 328,948 | ||||||
|
| |||||||
1,239,136 | ||||||||
|
| |||||||
Total Warrants |
| 1,239,136 | ||||||
|
| |||||||
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 25 |
Portfolio of Investments April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Short-Term Investment 8.5% | ||||||||
Repurchase Agreement 8.5% |
| |||||||
State Street Bank and Trust Co. | $ | 140,385,471 | $ | 140,385,471 | ||||
|
| |||||||
Total Short-Term Investment |
| 140,385,471 | ||||||
|
| |||||||
Total Investments, Before Investments | 99.4 | % | 1,644,262,026 | |||||
|
| |||||||
Long-Term Bonds Sold Short (0.7%) Corporate Bonds Sold Short (0.7%) | ||||||||
Apparel (0.5%) | ||||||||
Levi Strauss & Co. | (6,800,000 | ) | (7,361,000 | ) | ||||
|
| |||||||
Office Equipment/Supplies (0.2%) | ||||||||
ACCO Brands Corp. | (3,850,000 | ) | (4,004,000 | ) | ||||
|
| |||||||
Total Investments Sold Short | (0.7 | )% | (11,365,000 | ) | ||||
|
| |||||||
Total Investments, Net of Investments | 98.7 | 1,632,897,026 | ||||||
Other Assets, Less Liabilities | 1.3 | 21,605,676 | ||||||
Net Assets | 100.0 | % | $ | 1,654,502,702 | ||||
Contracts Short | Unrealized Appreciation (Depreciation) (o) | |||||||
Futures Contracts (0.0%)‡ | ||||||||
United States Treasury Notes | (130 | ) | $ | (64,264 | ) | |||
United States Treasury Notes | (3,506 | ) | (345,282 | ) | ||||
United States Treasury Notes | (1,710 | ) | (10,403 | ) | ||||
|
| |||||||
Total Futures Contracts |
| $ | (419,949 | ) |
‡ | Less than one-tenth of a percent. |
(a) | Floating rate—Rate shown was the rate in effect as of April 30, 2014. |
(b) | Subprime mortgage investment or other asset-backed security. The total market value of these securities as of April 30, 2014 was $4,789,927, which represented 0.3% 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 was the rate in effect as of April 30, 2014. |
(e) | Synthetic Convertible Bond—Security structured by an investment bank that provides exposure to a specific company’s stock, represents 0.1% of the Fund’s net assets. |
(f) | Security, or a portion thereof, was maintained in a segregated account at the Fund’s custodian as collateral for securities sold short (See Note 2(O)). |
(g) | Illiquid security—The total market value of these securities as of April 30, 2014, was $23,838, which represented less than one-tenth of a percent of the Fund’s net assets. |
(h) | Non-income producing security. |
(i) | Fair valued security—Represents fair value as measured in good faith under procedures approved by the Board of Trustees. As of April 30, 2014, the total market value of fair valued securities was $106,495, which represented less than one-tenth of a percent of the Fund’s net assets. |
(j) | Restricted security. |
(k) | PIK (“Payment in Kind”)—interest or dividend payment is made with additional securities. |
(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 was the weighted average interest rate of all contracts within the floating rate loan facility as of April 30, 2014. |
(m) | Collateral strip rate—A bond whose interest was based on the weighted net interest rate of the collateral. The coupon rate adjusts periodically based on a predetermined schedule. Rate shown was the rate in effect as of April 30, 2014. |
(n) | Yankee Bond—Dollar-denominated bond issued in the United States by a foreign bank or corporation. |
(o) | Represents the difference between the value of the contracts at the time they were opened and the value as of April 30, 2014. |
(p) | As of April 30, 2014, cash in the amount of $2,794,860 was on deposit with a broker for futures transactions. |
(q) | As of April 30, 2014, cost was $1,608,317,212 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 44,712,344 | ||
Gross unrealized depreciation | (8,767,530 | ) | ||
|
| |||
Net unrealized appreciation | $ | 35,944,814 | ||
|
|
The following abbreviations are used in the above portfolio:
£—British | Pound Sterling |
€—Euro |
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. |
As of April 30, 2014, 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) | |||||||||||||||||||
Euro vs. U.S. Dollar | 5/7/14 | JPMorgan Chase Bank | EUR 19,574,000 | USD 27,133,479 | USD | 22,370 | ||||||||||||||||||
Pound Sterling vs. U.S. Dollar | 5/7/14 | JPMorgan Chase Bank | GBP 14,046,000 | 23,697,007 | 17,319 | |||||||||||||||||||
Foreign Currency Sales Contracts | Contract Amount Sold | Contract Amount Purchased | ||||||||||||||||||||||
Euro vs. U.S. Dollar | 5/7/14 | JPMorgan Chase Bank | EUR 19,574,000 | USD 26,607,721 | USD | (548,128 | ) | |||||||||||||||||
Euro vs. U.S. Dollar | 7/17/14 | JPMorgan Chase Bank | 20,263,000 | 28,082,492 | (24,630 | ) | ||||||||||||||||||
Pound Sterling vs. U.S. Dollar | 5/7/14 | JPMorgan Chase Bank | GBP 14,046,000 | 23,096,128 | (618,198 | ) | ||||||||||||||||||
Pound Sterling vs. U.S. Dollar | 7/17/14 | JPMorgan Chase Bank | 14,244,000 | 24,016,524 | (18,855 | ) | ||||||||||||||||||
Net unrealized appreciation (depreciation) on foreign currency forward contracts |
| USD | (1,170,122 | ) |
Open centrally cleared interest rate swap agreements as of April 30, 2014 were as follows:
Notional Amount | Currency | Expiration Date | Counterparty | Payments made by Portfolio | Payments Received by Portfolio | Unrealized Appreciation / (Depreciation) | Value | |||||||||||||||||||||
$1,000,000 | USD | 4/9/16 | Citigroup | Fixed 0.53 | % | 3-Month USD-LIBOR | $ | (599 | ) | $ | (599 | ) | ||||||||||||||||
$272,000,000 | USD | 4/17/16 | Citigroup | Fixed 0.50 | % | 3-Month USD-LIBOR | 30,978 | 30,978 | ||||||||||||||||||||
$ | 30,379 | $ | 30,379 |
At April 30, 2014, the Fund held the following OTC credit default swap contract:
Reference Entity | Counterparty | Termination Date | Buy/Sell Protection1 | Notional Amount (000)2 | Receive (Pay) Fixed Rate3 | Upfront Premiums Received (Paid) | Value | Unrealized Appreciation (Depreciation)4 | ||||||||||||||||||||||||
Staples, Inc. | Credit Suisse First Boston | 6/20/19 | Buy | $ | 7,000 | (1.00 | )% | $ | (502,044 | ) | $ | 469,505 | $ | (32,539 | ) |
1 | Buy—Fund pays premium and buys credit protection. If a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. |
Sell—Fund receives premium and sells credit protection. If a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. |
2 | The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap contract. |
3 | The annual fixed rate represents the interest received by the Fund (as a seller of protection) or paid by the Fund (as a buyer of protection) annually on the notional amount of the credit default swap contract. |
4 | Represents the difference between the value of the credit default swap contracts at the time they were opened and the value at April 30, 2014. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 27 |
Portfolio of Investments April 30, 2014 (Unaudited) (continued)
The following is a summary of the fair valuations according to the inputs used as of April 30, 2014, 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 | $ | — | $ | 7,506,302 | $ | — | $ | 7,506,302 | ||||||||
Convertible Bonds | — | 38,513,587 | — | 38,513,587 | ||||||||||||
Corporate Bonds (b) | — | 1,239,417,896 | 98,173 | 1,239,516,069 | ||||||||||||
Foreign Bonds | — | 31,768,844 | — | 31,768,844 | ||||||||||||
Foreign Government Bonds | — | 3,409,238 | — | 3,409,238 | ||||||||||||
Loan Assignments (c) | — | 144,309,787 | 18,714,362 | 163,024,149 | ||||||||||||
Mortgage-Backed Securities | — | 4,578,663 | — | 4,578,663 | ||||||||||||
U.S. Government | — | 69,192 | — | 69,192 | ||||||||||||
Yankee Bond | — | 4,212,078 | — | 4,212,078 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Long-Term Bonds | — | 1,473,785,587 | 18,812,535 | 1,492,598,122 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Common Stocks (d) | 3,638,375 | — | 8,322 | 3,646,697 | ||||||||||||
Convertible Preferred Stocks | 6,392,600 | — | — | 6,392,600 | ||||||||||||
Warrants | 1,239,136 | — | — | 1,239,136 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 140,385,471 | — | 140,385,471 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 11,270,111 | 1,614,171,058 | 18,820,857 | 1,644,262,026 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other Financial Instruments | ||||||||||||||||
Foreign Currency Forward Contracts (e) | — | 39,689 | — | 39,689 | ||||||||||||
Interest Rate Swap Contracts | — | 30,978 | — | 30,978 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities and Other Financial Instruments | $ | 11,270,111 | $ | 1,614,241,725 | $ | 18,820,857 | $ | 1,644,332,693 | ||||||||
|
|
|
|
|
|
|
|
Liability Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Investments in Securities Sold Short (a) | ||||||||||||||||
Long-Term Bonds Sold Short | ||||||||||||||||
Corporate Bonds Sold Short | $ | — | $ | (11,365,000 | ) | $ | — | $ | (11,365,000 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities Sold Short | — | (11,365,000 | ) | — | (11,365,000 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Other Financial Instruments | ||||||||||||||||
Credit Default Swap (e) | — | (32,539 | ) | — | (32,539 | ) | ||||||||||
Foreign Currency Forward Contracts (e) | — | (1,209,811 | ) | — | (1,209,811 | ) | ||||||||||
Futures Contracts Short (e) | (419,949 | ) | — | — | (419,949 | ) | ||||||||||
Interest Rate Swap Contracts | — | (599 | ) | — | (599 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Other Financial Instruments | (419,949 | ) | (1,242,949 | ) | — | (1,662,898 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities Sold Short and Other Financial Instruments | $ | (419,949 | ) | $ | (12,607,949 | ) | $ | — | $ | (13,027,898 | ) | |||||
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|
|
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The Level 3 securities valued at $2,426, $13,090 and $82,657 are held in Commercial Services, Entertainment and Retail, respectively, within the Corporate Bonds section of the Portfolio of Investments. |
(c) | The Level 3 securities valued at $18,714,362 represent Loan Assignments whose values were obtained from an independent pricing service which used a single broker quote to measure such values as referenced in the Portfolio of Investments. |
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. |
(d) | The Level 3 security valued at $8,322 is held in Media within the Common Stocks section of the Portfolio of Investments. |
(e) | 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 April 30, 2014, a convertible preferred stock with a market value of $185,190 was transferred from Level 2 to Level 1 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 April 30, 2014, for this security is based on an evaluated bid price in active markets for identical investments.
As of April 30, 2014, a security with a market value of $2,788,249 transferred from Level 2 to Level 3. The transfer occurred as a result of the value for certain Loan Assignments obtained from an independent pricing service utilizing a single broker quote with significant unobservable inputs. The fair value obtained for this security from an independent pricing service as of October 31, 2013, utilized the average of multiple bid quotations.
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, 2013 | 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 April 30, 2014 | Change in Unrealized Appreciation (Depreciation) from Investments Still Held at April 30, 2014 (a) | ||||||||||||||||||||||||||||||
Long-Term Bonds | ||||||||||||||||||||||||||||||||||||||||
Convertible Bonds | ||||||||||||||||||||||||||||||||||||||||
Internet | $ | 50 | $ | — | $ | (8,347 | )(b) | $ | 8,297 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||
Corporate Bonds | ||||||||||||||||||||||||||||||||||||||||
Commercial Services | 2,426 | — | — | — | — | — | — | — | 2,426 | — | ||||||||||||||||||||||||||||||
Entertainment | 17,071 | 344 | 314 | 1,049 | — | (5,688 | ) | — | — | 13,090 | (344 | ) | ||||||||||||||||||||||||||||
Retail | 84,184 | (53 | ) | (55 | ) | 853 | — | (2,272 | ) | — | — | 82,657 | 1,023 | |||||||||||||||||||||||||||
Loan Assignments | ||||||||||||||||||||||||||||||||||||||||
Hand & Machine Tools | — | (2,353 | ) | (101 | ) | (42,638 | ) | 4,719,164 | (21,034 | ) | — | — | 4,653,038 | (42,638 | ) | |||||||||||||||||||||||||
Leisure Time | — | 39 | — | 7,367 | 5,895,375 | — | — | — | 5,902,781 | 7,367 | ||||||||||||||||||||||||||||||
Oil & Gas | — | 8,401 | — | 30,350 | 5,232,500 | — | 2,788,249 | — | 8,059,500 | 30,350 | ||||||||||||||||||||||||||||||
Real Estate | 99,794 | 845 | 23 | (1,116 | ) | — | (503 | ) | — | — | 99,043 | (1,094 | ) | |||||||||||||||||||||||||||
Common Stocks | ||||||||||||||||||||||||||||||||||||||||
Media | — | — | — | 8,288 | 34 | — | — | — | 8,322 | — | ||||||||||||||||||||||||||||||
Warrants | ||||||||||||||||||||||||||||||||||||||||
Media | 0 | (c) | — | — | 34 | — | (34 | ) | — | — | — | — | ||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||
Total | $ | 203,525 | $ | 7,223 | $ | (8,166 | ) | $ | 12,484 | $ | 15,847,073 | $ | (29,531 | ) | $ | 2,788,249 | $ | — | $ | 18,820,857 | $ | (5,336 | ) | |||||||||||||||||
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|
|
(a) | Included in “Net change in unrealized appreciation (depreciation) on investments” in the Statement of Operations. |
(b) | At Home Corp. was written off on March 3, 2014. |
(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 | 29 |
Statement of Assets and Liabilities as of April 30, 2014 (Unaudited)
Assets | ||||
Investment in securities, at value | $ | 1,644,262,026 | ||
Cash collateral on deposit at broker | 3,878,996 | |||
Cash denominated in foreign currencies | 2,498,109 | |||
Unrealized appreciation on unfunded commitments | 14,724 | |||
Cash | 4,155 | |||
Receivables: | ||||
Fund shares sold | 25,811,202 | |||
Dividends and interest | 18,714,949 | |||
Investment securities sold | 12,127,687 | |||
Premiums paid for swap contracts | 502,044 | |||
Other assets | 141,990 | |||
Unrealized appreciation on foreign currency forward contracts | 39,689 | |||
|
| |||
Total assets | 1,707,995,571 | |||
|
| |||
Liabilities | ||||
Investments sold short (proceeds $10,720,232) | 11,365,000 | |||
Payables: | ||||
Investment securities purchased | 35,907,004 | |||
Fund shares redeemed | 1,834,480 | |||
Variation margin on futures contracts | 904,546 | |||
Manager (See Note 3) | 714,288 | |||
NYLIFE Distributors (See Note 3) | 298,919 | |||
Interest on investments sold short | 240,308 | |||
Transfer agent (See Note 3) | 92,540 | |||
Broker fees and charges on short sales | 43,447 | |||
Professional fees | 40,611 | |||
Shareholder communication | 15,150 | |||
Variation margin on centrally cleared swaps | 72,374 | |||
Accrued expenses | 746 | |||
Dividend payable | 721,106 | |||
Unrealized depreciation on foreign currency forward contracts | 1,209,811 | |||
Unrealized depreciation on swap contracts | 32,539 | |||
|
| |||
Total liabilities | 53,492,869 | |||
|
| |||
Net assets | $ | 1,654,502,702 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 1,759,805 | ||
Additional paid-in capital | 1,624,198,285 | |||
|
| |||
1,625,958,090 | ||||
Undistributed net investment income | 526,916 | |||
Accumulated net realized gain (loss) on investments, investments sold short, futures transactions, swap transactions and foreign currency transactions | (5,972,532 | ) | ||
Net unrealized appreciation (depreciation) on investments, swap contracts and futures contracts | 35,762,745 | |||
Net unrealized appreciation (depreciation) on investments sold short | (644,768 | ) | ||
Net unrealized appreciation (depreciation) on unfunded commitments | 14,724 | |||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (1,142,473 | ) | ||
|
| |||
Net assets | $ | 1,654,502,702 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 29,857,328 | ||
|
| |||
Shares of beneficial interest outstanding | 3,153,176 | |||
|
| |||
Net asset value per share outstanding | $ | 9.47 | ||
Maximum sales charge (4.50% of offering price) | 0.45 | |||
|
| |||
Maximum offering price per share outstanding | $ | 9.92 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 550,300,501 | ||
|
| |||
Shares of beneficial interest outstanding | 58,525,097 | |||
|
| |||
Net asset value per share outstanding | $ | 9.40 | ||
Maximum sales charge (4.50% of offering price) | 0.44 | |||
|
| |||
Maximum offering price per share outstanding | $ | 9.84 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 20,453,835 | ||
|
| |||
Shares of beneficial interest outstanding | 2,184,678 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.36 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 220,705,437 | ||
|
| |||
Shares of beneficial interest outstanding | 23,589,715 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.36 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 833,145,421 | ||
|
| |||
Shares of beneficial interest outstanding | 88,523,594 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.41 | ||
|
| |||
Class R2 | ||||
Net assets applicable to outstanding shares | $ | 40,180 | ||
|
| |||
Shares of beneficial interest outstanding | 4,274 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.40 | ||
|
|
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. |
Statement of Operations for the six months ended April 30, 2014 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 28,258,670 | ||
Dividends | 190,352 | |||
|
| |||
Total income | 28,449,022 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 3,339,157 | |||
Distribution/Service—Investor Class (See Note 3) | 35,653 | |||
Distribution/Service—Class A (See Note 3) | 516,373 | |||
Distribution/Service—Class B (See Note 3) | 96,867 | |||
Distribution/Service—Class C (See Note 3) | 779,829 | |||
Distribution/Service—Class R2 (See Note 3) | 11 | |||
Transfer agent (See Note 3) | 670,600 | |||
Interest on investments sold short | 288,329 | |||
Broker fees and charges on short sales | 125,782 | |||
Registration | 74,482 | |||
Professional fees | 43,758 | |||
Shareholder communication | 36,347 | |||
Custodian | 19,081 | |||
Trustees | 7,529 | |||
Shareholder service (See Note 3) | 5 | |||
Miscellaneous | 12,293 | |||
|
| |||
Total expenses | 6,046,096 | |||
|
| |||
Net investment income (loss) | 22,402,926 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts, Swap Contracts and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 2,569,113 | |||
Futures transactions | (5,539,700 | ) | ||
Swap transactions | (5,695 | ) | ||
Foreign currency transactions | (702,166 | ) | ||
|
| |||
Net realized gain (loss) on investments, futures transactions, swap transactions and foreign currency transactions | (3,678,448 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments and unfunded commitments | 15,347,010 | |||
Investments sold short | 8,600 | |||
Futures contracts | 4,085,535 | |||
Swap contracts | (2,160 | ) | ||
Translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (633,243 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on investments, investments sold short, futures contracts, swap contracts and foreign currency transactions | 18,805,742 | |||
|
| |||
Net realized and unrealized gain (loss) on investments, investments sold short, futures transactions, swap transactions and foreign currency transactions | 15,127,294 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 37,530,220 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 31 |
Statements of Changes in Net Assets
for the six months ended April 30, 2014 (Unaudited) and the year ended October 31, 2013
2014 | 2013 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 22,402,926 | $ | 21,175,547 | ||||
Net realized gain (loss) on investments, futures transactions, swap transactions and foreign currency transactions | (3,678,448 | ) | (1,539,379 | ) | ||||
Net change in unrealized appreciation (depreciation) on investments, unfunded commitments, investments sold short, futures contracts, swap contracts and foreign currency transactions | 18,805,742 | 4,903,850 | ||||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 37,530,220 | 24,540,018 | ||||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (501,736 | ) | (1,079,562 | ) | ||||
Class A | (7,673,409 | ) | (9,897,802 | ) | ||||
Class B | (273,374 | ) | (612,922 | ) | ||||
Class C | (2,305,122 | ) | (2,568,418 | ) | ||||
Class I | (11,049,922 | ) | (6,993,037 | ) | ||||
Class R2 | (184 | ) | — | |||||
|
| |||||||
Total dividends to shareholders | (21,803,747 | ) | (21,151,741 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 984,678,268 | 536,959,441 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 18,547,308 | 17,368,631 | ||||||
Cost of shares redeemed | (137,704,696 | ) | (189,205,998 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | 865,520,880 | 365,122,074 | ||||||
|
| |||||||
Net increase (decrease) in net assets | 881,247,353 | 368,510,351 | ||||||
Net Assets | ||||||||
Beginning of period | 773,255,349 | 404,744,998 | ||||||
|
| |||||||
End of period | $ | 1,654,502,702 | $ | 773,255,349 | ||||
|
| |||||||
Undistributed (distributions in excess of) net investment income at end of period | $ | 526,916 | $ | (72,263 | ) | |||
|
|
32 | 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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Investor Class | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 9.34 | $ | 9.28 | $ | 8.78 | $ | 9.12 | $ | 8.47 | $ | 7.20 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.18 | 0.39 | 0.44 | 0.43 | 0.52 | 0.40 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.12 | 0.06 | 0.50 | (0.32 | ) | 0.68 | 1.50 | |||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | (0.01 | ) | 0.01 | (0.00 | )‡ | (0.05 | ) | 0.02 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.29 | 0.44 | 0.95 | 0.11 | 1.15 | 1.92 | ||||||||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.16 | ) | (0.38 | ) | (0.45 | ) | (0.45 | ) | (0.50 | ) | (0.62 | ) | ||||||||||||||
Return of capital | — | — | — | — | — | (0.03 | ) | |||||||||||||||||||
|
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|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.16 | ) | (0.38 | ) | (0.45 | ) | (0.45 | ) | (0.50 | ) | (0.65 | ) | ||||||||||||||
|
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|
|
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|
| |||||||||||||||
Net asset value at end of period | $ | 9.47 | $ | 9.34 | $ | 9.28 | $ | 8.78 | $ | 9.12 | $ | 8.47 | ||||||||||||||
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| |||||||||||||||
Total investment return (b) | 3.16 | %(c) | 4.76 | % | 10.98 | % | 1.33 | % | 13.97 | % | 28.35 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 3.77 | %†† | 4.12 | % | 4.89 | % | 4.85 | % | 5.93 | % | 5.26 | % | ||||||||||||||
Net expenses (excluding short sale expenses) | 1.03 | %†† | 1.15 | % | 1.19 | % | 1.24 | % | 1.41 | % | 1.42 | % | ||||||||||||||
Expenses (including short sales expenses, before waiver/reimbursement) | 1.10 | %†† | 1.27 | % | 1.52 | % | 1.42 | % | 1.45 | % | 1.70 | % | ||||||||||||||
Short sale expenses | 0.07 | %†† | 0.12 | % | 0.33 | % | 0.18 | % | — | — | ||||||||||||||||
Portfolio turnover rate | 11 | % | 23 | % | 25 | % | 26 | % | 80 | % | 154 | %(d) | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 29,857 | $ | 28,341 | $ | 24,551 | $ | 20,415 | $ | 16,654 | $ | 12,200 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
(d) | 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 | 33 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class A | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 9.28 | $ | 9.22 | $ | 8.73 | $ | 9.06 | $ | 8.42 | $ | 7.16 | ||||||||||||||
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|
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|
|
|
|
| ||||||||||||||
Net investment income (loss) (a) | 0.18 | 0.40 | 0.45 | 0.45 | 0.54 | 0.41 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.12 | 0.06 | 0.49 | (0.31 | ) | 0.67 | 1.49 | |||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | (0.01 | ) | 0.01 | (0.00 | )‡ | (0.05 | ) | 0.02 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Total from investment operations | 0.29 | 0.45 | 0.95 | 0.14 | 1.16 | 1.92 | ||||||||||||||||||||
|
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|
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|
|
|
|
|
|
| ||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.17 | ) | (0.39 | ) | (0.46 | ) | (0.47 | ) | (0.52 | ) | (0.62 | ) | ||||||||||||||
Return of capital | — | — | — | — | — | (0.04 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Total dividends and distributions | (0.17 | ) | (0.39 | ) | (0.46 | ) | (0.47 | ) | (0.52 | ) | (0.66 | ) | ||||||||||||||
|
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|
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|
|
|
| ||||||||||||||
Net asset value at end of period | $ | 9.40 | $ | 9.28 | $ | 9.22 | $ | 8.73 | $ | 9.06 | $ | 8.42 | ||||||||||||||
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|
|
| ||||||||||||||
Total investment return (b) | 3.11 | %(c) | 4.96 | % | 11.26 | % | 1.54 | % | 14.19 | % | 28.56 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 3.86 | %†† | 4.25 | % | 5.08 | % | 5.04 | % | 6.19 | % | 5.41 | % | ||||||||||||||
Net expenses (excluding short sale expenses) | 0.96 | %†† | 1.00 | % | 1.00 | % | 1.03 | % | 1.18 | % | 1.27 | % | ||||||||||||||
Expenses (including short sales expenses, before waiver/reimbursement) | 1.03 | %†† | 1.12 | % | 1.33 | % | 1.22 | % | 1.21 | % | 1.37 | % | ||||||||||||||
Short sale expenses | 0.07 | %†† | 0.12 | % | 0.33 | % | 0.19 | % | — | — | ||||||||||||||||
Portfolio turnover rate | 11 | % | 23 | % | 25 | % | 26 | % | 80 | % | 154 | %(d) | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 550,301 | $ | 317,917 | $ | 192,009 | $ | 169,649 | $ | 109,694 | $ | 60,555 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
(d) | The portfolio turnover rates not including mortgage dollar rolls was 117% for the year ended October 31, 2009. |
34 | 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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class B | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 9.24 | $ | 9.18 | $ | 8.70 | $ | 9.03 | $ | 8.39 | $ | 7.14 | ||||||||||||||
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|
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|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.14 | 0.31 | 0.37 | 0.36 | 0.45 | 0.34 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.12 | 0.07 | 0.48 | (0.31 | ) | 0.68 | 1.48 | |||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | (0.01 | ) | 0.01 | (0.00 | )‡ | (0.05 | ) | 0.02 | ||||||||||||||||
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|
|
| |||||||||||||||
Total from investment operations | 0.25 | 0.37 | 0.86 | 0.05 | 1.08 | 1.84 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.13 | ) | (0.31 | ) | (0.38 | ) | (0.38 | ) | (0.44 | ) | (0.56 | ) | ||||||||||||||
Return of capital | — | — | — | — | — | (0.03 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.13 | ) | (0.31 | ) | (0.38 | ) | (0.38 | ) | (0.44 | ) | (0.59 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 9.36 | $ | 9.24 | $ | 9.18 | $ | 8.70 | $ | 9.03 | $ | 8.39 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 2.72 | %(c) | 4.05 | % | 10.15 | % | 0.59 | % | 13.13 | % | 27.35 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 3.02 | %†† | 3.38 | % | 4.14 | % | 4.10 | % | 5.15 | % | 4.54 | % | ||||||||||||||
Net expenses (excluding short sales expenses) | 1.78 | %†† | 1.90 | % | 1.94 | % | 1.99 | % | 2.16 | % | 2.17 | % | ||||||||||||||
Expenses (including short sales expenses, before waiver/reimbursement) | 1.85 | %†† | 2.02 | % | 2.27 | % | 2.16 | % | 2.20 | % | 2.46 | % | ||||||||||||||
Short sale expenses | 0.07 | %†† | 0.12 | % | 0.33 | % | 0.17 | % | — | — | ||||||||||||||||
Portfolio turnover rate | 11 | % | 23 | % | 25 | % | 26 | % | 80 | % | 154 | %(d) | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 20,454 | $ | 19,254 | $ | 17,591 | $ | 16,754 | $ | 19,352 | $ | 19,176 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
(d) | 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 | 35 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class C | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 9.23 | $ | 9.18 | $ | 8.69 | $ | 9.03 | $ | 8.39 | $ | 7.14 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.14 | 0.31 | 0.37 | 0.36 | 0.46 | 0.34 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.13 | 0.06 | 0.49 | (0.32 | ) | 0.67 | 1.48 | |||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | (0.01 | ) | 0.01 | (0.00 | )‡ | (0.05 | ) | 0.02 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.26 | 0.36 | 0.87 | 0.04 | 1.08 | 1.84 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.13 | ) | (0.31 | ) | (0.38 | ) | (0.38 | ) | (0.44 | ) | (0.56 | ) | ||||||||||||||
Return of capital | — | — | — | — | — | (0.03 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.13 | ) | (0.31 | ) | (0.38 | ) | (0.38 | ) | (0.44 | ) | (0.59 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 9.36 | $ | 9.23 | $ | 9.18 | $ | 8.69 | $ | 9.03 | $ | 8.39 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 2.83 | %(c) | 4.05 | % | 10.16 | % | 0.48 | % | 13.14 | % | 27.36 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 3.05 | %†† | 3.34 | % | 4.14 | % | 4.09 | % | 5.23 | % | 4.50 | % | ||||||||||||||
Net expenses (excluding short sale expenses) | 1.77 | %†† | 1.90 | % | 1.94 | % | 1.99 | % | 2.16 | % | 2.17 | % | ||||||||||||||
Expenses (including short sales expenses, before waiver/reimbursement) | 1.84 | %†† | 2.02 | % | 2.27 | % | 2.19 | % | 2.20 | % | 2.45 | % | ||||||||||||||
Short sale expenses | 0.07 | %†† | 0.12 | % | 0.33 | % | 0.20 | % | — | — | ||||||||||||||||
Portfolio turnover rate | 11 | % | 23 | % | 25 | % | 26 | % | 80 | % | 154 | %(d) | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 220,705 | $ | 113,183 | $ | 59,159 | $ | 50,280 | $ | 28,334 | $ | 12,948 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
(d) | The portfolio turnover rates not including mortgage dollar rolls was 117% for the year ended October 31, 2009. |
36 | 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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class I | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 9.29 | $ | 9.23 | $ | 8.73 | $ | 9.07 | $ | 8.42 | $ | 7.17 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.19 | 0.41 | 0.47 | 0.46 | 0.58 | 0.43 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.12 | 0.07 | 0.51 | (0.31 | ) | 0.66 | 1.48 | |||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | (0.01 | ) | 0.01 | (0.00 | )‡ | (0.05 | ) | 0.02 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.30 | 0.47 | 0.99 | 0.15 | 1.19 | 1.93 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.18 | ) | (0.41 | ) | (0.49 | ) | (0.49 | ) | (0.54 | ) | (0.64 | ) | ||||||||||||||
Return of capital | — | — | — | — | — | (0.04 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.18 | ) | (0.41 | ) | (0.49 | ) | (0.49 | ) | (0.54 | ) | (0.68 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 9.41 | $ | 9.29 | $ | 9.23 | $ | 8.73 | $ | 9.07 | $ | 8.42 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 3.23 | %(c) | 5.32 | % | 11.41 | % | 1.79 | % | 14.59 | % | 28.78 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 4.12 | %†† | 4.45 | % | 5.32 | % | 5.20 | % | 6.57 | % | 5.75 | % | ||||||||||||||
Net expenses (excluding short sale expenses) | 0.71 | %†† | 0.75 | % | 0.76 | % | 0.78 | % | 0.92 | % | 0.95 | % | ||||||||||||||
Expenses (including short sales expenses, before waiver/reimbursement) | 0.78 | %†† | 0.87 | % | 1.08 | % | 1.02 | % | 0.95 | % | 1.12 | % | ||||||||||||||
Short sale expenses | 0.07 | %†† | 0.12 | % | 0.32 | % | 0.24 | % | — | — | ||||||||||||||||
Portfolio turnover rate | 11 | % | 23 | % | 25 | % | 26 | % | 80 | % | 154 | %(d) | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 833,145 | $ | 294,560 | $ | 111,435 | $ | 163,356 | $ | 5,183 | $ | 319 |
* | Unaudited. |
†† | 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 I shares are not subject to sales charges. |
(c) | Total investment return is not annualized. |
(d) | 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 | 37 |
Financial Highlights selected per share data and ratios
Class R2 | February 28, 2014** through April 30, 2014* | |||
Net asset value at beginning of period | $ | 9.39 | ||
|
| |||
Net investment income (loss) (a) | 0.00 | ‡ | ||
Net realized and unrealized gain (loss) on investments | 0.07 | |||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | ||
|
| |||
Total from investment operations | 0.06 | |||
|
| |||
Less dividends: | ||||
From net investment income | (0.05 | ) | ||
|
| |||
Net asset value at end of period | $ | 9.40 | ||
|
| |||
Total investment return (b) | 0.67 | %(c) | ||
Ratios (to average net assets)/Supplemental Data: | ||||
Net investment income (loss) | 3.71 | %†† | ||
Net expenses | 1.05 | %†† | ||
Expenses (including short sales expenses, before waiver/reimbursement) | 1.12 | %†† | ||
Short sale expenses | 0.07 | %†† | ||
Portfolio turnover rate | 11 | % | ||
Net assets at end of period (in 000’s) | $ | 40 |
* | Unaudited. |
** | 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 R2 shares are not subject to sales charges. |
(c) | Total investment return is not annualized. |
38 | 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. |
Notes to Financial Statements (Unaudited)
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 six 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. Class R2 shares commenced operations on February 28, 2014.
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.
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”) adopted procedures for the valuation of the Fund’s securities and delegated the responsibility for valuation determinations under those procedures to the Valuation
Committee of the Fund (the “Valuation Committee”). The Board 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 Sub-Committee deals in the first instance with such valuation and 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. Any action taken by the Sub-Committee with respect to the valuation of a portfolio security is submitted by the Valuation Committee to the Board for its review at its next regularly scheduled meeting immediately after such action.
“Fair value” is defined as the price that the Fund would receive upon selling an asset or liability in an orderly transaction to an independent buyer in the principal or most advantageous market for the asset or liability. Fair value measurements are determined within a framework that 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” refer 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 based on the information available. 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 below.
• | Level 1—quoted prices in active markets for an identical asset or liability |
• | Level 2—other significant observable inputs (including quoted prices for a similar asset or liability in active markets, interest rates and yield curves, prepayment speeds, credit risk etc.) |
mainstayinvestments.com | 39 |
Notes to Financial Statements (Unaudited) (continued)
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring fair value of an asset or liability) |
The aggregate value by input level, as of April 30, 2014, for the Fund’s assets or liabilities is included at the end of the Fund’s Portfolio of Investments.
The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs among others:
• 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 |
An asset or liability for which market values cannot be measured using the methodologies described above are valued by methods deemed reasonable and in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund generally 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 asset or liability are discounted to calculate fair value. Discounts may also be applied due to the nature and/or duration of any restrictions on the disposition of the asset or liability. Due to the inherent valuation uncertainty of such assets or liabilities, fair values may differ significantly from values that would have been used had an active market existed. For the six-month period ended April 30, 2014, there have been no material 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 readily available from a third party pricing source or, if so provided, does not, in the opinion of the Manager or Subadvisor reflect the security’s market value; (vi) a security subject to trading collars for which no or limited trading takes place; and (vii) 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 April 30, 2014, the Fund held securities with a value of $106,495 that were fair valued in such a manner.
Equity securities and Exchange-Traded Funds are valued at the last 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 last quoted bid and ask prices. Prices are normally 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 primarily traded. Investments in other mutual funds are valued at their respective NAV(s) 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 Manager, in consultation with the Subadvisor. Those prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Manager, in consultation with the Subadvisor, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities purchased on a 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 at the time of purchase (“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 April 30, 2014, the Fund held securities with a value of $18,714,362 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
40 | MainStay Unconstrained Bond Fund |
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 table below. A significant increase or decrease in any of those inputs in isolation would result in a significantly higher or lower fair value measurement.
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 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. The Fund may be subject to foreign taxes on income and other transaction-based taxes imposed by certain countries in which they invest. A portion of the taxes on gains on investments or currency purchases/repatriation 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 from net investment income, if any, at least monthly and distributions from 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, net of any foreign tax withheld at the source, 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. The straight-line method approximates the effective interest method for short-term investments. 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.
(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 Board. During the term of any repurchase agreement,
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Notes to Financial Statements (Unaudited) (continued)
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 if 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 market 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.
(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 may invest 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, if any, are mark-to-market and any unrealized gains and losses are recorded in the Statement of Assets and Liabilities. For these loan assignments, participations and commitments, the Manager may consider additional factors such as liquidity of the Fund’s investments.
(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. Swaps agreements are privately negotiated in the over the counter market (“OTC swaps”) and may be executed in a multilateral or other trade facilities platform, such as a registered commodities exchange (“centrally cleared swaps”).
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.
Certain standardized swaps, including certain credit default and interest rate swaps, are subject to mandatory clearing, and more are expected to be in the future. The counterparty risk for cleared derivatives is expected to be generally lower than for uncleared derivatives, but cleared contracts are not risk-free. In a cleared derivative transaction, a Fund typically enters into the transaction with a financial institution counterparty, and performance of the transaction is effectively guaranteed by a central
42 | MainStay Unconstrained Bond Fund |
clearinghouse, thereby reducing or eliminating the Fund’s exposure to the credit risk of its original counterparty. The Fund will be required to post specified levels of margin with the clearinghouse or at the instruction of the clearinghouse; the margin required by a clearinghouse may be greater than the margin the Fund would be required to post in an uncleared transaction.
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. Daily changes in valuation of centrally cleared swaps, if any, are recorded as a receivable or payable for the change in value as appropriate (“variation margin”) on the Statements of Assets and Liabilities.
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.
(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 purchase and sell foreign currency forward contracts for purposes of seeking to enhance portfolio returns and manage portfolio risk more efficiently. Foreign currency forward contracts may also be used to gain exposure to a particular currency or to hedge against the risk of loss due to changing currency exchange rates. Foreign currency forward contracts to purchase or sell a foreign currency may also be used in anticipation of future purchases or sales of securities denominated in foreign currency, even if the specific investments have not yet been selected.
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) 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 they simultaneously agrees to buy a similar security on a delayed delivery basis. The dollar roll transactions of the Fund are generally 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
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Notes to Financial Statements (Unaudited) (continued)
Fund at the end of the roll period, while substantially similar, could be inferior to what was initially sold to the counterparty.
(O) Securities Sold Short. The Fund engages in sales 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.
(P) 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 April 30, 2014.
(Q) 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. 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)
(R) 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 or 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.
(S) 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.
(T) 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 amounts disclosed in the table represent the monthly average held during the six-month period ended April 30, 2014.
44 | MainStay Unconstrained Bond Fund |
Fair value of derivatives instruments as of April 30, 2014:
Asset Derivatives
Statement of Assets and Liabilities Location | Credit Contracts Risk | Foreign Exchange Contracts Risk | Interest Rate Contracts Risk | Total | ||||||||||||||
Swap Contracts | Premiums paid for swap contracts | $ | 502,044 | $ | — | $ | — | $ | 502,044 | |||||||||
Swap Contracts | Open swap agreements, at value (a) | — | — | 30,978 | 30,978 | |||||||||||||
Forward Contracts | Unrealized appreciation on foreign currency forward contracts | — | 39,689 | — | 39,689 | |||||||||||||
|
| |||||||||||||||||
Total Fair Value | $ | 502,044 | $ | 39,689 | $ | 30,978 | $ | 572,711 | ||||||||||
|
|
Liability Derivatives
Statement of Assets and Liabilities Location | Credit Contracts Risk | Foreign Exchange Contracts Risk | Interest Rate Contracts Risk | Total | ||||||||||||||
Futures Contracts | Net Assets-Net unrealized appreciation (depreciation) on investments and futures contracts (b) | $ | — | $ | — | $ | 419,949 | $ | 419,949 | |||||||||
Swap Contracts | Unrealized depreciation on swap contracts | 32,539 | — | — | 32,539 | |||||||||||||
Swap Contracts | Open swap agreements, at value (a) | — | — | 599 | 599 | |||||||||||||
Forward Contracts | Unrealized depreciation on foreign currency forward contracts | — | 1,209,811 | — | 1,209,811 | |||||||||||||
|
| |||||||||||||||||
Total Fair Value | $ | 32,539 | $ | 1,209,811 | $ | 420,548 | $ | 1,662,898 | ||||||||||
|
|
(a) | Includes open swap agreements at value as reported in the Portfolio of Investments. Only current day’s variation margin of centrally cleared swaps is reported within the Statement of Assets and Liabilities. |
(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. |
The effect of derivative instruments on the Statement of Operations for the six-month period ended April 30, 2014:
Realized Gain (Loss)
Statement of Operations Location | Credit Contracts Risk | Foreign Exchange Contracts Risk | Interest Rate Contracts Risk | Total | ||||||||||||||
Futures Contracts | Net realized gain (loss) on futures transactions | $ | — | $ | — | $ | (5,539,700 | ) | $ | (5,539,700 | ) | |||||||
Swap Contracts | Net realized gain (loss) on swap transactions | (5,695 | ) | — | — | (5,695 | ) | |||||||||||
Forward Contracts | Net realized gain (loss) on foreign currency transactions | — | (843,356 | ) | — | (843,356 | ) | |||||||||||
|
| |||||||||||||||||
Total Realized Gain (Loss) | $ | (5,695 | ) | $ | (843,356 | ) | $ | (5,539,700 | ) | $ | (6,388,751 | ) | ||||||
|
|
mainstayinvestments.com | 45 |
Notes to Financial Statements (Unaudited) (continued)
Change in Unrealized Appreciation (Depreciation)
Statement of Operations Location | Credit Contracts Risk | Foreign Exchange Contracts Risk | Interest Rate Contracts Risk | Total | ||||||||||||||
Futures Contracts | Net change in unrealized appreciation (depreciation) on futures contracts | $ | — | $ | — | $ | 4,085,535 | $ | 4,085,535 | |||||||||
Swap Contracts | Net change in unrealized appreciation (depreciation) on swap contracts | (32,539 | ) | — | 30,379 | (2,160 | ) | |||||||||||
Forward Contracts | Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | — | (647,745 | ) | — | (647,745 | ) | |||||||||||
|
| |||||||||||||||||
Total Change in Unrealized Appreciation (Depreciation) | $ | (32,539 | ) | $ | (647,745 | ) | $ | 4,115,914 | $ | 3,435,630 | ||||||||
|
|
Number of Contracts, Notional Amounts or Shares/Units
Credit Contracts Risk | Foreign Exchange Contracts Risk | Interest Rate Contracts Risk | Total | |||||||||||||
Futures Contracts Short (Average number of contracts) | — | — | (4,271 | ) | (4,271 | ) | ||||||||||
Swap Contracts (Average notional amount) | $ | 7,000,000 | $ | — | $ | 273,000,000 | $ | 280,000,000 | ||||||||
Forward Contracts Long (Average notional amount) | $ | — | $ | 50,830,485 | $ | — | $ | 50,830,485 | ||||||||
Forward Contracts Short (Average notional amount) | $ | — | $ | (52,348,000 | ) | $ | — | $ | (52,348,000 | ) | ||||||
|
|
The following table presents the Fund’s derivative assets by counterparty net of amounts available for offset under a master netting agreement, or similar agreement, and net of the related collateral received by the Fund as of April 30, 2014.
Counterparty | Gross Assets in Statement of Assets and Liabilities | Derivative assets/(liabilities) available for offset | Collateral Received | Net Amount of Derivative Assets* | ||||||||||||
JPMorgan Chase Bank | $ | 39,689 | $ | (39,689 | ) | $ | — | $ | — | |||||||
|
|
The following table presents the Fund’s derivative liabilities by counterparty net of amounts available for offset under a master netting agreement, or similar agreement, and net of the related collateral pledged by the Fund as of April 30, 2014.
Counterparty | Gross Liabilities in Statement of Assets and Liabilities | Derivative assets/(liabilities) available for offset | Collateral Pledged | Net Amount of Derivative Liabilities† | ||||||||||||
Credit Suisse First Boston | $ | 32,539 | $ | — | $ | — | $ | 32,539 | ||||||||
JPMorgan Chase Bank | 1,209,811 | (39,689 | ) | — | 1,170,122 | |||||||||||
|
| |||||||||||||||
$ | 1,242,350 | $ | (39,689 | ) | $ | — | $ | 1,202,661 | ||||||||
|
|
* | Represents the net amount receivable from the counterparty in the event of default. |
† | Represents the net amount payable to the counterparty in the event of default. |
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 compensation 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 the Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and MacKay Shields, New York Life Investments pays for the services of the Subadvisor.
46 | MainStay Unconstrained Bond 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: 0.60% 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 (exclusive of any applicable waivers/reimbursements) was 0.58% for the six-month period ended April 30, 2014, inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets.
For the six-month period ended April 30, 2014, New York Life Investments earned fees from the Fund in the amount of $3,339,157.
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, 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 $10,644 and $128,073, respectively, for the six-month period ended April 30, 2014. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $30, $11,094, $19,902 and $22,127, respectively, for the six-month period ended April 30, 2014.
(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 six-month period ended April 30, 2014, were as follows:
Investor Class | $ | 23,546 | ||
Class A | 214,023 | |||
Class B | 15,996 | |||
Class C | 126,789 | |||
Class I | 290,241 | |||
Class R2 | 5 |
(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 April 30, 2014, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class A | $ | 13,022,404 | 2.4 | % | ||||
Class R2 | 25,097 | 62.5 |
Note 4–Federal Income Tax
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 $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 share-
mainstayinvestments.com | 47 |
Notes to Financial Statements (Unaudited) (continued)
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) | ||||||
2017 Unlimited | $
| 473 60 |
| $
| — 6,239 |
| ||
Total | $ | 533 | $ | 6,239 |
The tax character of distributions paid during the year ended October 31, 2013, shown in the Statements of Changes in Net Assets was as follows:
2013 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 21,151,741 |
Note 5–Commitments and Contingencies
As of April 30, 2014, the Fund had an unfunded commitments pursuant to the following loan agreement:
Borrower | Unfunded Commitments | Unrealized Appreciation | ||||||
Allied Security Holdings, LLC | ||||||||
2nd Lien Delayed Draw Term Loan | $ | 2,191,781 | $ | 14,724 |
Commitments are available until maturity date.
Note 6–Restricted Securities
As of April 30, 2014, the Fund held the following restricted securities:
Security | Date(s) of Acquisition | Shares | Cost | 4/30/14 Value | Percent of Net Assets | |||||||||||||||
ION Media Networks, Inc. | 3/11/14 | 22 | $ | 34 | $ | 8,322 | 0.0 | %‡ | ||||||||||||
Quebecor World, Inc. (Litigation Recovery Trust-Escrow Shares) | 0.0 | ‡ | ||||||||||||||||||
Corporate Bond 6.50% | 1/23/08 | 5,000 | — | 74 | ||||||||||||||||
Corporate Bond 9.75% | 9/4/09 | 160,00 | — | 2,352 | 0.0 | ‡ | ||||||||||||||
Total | $ | 34 | $ | 10,748 | 0.0 | %‡ |
‡ | Less than one-tenth of a percent. |
Note 7–Custodian
State Street is the custodian of cash and securities held by the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities held by the Fund and the number of certain cash transactions incurred by the Fund.
Note 8–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, who serves as the agent 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. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the six-month period ended April 30, 2014.
Note 9–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2014, purchases and sales of U.S. government securities were $6,233 and $13,880, respectively. Purchases and sales of securities, other than U.S. government securities and short-term securities, were $905,459 and $101,108, respectively.
48 | MainStay Unconstrained Bond Fund |
Note 10–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 420,043 | $ | 3,956,709 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 51,500 | 484,063 | ||||||
Shares redeemed | (285,565 | ) | (2,686,341 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 185,978 | 1,754,431 | ||||||
Shares converted into Investor Class (See Note 1) | 47,010 | 441,837 | ||||||
Shares converted from Investor Class (See Note 1) | (113,846 | ) | (1,069,142 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 119,142 | $ | 1,127,126 | |||||
|
|
|
| |||||
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 | |||||
|
|
|
| |||||
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 30,293,481 | $ | 283,299,819 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 720,549 | 6,731,662 | ||||||
Shares redeemed | (6,884,540 | ) | (64,390,540 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 24,129,490 | 225,640,941 | ||||||
Shares converted into Class A (See Note 1) | 124,656 | 1,162,435 | ||||||
|
|
|
| |||||
Net increase (decrease) | 24,254,146 | $ | 226,803,376 | |||||
|
|
|
| |||||
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 | |||||
|
|
|
| |||||
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 335,388 | $ | 3,122,207 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 26,436 | 245,699 | ||||||
Shares redeemed | (203,661 | ) | (1,892,282 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 158,163 | 1,475,624 | ||||||
Shares converted from Class B (See Note 1) | (57,616 | ) | (535,130 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 100,547 | $ | 940,494 | |||||
|
|
|
| |||||
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 | |||||
|
|
|
| |||||
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 12,474,787 | $ | 116,054,785 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 191,997 | 1,785,594 | ||||||
Shares redeemed | (1,337,172 | ) | (12,428,938 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 11,329,612 | $ | 105,411,441 | |||||
|
|
|
| |||||
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 | |||||
|
|
|
| |||||
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 61,820,030 | $ | 578,204,748 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 994,091 | 9,300,106 | ||||||
Shares redeemed | (6,011,937 | ) | (56,306,595 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 56,802,184 | $ | 531,198,259 | |||||
|
|
|
| |||||
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 | |||||
|
|
|
| |||||
mainstayinvestments.com | 49 |
Notes to Financial Statements (Unaudited) (continued)
Class R2 | Shares | Amount | ||||||
Period ended April 30, 2014 (a): | ||||||||
Shares sold | 4,254 | $ | 40,000 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 20 | 184 | ||||||
|
|
|
| |||||
Net increase (decrease) | 4,274 | $ | 40,184 | |||||
|
|
|
|
(a) | Class R2 shares were first offered on February 28, 2014. |
Note 11–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the six-month period ended April 30, 2014, events and transactions subsequent to April 30, 2014, 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.
50 | MainStay Unconstrained Bond Fund |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”) requires that each mutual fund’s board of trustees, including a majority of the independent trustees, annually review and approve the fund’s investment advisory agreements. At its December 10-11, 2013 meeting, the Board of Trustees of the MainStay Group of Funds (“Board”) unanimously approved the Management Agreement with respect to the MainStay Unconstrained Bond Fund (“Fund”) and New York Life Investment Management LLC (“New York Life Investments”) and the Subadvisory Agreement between New York Life Investments and MacKay Shields LLC (“MacKay Shields”) with respect to the Fund.
In reaching its decision to approve the Agreements, the Board considered information furnished by New York Life Investments and MacKay Shields in connection with a contract review process that took place at various meetings of the Board and its Contracts Committee between September 2013 and December 2013 as well as other relevant information furnished to the Board throughout the year by New York Life Investments and MacKay Shields. Information requested by and furnished to the Board in connection with the contract review process included, among other items, reports on the Fund and “peer funds” prepared by Strategic Insight Mutual Fund Research and Consulting, LLC (“Strategic Insight”), an independent third-party service provider engaged by the Board to report objectively on the Fund’s investment performance, management and subadvisory fees and ordinary operating expenses. The Board also considered information provided by New York Life Investments and MacKay Shields on the fees charged to other investment advisory clients (including institutional separate accounts) that follow investment strategies similar to the Fund and the rationale for any differences in the Fund’s management and subadvisory fees and the fees charged to those other investment advisory clients. In addition, the Board requested and received information on the profitability of the Fund to New York Life Investments and its affiliates, including MacKay Shields as subadvisor to the Fund and responses from New York Life Investments and MacKay Shields to a series of questions encompassing a variety of topics prepared on behalf of the Board by independent legal counsel to the Board and its independent trustees (the “Independent Trustees”). Information provided to the Board at its meetings throughout the year included, among other items, detailed investment performance reports on the Fund prepared by the Investment Consulting Group at New York Life Investments. The structure and format for this regular reporting were developed in consultation with the Board. The Board also received from New York Life Investments throughout the year, among other items, periodic reports on legal and compliance matters, portfolio turnover, and sales and marketing activity.
In considering the Agreements, the members of the Board reviewed and evaluated all of the information and factors they believed to be relevant and appropriate in light of legal advice furnished to them by independent legal counsel and through the exercise of their own business judgment. The broad factors considered by the Board are discussed in greater detail below and included, among other items: (i) the nature, scope and quality of the services provided to the Fund by New York Life Investments and MacKay Shields; (ii) the investment performance of the Fund, New York Life Investments and MacKay Shields; (iii) the costs of the services provided, and profits realized, by New York Life Investments and MacKay Shields from their relationships with the
Fund; (iv) the extent to which economies of scale may be realized as the Fund grows and the extent to which economies of scale may benefit Fund investors; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to similar funds and accounts managed by New York Life Investments and MacKay Shields and peer funds identified by Strategic Insight.
While individual members of the Board may have weighed certain factors differently, the Board’s decision to approve the Agreements was based on a consideration of all the information provided to the Board, including information provided to the Board throughout the year and specifically in connection with the contract review process. The Board’s conclusions with respect to the Agreements also were based, in part, on the Board’s consideration of the Agreements in prior years. In addition to considering the above-referenced factors, the Board observed that in the marketplace there are a range of investment options available to shareholders of the Fund and that the Fund’s shareholders, having had the opportunity to consider other investment options, have chosen to invest in the Fund. A more detailed discussion of the factors that figured prominently in the Board’s decisions to approve the Agreements is provided below.
Nature, Scope and Quality of Services to Be Provided by New York Life Investments and MacKay Shields
The Board examined the nature, scope and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience in serving as manager of the Fund, noting that New York Life Investments manages other mutual funds, serves a variety of other investment advisory clients, including other pooled investment vehicles, and has experience with overseeing mutual fund service providers, including subadvisors. The Board considered the experience of senior personnel at New York Life Investments providing management and administrative services to the Fund as well as New York Life Investments’ reputation and financial condition. The Board also considered the full range of non-advisory services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and oversight services provided by New York Life Investments’ Fund Accounting and Administration Group; (ii) investment oversight and analytical services provided by New York Life Investments’ Investment Consulting Group; (iii) compliance services provided by the Fund’s Chief Compliance Officer as well as New York Life Investments’ compliance department, including oversight and implementation of the Fund’s compliance program; and (iv) legal services provided by New York Life Investments’ Office of the General Counsel. Additional information about the non-advisory services provided by New York Life Investments is set forth in the Fund’s Management Agreement. The Board also considered New York Life Investments’ willingness to invest in personnel and infrastructure that benefit the Fund and noted that New York Life Investments is responsible for compensating the Fund’s officers. The Board also considered benefits to shareholders of being part of the MainStay Group of Funds, including the privilege of exchanging investments between the same class of shares without the imposition of a sales charge, as described more fully in the Fund’s prospectus.
mainstayinvestments.com | 51 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
The Board also examined the nature, scope and quality of the advisory services that MacKay Shields provides to the Fund. The Board evaluated MacKay Shields’ experience in serving as subadvisor to the Fund and managing other portfolios. It examined MacKay Shields’ track record and experience in providing investment advisory services, the experience of investment advisory, senior management and administrative personnel at MacKay Shields, and MacKay Shields’ overall legal and compliance environment. The Board also reviewed MacKay Shields’ willingness to invest in personnel that benefit the Fund. In this regard, the Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers and the method for compensating portfolio managers.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund should continue to benefit from the nature, scope and quality of these services as a result of New York Life Investments’ and MacKay Shields’ experience, personnel, operations and resources.
Investment Performance
In evaluating the Fund’s investment performance, the Board considered investment performance results in light of the Fund’s investment objective, strategies and risks, as disclosed in the Fund’s prospectus. The Board particularly considered detailed investment reports on the Fund’s performance provided to the Board throughout the year by the Investment Consulting Group of New York Life Investments. These reports include, among other items, information on the Fund’s gross and net returns, the Fund’s investment performance relative to relevant investment categories and Fund benchmarks, the Fund’s risk-adjusted investment performance, and the Fund’s investment performance as compared to peer funds, as appropriate. The Board also considered information provided by Strategic Insight showing the investment performance of the Fund as compared to peer funds.
In considering the Fund’s investment performance, the Board focused principally on the Fund’s long-term performance track record. The Board also gave weight to its ongoing discussions with senior management at New York Life Investments concerning the Fund’s investment performance as well as discussions between the Fund’s portfolio managers and the Board that generally occur on an annual basis. In addition, the Board considered any specific actions that New York Life Investments or MacKay Shields had taken, or had agreed with the Board to take, to enhance Fund investment performance and the results of those actions. The Board noted favorably the Fund’s strong investment performance relative to its peers for various periods.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the long-term investment performance of the Fund, along with ongoing efforts by New York Life Investments and MacKay Shields to enhance investment returns, supported a determination to approve the Agreements. The Fund discloses more information about investment performance in the Portfolio Management Discussion and Analysis, Investment and Performance Comparison and Financial Highlights sections of this Semiannual Report and in the Fund’s prospectus.
Costs of the Services Provided, and Profits Realized, by New York Life Investments and MacKay Shields
The Board considered the costs of the services provided by New York Life Investments and MacKay Shields under the Agreements and the profits realized by New York Life Investments and its affiliates, including MacKay Shields, due to their relationships with the Fund. Because MacKay Shields is an affiliate of New York Life Investments whose subadvisory fees are paid directly by New York Life Investments, the Board considered cost and profitability information for New York Life Investments and MacKay Shields in the aggregate.
In evaluating the costs and profits of New York Life Investments and its affiliates, including MacKay Shields, the Board considered, among other factors, each party’s investments in personnel, systems, equipment and other resources necessary to manage the Fund, and that New York Life Investments is responsible for paying the subadvisory fees for the Fund. The Board acknowledged that New York Life Investments and MacKay Shields must be in a position to pay and retain experienced professional personnel to provide services to the Fund and that the ability to maintain a strong financial position is important in order for New York Life Investments and MacKay Shields to continue to provide high-quality services to the Fund. The Board also noted that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds.
In addition, the Board noted the difficulty in obtaining reliable comparative data about mutual fund managers’ profitability, since such information generally is not publicly available and may be impacted by numerous factors, including the structure of a fund manager’s organization, the types of funds it manages, the methodology used to allocate certain fixed costs to specific funds, and the manager’s capital structure and costs of capital. While recognizing the difficulty in evaluating a manager’s profitability with respect to the Fund and noting that other profitability methodologies may also be reasonable, the Board concluded that the profitability methodology presented by New York Life Investments to the Board, which was developed by New York Life Investments in consultation with an independent consultant, was reasonable in all material respects.
In considering the costs and profitability of the Fund, the Board also considered certain fall-out benefits that may be realized by New York Life Investments and its affiliates due to their relationships with the Fund.
The Board further considered that, in addition to fees earned by New York Life Investments for managing the Fund, New York Life Investments’ affiliates also earn revenues from serving the Fund in various other capacities, including as the Fund’s transfer agent and distributor. The Board observed that information about these other revenues, and their impact on the profitability of the Fund to New York Life Investments and its affiliates, was furnished to the Board as part of the 15(c) process. The Board noted that, although it assessed the overall profitability of the Fund to New York Life Investments and its affiliates as part of the contract review process, when considering the reasonableness of the fees to be paid to New York Life Investments and its affiliates under the Agreements, the Board considered the profitability of New York Life Investments’ relationship with the Fund on a pre-tax basis and without regard to distribution expenses.
52 | MainStay Unconstrained Bond Fund |
After evaluating the information presented to the Board, the Board concluded, within the context of its overall determinations regarding the Agreements, that any profits realized by New York Life Investments and its affiliates, including MacKay Shields, due to their relationships with the Fund supported the Board’s decision to approve the Agreements.
Extent to Which Economies of Scale May Be Realized as the Fund Grows
The Board considered whether the Fund’s expense structure permits economies of scale to be shared with Fund investors. The Board also considered a report from New York Life Investments, prepared at the request of the Board, that addressed economies of scale in the mutual fund business generally, the changing economics of the mutual fund business and the various ways in which the benefits of economies of scale may be shared with the MainStay Group of Funds. The Board reviewed information from New York Life Investments showing how the Fund’s management fee schedule compared to fee schedules of other funds and accounts managed by New York Life Investments. The Board also reviewed information from Strategic Insight showing how the Fund’s management fee schedule hypothetically would compare with fees paid for similar services by peer funds at varying asset levels. While recognizing the difficulty of determining economies of scale with precision, the Board acknowledged that economies of scale may be shared with the Fund in a number of ways, including, for example, through the imposition of management fee breakpoints and by initially setting relatively low management fees.
Based on this information, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund’s expense structure appropriately reflects economies of scale for the benefit of Fund investors. The Board noted, however, that it would continue to evaluate the reasonableness of the Fund’s expense structure as the Fund grows over time.
Management and Subadvisory Fees and Total Ordinary Operating Expenses
The Board evaluated the reasonableness of the fees to be paid under the Agreements and the Fund’s expected total ordinary operating expenses. The Board primarily considered the reasonableness of the management fee paid by the Fund to New York Life Investments, since the fees paid to MacKay Shields are paid by New York Life Investments, not the Fund.
In assessing the reasonableness of the Fund’s fees and expenses, the Board primarily considered comparative data provided by Strategic Insight on the fees and expenses charged by similar mutual funds managed by other investment advisers. In addition, the Board considered information provided by New York Life Investments and MacKay Shields on fees charged to other investment advisory clients, including institutional separate accounts and other funds with similar investment objectives as the Fund. The Board particularly considered differences in the contractual management fee schedules of the retail MainStay Funds and similarly-managed MainStay VP Portfolios, taking into account New York Life Investments’ rationale for any differences in fee schedules. The Board also took into account explanations provided by New York Life Investments about the different scope of services provided to
mutual funds as compared with other investment advisory clients. Additionally, the Board considered the impact of any contractual breakpoints, voluntary waivers and expense limitation arrangements on the Fund’s net management fee and expenses.
The Board noted that, outside of the Fund’s management fee and the fees charged under a share class’s Rule 12b-1 and/or shareholder services plans, a share class’s most significant “other expenses” are transfer agent fees. Transfer agent fees are charged to the Fund based on the number of shareholder accounts (a “per-account” fee) as compared with certain other fees (e.g., management fees), which are charged based on the Fund’s average net assets. The Board took into account information from New York Life Investments showing that the Fund’s transfer agent fee schedule is reasonable, including industry data showing that the per-account fees that NYLIM Service Company LLC, the Fund’s transfer agent, charges the Fund are within the range of per-account fees charged by transfer agents to other mutual funds. In addition, the Board considered NYLIM Service Company LLC’s profitability in connection with the transfer agent services it provides to the Fund.
The Board considered that, because the Fund’s transfer agent fees are billed on a per-account basis, the impact of transfer agent fees on a share class’s expense ratio may be more significant in cases where the share class has a high number of accounts with limited assets (i.e., small accounts). The Board observed that transfer agent fees are a significant portion of total expenses of many Funds in the MainStay Group of Funds. The impact of transfer agent fees on the expense ratios of these MainStay Funds tend to be greater than for other open-end retail funds, because the MainStay Group of Funds generally has a significant number of small accounts relative to competitor funds. The Board acknowledged the role that the MainStay Group of Funds historically has played in serving the investment needs of New York Life Insurance Company (“New York Life”) policyholders, who often maintain smaller account balances than other fund investors. The Board also acknowledged measures that it and New York Life Investments have taken in recent years to mitigate the effect of small accounts on the expense ratios of Fund share classes, including: (i) encouraging New York Life agents to consolidate multiple small accounts held by the same investor into one MainStay Asset Allocation Fund account; (ii) increasing investment minimums from $500 to $1,000 in 2003; (iii) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iv) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (v) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (vi) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vii) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. In addition, the Board acknowledged New York Life Investments’ efforts to encourage intermediaries to consolidate small accounts in multiple Funds held by the same investor into a single Asset Allocation Fund account, if appropriate under the circumstances, in an effort to mitigate the effect of small accounts on the Funds in the MainStay Group of Funds.
mainstayinvestments.com | 53 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
After considering all of the factors outlined above, the Board concluded that the Fund’s management and subadvisory fees and total ordinary operating expenses were within a range that is competitive and, within the context of the Board’s overall conclusions regarding the Agreements, support a conclusion that these fees and expenses are reasonable.
Conclusion
On the basis of the information provided to it and its evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the Agreements.
54 | MainStay Unconstrained Bond Fund |
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 | 55 |
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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 Fund
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 Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund1
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund2
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 LLC3
New York, New York
Cornerstone Capital Management LLC3
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC3
Chicago, Illinois
MacKay Shields LLC3
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC3
New York, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP4
PricewaterhouseCoopers LLP5
1. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
2. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
3. An affiliate of New York Life Investment Management LLC.
4. For all Funds listed above except MainStay Marketfield Fund.
5. For MainStay Marketfield Fund only.
Not part of the Semiannual 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.
©2014 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-34236 MS164-14 | MSUB10-06/14 NL016 |
MainStay Government Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2014
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Message from the President
Stocks and bonds generally advanced during the six months ended April 30, 2014, but results varied across different markets, asset classes and regions.
According to Russell data, mid-capitalization stocks tended to provide the strongest returns, outperforming large-cap stocks overall. As a group, small-cap stocks tended to underperform their larger-capitalization counterparts. Value outperformed growth at all capitalization levels as the 2013 market rally ended and investors moved from rapid-growth stocks toward utilities, real estate investment trusts (REITs) and other stocks that tend to be more defensive.
The reporting period opened with investors still reacting to the government shutdown and asking questions about the debt ceiling and the so-called fiscal cliff. Even so, U.S. stocks climbed relatively steadily through the end of 2013. After reaching a high point in January, the U.S. stock market tumbled to its low point for the reporting period in early February, hurt by weaker economic data and severe weather in the Northeast. From that point, domestic stocks generally recovered, advancing to new highs before the end of the reporting period.
International stocks benefited from the European Central Bank’s accommodative policies and an improving European economy, despite high levels of debt and unemployment. In Japan, a weaker currency and accommodative central bank policies had fueled a stock rally in 2013, but Japanese stocks began to decline in mid-January on concerns about the Prime Minister’s economic policies, including a substantial increase in the nation’s sales tax. International stocks also felt the effects of tensions in Ukraine and slowing growth in China.
Throughout the reporting period, the Federal Reserve held the federal funds target rate in a range close to zero. On December 18, 2013, the Federal Open Market Committee announced plans to begin tapering its direct security purchases (widely known as quantitative easing) in January of 2014. The announcement led investors to anticipate rising interest rates.
According to U.S. Department of the Treasury data, yields did rise through the early part of 2014. After peaking early in the year, however, U.S. Treasury yields generally trended downward. As of April 30, 2014, yields at the short and long ends of the U.S. Treasury yield curve1 were slightly lower than at the beginning of the reporting period, while yields on 1- to 10-year U.S. Treasury securities had moved slightly higher.
In harmony with these trends, extensive tax-loss harvesting in the municipal market tended to push municipal yields higher in November and December. Redemptions slowed as the new year progressed, and a scarcity of municipal supply pushed municipal bond prices higher—and yields lower—during the last four months of the reporting period.
Throughout the reporting period, our portfolio managers pursued the investment objectives of their respective Funds within the investment strategies outlined in the Prospectus. Using time-tested security-selection, portfolio-monitoring and risk-management techniques, they sought to maximize exposure to potential opportunities while seeking to minimize exposure to unnecessary risks.
The report that follows provides additional information about the decisions, securities and market forces that affected your MainStay Fund during the six months ended April 30, 2014. We encourage you to read this information carefully. It can help you evaluate your diversification and assess your asset allocation as you pursue your long-range financial goals.
We thank you for choosing MainStay Funds, and we look forward to a lasting and productive relationship.
Sincerely,
Stephen P. Fisher
1. | 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 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. Past performance is no guarantee of future results.
Not part of the Semiannual 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 Period Ended April 30, 2014
Class | Sales Charge | Six Months | One Year | Five Years | Ten Years | Gross Expense Ratio2 | ||||||||||||||||||
Investor Class Shares3 | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges |
| –3.18 1.38 | %
|
| –5.71 –1.26 | %
|
| 1.88 2.82 | %
|
| 3.27 3.75 | %
|
| 1.21 1.21 | %
| |||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges |
| –3.07 1.50 |
|
| –5.52 –1.07 |
|
| 2.04 2.98 |
|
| 3.36 3.84 |
|
| 1.05 1.05 |
| |||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First | With sales charges Excluding sales charges |
| –4.11 0.89 |
|
| –6.94 –2.13 |
|
| 1.67 2.04 |
|
| 2.97 2.97 |
|
| 1.96 1.96 |
| |||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges |
| 0.00 1.00 |
|
| –2.98 –2.01 |
|
| 2.04 2.04 |
|
| 2.97 2.97 |
|
| 1.96 1.96 |
| |||||||
Class I Shares | No Sales Charge | 1.61 | –0.81 | 3.25 | 4.25 | 0.80 |
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. |
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 | Six Months | One Year | Five Years | Ten Years | ||||||||||||
Barclays U.S. Government Bond Index4 | 0.68 | % | –1.45 | % | 3.11 | % | 4.35 | % | ||||||||
Morningstar Intermediate Government Category Average5 | 1.11 | –1.05 | 3.49 | 3.99 |
4. | 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. |
5. | 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 November 1, 2013, to April 30, 2014, 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 November 1, 2013, to April 30, 2014.
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 April 30, 2014. 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 11/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/14 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/14 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,013.80 | $ | 6.24 | $ | 1,018.60 | $ | 6.26 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,015.00 | $ | 5.10 | $ | 1,019.70 | $ | 5.11 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,008.90 | $ | 9.91 | $ | 1,014.90 | $ | 9.94 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,010.00 | $ | 9.92 | $ | 1,014.90 | $ | 9.94 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,016.10 | $ | 3.85 | $ | 1,021.00 | $ | 3.86 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.25% for Investor Class, 1.02% for Class A, 1.99% for Class B and Class C and 0.77% for Class I) multiplied by the average account value over the period, divided by 365 and multiplied by 181 (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 April 30, 2014 (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 as of April 30, 2014 (excluding short-term investment) (Unaudited)
1. | Federal Home Loan Mortgage Corporation (Mortgage Pass-Through Securities), 4.00%, due 3/1/41 |
2. | Federal Home Loan Mortgage Corporation (Mortgage Pass-Through Securities), 4.00%, due 2/1/41 |
3. | Tennessee Valley Authority, 4.65%, due 6/15/35 |
4. | Federal National Mortgage Association (Mortgage Pass-Through Securities), 3.50%, due 11/1/25 |
5. | Overseas Private Investment Corporation, 5.142%, due 12/15/23 |
6. | Federal National Mortgage Association (Mortgage Pass-Through Securities), 4.50%, due 1/1/41 |
7. | Government National Mortgage Association (Mortgage Pass-Through Securities), 4.00%, due 10/15/41 |
8. | Federal Home Loan Mortgage Corporation (Mortgage Pass-Through Securities), 4.00%, due 12/1/40 |
9. | Federal Home Loan Mortgage Corporation (Mortgage Pass-Through Securities), 3.50%, due 11/1/25 |
10. | Government National Mortgage Association (Mortgage Pass-Through Securities), 4.50%, due 5/20/40 |
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 six months ended April 30, 2014?
Excluding all sales charges, MainStay Government Fund returned 1.38% for Investor Class shares, 1.50% for Class A shares, 0.89% for Class B shares and 1.00% for Class C shares for the six months ended April 30, 2014. Over the same period, the Fund’s Class I shares returned 1.61%. For the six months ended April 30, 2014, all share classes outperformed the 0.68% return of the Barclays U.S. Government Bond Index,1 which is the Fund’s broad-based securities-market index. Over the same period, Investor Class, Class A and Class I shares outperformed—and Class B and Class C shares underperformed—the 1.11% 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. The Fund would have experienced similar advantages relative to peer funds with longer durations than the Fund—but disadvantages relative to peer funds with shorter durations.
During the reporting period, the spread5 between the two- and 30-year benchmark points on the U.S. Treasury yield curve narrowed. This flattening of the curve may have detracted from the Fund’s performance relative to peers more concentrated in longer-duration securities.
Agency mortgage pass-throughs6 are the largest class of securities in the Fund. Our commitment to agency mortgage pass-throughs imparts a yield advantage over lower-yielding government-related securities, such as U.S. Treasury securities
and agency debentures. This yield advantage was a positive contributor to the Fund’s absolute return during the reporting period. (Contributions take weightings and total returns into account.) In addition to the yield advantage, agency mortgage pass-throughs provided higher total returns than comparable-duration U.S. Treasury securities during the reporting period. Agency mortgage-backed securities performed well because of muted volatility in U.S. Treasury yields, a low level of new mortgage-loan production and robust demand for mortgage-backed securities. Mortgage-sector exposure also contributed to the Fund’s performance relative to the Barclays U.S. Government Bond Index, which has no mortgage exposure, and relative to peers with less mortgage exposure than the Fund.
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. Ginnie Mae, Fannie Mae and Freddie Mac securities performed similarly during the reporting period. As a result, the Fund’s lower Ginnie Mae exposure is unlikely to have meaningfully affected performance relative to peers with larger allocations.
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 maintains an intermediate duration of approximately four years. The Fund’s 4.1 year duration at the end of the reporting period was roughly 1.3 years shorter than the duration of the Barclays U.S. Government Bond Index.
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 with 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.
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 |
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 we believe it positioned the Fund to benefit should the yield spread between mortgage-backed securities and comparable-duration U.S. Treasury securities compress. Also, interest rate volatility has moderated as U.S. Treasury yields have fluctuated in a fairly tight range. We believe that mortgage-backed securities are apt to do better when volatility is muted.
Most of the Fund’s residential mortgage exposure was in mortgage pass-throughs rather than collateralized mortgage obligations. In our opinion, the compensation currently demanded by the market for the better convexity7 of collateralized mortgage obligations seems excessive.
We favor mortgage-backed securities issued by Fannie Mae and Freddie Mac over Ginnie Mae securities because the price spread between Ginnie Mae and Fannie Mae/Freddie Mac pass-throughs is above historical norms. If the price spread were to revert to normal levels, then Ginnie Mae securities may have the potential to underperform Fannie Mae/Freddie Mac pass-through securities.
During the reporting period, which market segments were the strongest positive contributors to the Fund’s performance and which market segments were particularly weak?
Agency-related mortgage-backed securities outperformed comparable-duration U.S. Treasury securities for two reasons.
First, the volatility of U.S. Treasury yields was muted. Second, robust investor demand exceeded the tepid pace of mortgage-loan origination.
As U.S. Treasury yields rose during the reporting period, our duration posture added value relative to the Barclays U.S. Government Bond Index and relative to peers with longer durations.
The flattening of the U.S. Treasury yield curve between the 10-year and 30-year maturity points hampered the Fund’s performance relative to the Index and relative to peers with a larger concentration of longer-duration securities.
How did the Fund’s sector weightings change during the reporting period?
The Fund sold a portion of its non-government-related securities (corporate bonds and commercial mortgage-backed securities), which had the effect of increasing the Fund’s concentration in agency residential mortgage-backed securities.
How was the Fund positioned at the end of the reporting period?
As of April 30, 2014, 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. As of April 30, 2014, the Fund’s collective non-government exposure was about 4% of net assets, and the Fund held about 1% in cash or cash equivalents.
7. | Convexity is a mathematical measure of the sensitivity of an interest-bearing bond to changes in interest rates. |
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 Government Fund |
Portfolio of Investments April 30, 2014 (Unaudited)
Principal Amount | Value | |||||||
Long-Term Bonds 98.9%† Asset-Backed Security 1.6% | ||||||||
Utilities 1.6% | ||||||||
Atlantic City Electric Transition Funding LLC | $ | 2,525,000 | $ | 2,871,127 | ||||
|
| |||||||
Total Asset-Backed Security | 2,871,127 | |||||||
|
| |||||||
Corporate Bonds 1.8% | ||||||||
Real Estate Investment Trusts 1.2% | ||||||||
Host Hotels & Resorts, L.P. | 2,150,000 | 2,113,388 | ||||||
|
| |||||||
Telecommunications 0.6% | ||||||||
Crown Castle Towers LLC | 900,000 | 997,914 | ||||||
|
| |||||||
Total Corporate Bonds | 3,111,302 | |||||||
|
| |||||||
Mortgage-Backed Securities 1.2% | ||||||||
Commercial Mortgage Loans (Collateralized Mortgage Obligations) 0.4% |
| |||||||
Four Times Square Trust | 620,000 | 699,766 | ||||||
JP Morgan Chase Commercial Mortgage Securities Trust | 112,356 | 112,737 | ||||||
|
| |||||||
812,503 | ||||||||
|
| |||||||
Residential Mortgages (Collateralized Mortgage Obligations) 0.8% |
| |||||||
Citigroup Mortgage Loan Trust, Inc. | 381,909 | 351,329 | ||||||
Mortgage Equity Conversion Asset Trust | 1,284,313 | 1,027,451 | ||||||
|
| |||||||
1,378,780 | ||||||||
|
| |||||||
Total Mortgage-Backed Securities | 2,191,283 | |||||||
|
| |||||||
U.S. Government & Federal Agencies 94.3% | ||||||||
Fannie Mae Strip (Collateralized Mortgage Obligations) 0.1% |
| |||||||
Series 360, Class 2, IO | 394,938 | 60,792 | ||||||
Series 361, Class 2, IO | 80,155 | 15,153 | ||||||
|
| |||||||
75,945 | ||||||||
|
|
Principal Amount | Value | |||||||
Federal Home Loan Mortgage Corporation (Mortgage Pass-Through Securities) 23.4% |
| |||||||
2.25%, due 3/1/35 (c) | $ | 42,535 | $ | 44,881 | ||||
2.375%, due 6/1/35 (c) | 272,759 | 291,586 | ||||||
2.375%, due 2/1/37 (c) | 91,864 | 97,839 | ||||||
3.50%, due 10/1/25 | 627,145 | 661,033 | ||||||
¨3.50%, due 11/1/25 | 3,644,941 | 3,842,096 | ||||||
3.50%, due 7/1/42 | 521,474 | 529,573 | ||||||
4.00%, due 3/1/25 | 1,666,555 | 1,773,955 | ||||||
4.00%, due 7/1/25 | 557,338 | 593,267 | ||||||
4.00%, due 8/1/31 | 226,900 | 241,250 | ||||||
4.00%, due 8/1/39 | 402,922 | 424,096 | ||||||
¨4.00%, due 12/1/40 | 3,911,910 | 4,112,248 | ||||||
¨4.00%, due 2/1/41 | 6,261,819 | 6,577,518 | ||||||
¨4.00%, due 3/1/41 | 7,437,045 | 7,821,765 | ||||||
4.00%, due 4/1/41 | 671,210 | 703,435 | ||||||
4.00%, due 1/1/42 | 3,429,518 | 3,607,086 | ||||||
4.00%, due 12/1/42 | 959,569 | 1,000,757 | ||||||
4.00%, due 11/1/43 | 488,841 | 511,786 | ||||||
4.50%, due 3/1/41 | 1,124,793 | 1,212,613 | ||||||
4.50%, due 8/1/41 | 1,502,630 | 1,625,727 | ||||||
5.00%, due 1/1/20 | 163,838 | 176,296 | ||||||
5.00%, due 6/1/33 | 773,849 | 849,650 | ||||||
5.00%, due 8/1/33 | 649,163 | 712,943 | ||||||
5.00%, due 5/1/36 | 762,030 | 833,439 | ||||||
5.00%, due 10/1/39 | 1,201,981 | 1,335,404 | ||||||
5.50%, due 1/1/21 | 460,403 | 501,608 | ||||||
5.50%, due 11/1/35 | 615,948 | 687,531 | ||||||
5.50%, due 11/1/36 | 168,716 | 188,825 | ||||||
6.50%, due 4/1/37 | 124,766 | 140,248 | ||||||
|
| |||||||
41,098,455 | ||||||||
|
| |||||||
Federal National Mortgage Association (Mortgage Pass-Through Securities) 54.1% |
| |||||||
1.934%, due 11/1/34 (c) | 288,405 | 302,452 | ||||||
2.337%, due 4/1/34 (c) | 431,040 | 456,672 | ||||||
3.00%, due 10/1/32 | 1,215,097 | 1,223,713 | ||||||
3.50%, due 11/1/20 | 2,701,352 | 2,859,478 | ||||||
¨3.50%, due 11/1/25 | 5,669,533 | 5,981,012 | ||||||
3.50%, due 11/1/32 | 876,525 | 912,275 | ||||||
3.50%, due 2/1/41 | 2,797,205 | 2,841,659 | ||||||
3.50%, due 11/1/41 | 2,794,833 | 2,843,375 | ||||||
3.50%, due 12/1/41 | 352,962 | 359,006 | ||||||
3.50%, due 1/1/42 | 2,201,606 | 2,242,009 | ||||||
3.50%, due 3/1/42 | 2,567,295 | 2,608,139 | ||||||
3.50%, due 8/1/42 | 1,761,375 | 1,772,916 | ||||||
3.50%, due 12/1/42 | 907,187 | 923,045 | ||||||
3.50%, due 2/1/43 | 1,422,717 | 1,447,552 | ||||||
3.50%, due 5/1/43 | 913,141 | 927,951 | ||||||
4.00%, due 9/1/31 | 2,244,915 | 2,388,810 | ||||||
4.00%, due 2/1/41 | 1,028,336 | 1,082,251 |
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings, as of April 30, 2014, 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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
U.S. Government & Federal Agencies (continued) | ||||||||
Federal National Mortgage Association (Mortgage Pass-Through Securities) (continued) |
| |||||||
4.00%, due 3/1/41 | $ | 2,840,227 | $ | 2,992,028 | ||||
4.00%, due 10/1/41 | 666,797 | 702,373 | ||||||
4.00%, due 3/1/42 | 1,901,470 | 1,993,905 | ||||||
4.00%, due 4/1/42 | 884,226 | 927,405 | ||||||
4.00%, due 6/1/42 | 2,205,947 | 2,301,528 | ||||||
4.00%, due 7/1/42 | 2,115,011 | 2,205,082 | ||||||
4.50%, due 7/1/18 | 2,016,246 | 2,141,148 | ||||||
4.50%, due 11/1/18 | 1,232,573 | 1,309,039 | ||||||
4.50%, due 6/1/23 | 679,625 | 723,783 | ||||||
4.50%, due 6/1/39 | 3,304,909 | 3,584,727 | ||||||
4.50%, due 7/1/39 | 2,740,436 | �� | 2,980,307 | |||||
4.50%, due 8/1/39 | 1,871,693 | 2,031,971 | ||||||
4.50%, due 9/1/40 | 1,841,437 | 2,001,700 | ||||||
4.50%, due 12/1/40 | 2,782,099 | 3,005,066 | ||||||
¨4.50%, due 1/1/41 | 4,230,151 | 4,600,368 | ||||||
4.50%, due 2/1/41 | 1,066,368 | 1,157,702 | ||||||
4.50%, due 8/1/41 | 1,120,621 | 1,211,767 | ||||||
4.50%, due 12/1/43 | 929,562 | 998,309 | ||||||
5.00%, due 9/1/17 | 564,977 | 599,331 | ||||||
5.00%, due 9/1/20 | 57,861 | 61,451 | ||||||
5.00%, due 11/1/33 | 762,821 | 841,366 | ||||||
5.00%, due 6/1/35 | 718,673 | 791,526 | ||||||
5.00%, due 10/1/35 | 315,900 | 347,291 | ||||||
5.00%, due 1/1/36 | 165,672 | 182,152 | ||||||
5.00%, due 2/1/36 | 1,183,079 | 1,300,641 | ||||||
5.00%, due 5/1/36 | 814,153 | 894,809 | ||||||
5.00%, due 6/1/36 | 148,763 | 163,142 | ||||||
5.00%, due 9/1/36 | 216,392 | 237,965 | ||||||
5.00%, due 3/1/40 | 1,807,119 | 2,005,732 | ||||||
5.00%, due 2/1/41 | 3,111,524 | 3,467,856 | ||||||
5.50%, due 1/1/17 | 37,485 | 39,827 | ||||||
5.50%, due 2/1/17 | 790,585 | 839,931 | ||||||
5.50%, due 6/1/19 | 606,540 | 650,316 | ||||||
5.50%, due 11/1/19 | 728,325 | 789,036 | ||||||
5.50%, due 4/1/21 | 1,015,845 | 1,107,793 | ||||||
5.50%, due 6/1/33 | 2,233,067 | 2,495,309 | ||||||
5.50%, due 11/1/33 | 1,280,883 | 1,426,256 | ||||||
5.50%, due 12/1/33 | 1,537,433 | 1,715,346 | ||||||
5.50%, due 6/1/34 | 367,778 | 409,510 | ||||||
5.50%, due 12/1/34 | 127,739 | 142,077 | ||||||
5.50%, due 3/1/35 | 626,489 | 698,428 | ||||||
5.50%, due 12/1/35 | 159,924 | 177,761 | ||||||
5.50%, due 4/1/36 | 510,044 | 566,111 | ||||||
5.50%, due 9/1/36 | 164,864 | 183,632 | ||||||
5.50%, due 7/1/37 | 335,243 | 378,631 | ||||||
6.00%, due 12/1/16 | 72,276 | 74,990 | ||||||
6.00%, due 11/1/32 | 387,676 | 437,842 | ||||||
6.00%, due 1/1/33 | 307,061 | 346,094 | ||||||
6.00%, due 3/1/33 | 302,792 | 341,349 | ||||||
6.00%, due 9/1/34 | 114,513 | 127,799 |
Principal Amount | Value | |||||||
Federal National Mortgage Association (Mortgage Pass-Through Securities) (continued) |
| |||||||
6.00%, due 9/1/35 | $ | 965,478 | $ | 1,093,201 | ||||
6.00%, due 10/1/35 | 369,505 | 417,105 | ||||||
6.00%, due 6/1/36 | 318,208 | 356,235 | ||||||
6.00%, due 11/1/36 | 784,140 | 877,642 | ||||||
6.00%, due 4/1/37 | 135,155 | 146,962 | ||||||
6.50%, due 10/1/31 | 229,216 | 260,331 | ||||||
6.50%, due 2/1/37 | 98,334 | 112,671 | ||||||
|
| |||||||
95,145,970 | ||||||||
|
| |||||||
Government National Mortgage Association (Mortgage Pass-Through Securities) 9.9% |
| |||||||
4.00%, due 7/15/39 | 706,151 | 748,470 | ||||||
4.00%, due 9/20/40 | 2,917,385 | 3,094,140 | ||||||
4.00%, due 11/20/40 | 412,468 | 437,472 | ||||||
4.00%, due 1/15/41 | 2,708,932 | 2,871,338 | ||||||
¨4.00%, due 10/15/41 | 3,965,203 | 4,211,565 | ||||||
¨4.50%, due 5/20/40 | 3,324,207 | 3,613,823 | ||||||
5.00%, due 2/20/41 | 771,219 | 850,713 | ||||||
6.00%, due 8/15/32 | 468,838 | 540,168 | ||||||
6.00%, due 12/15/32 | 286,685 | 325,562 | ||||||
6.50%, due 8/15/28 | 169,994 | 196,065 | ||||||
6.50%, due 4/15/31 | 486,229 | 562,827 | ||||||
|
| |||||||
17,452,143 | ||||||||
|
| |||||||
¨Overseas Private Investment Corporation 3.4% |
| |||||||
5.142%, due 12/15/23 | 5,350,751 | 5,966,553 | ||||||
|
| |||||||
¨Tennessee Valley Authority 3.4% |
| |||||||
4.65%, due 6/15/35 | 5,605,000 | 6,031,182 | ||||||
|
| |||||||
Total U.S. Government & Federal Agencies | 165,770,248 | |||||||
|
| |||||||
Total Long-Term Bonds | 173,943,960 | |||||||
|
| |||||||
Short-Term Investment 0.9% | ||||||||
Repurchase Agreement 0.9% | ||||||||
State Street Bank and Trust Co. | 1,528,272 | 1,528,272 | ||||||
|
| |||||||
Total Short-Term Investment | 1,528,272 | |||||||
|
| |||||||
Total Investments | 99.8 | % | 175,472,232 | |||||
Other Assets, Less Liabilities | 0.2 | 299,564 | ||||||
Net Assets | 100.0 | % | $ | 175,771,796 |
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. |
Contracts Short | Unrealized Appreciation (Depreciation) (g) | |||||||
Futures Contracts (0.0%)‡ | ||||||||
United States Treasury Notes | (220 | ) | $ | 15,493 | ||||
United States Treasury Notes | (90 | ) | (44,490 | ) | ||||
|
| |||||||
Total Futures Contracts Short |
| $ | (28,997 | ) | ||||
|
|
‡ | 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) | Collateral strip rate—A bond whose interest was based on the weighted net interest rate of the collateral. The coupon rate adjusts periodically based on a predetermined schedule. Rate shown was the rate in effect as of April 30, 2014. |
(c) | Floating rate—Rate shown was the rate in effect as of April 30, 2014. |
(d) | Illiquid security—The total market value of these securities as of April 30, 2014, was $1,027,451, which represented 0.6% of the Fund’s net assets. |
(e) | Fair valued security—Represents fair value as measured in good faith under procedures approved by the Board of Trustees. As of April 30, 2014, the total market value of fair valued securities was $1,027,451, which represented 0.6% 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 was 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) | Represents the difference between the value of the contracts at the time they were opened and the value as of April 30, 2014. |
(h) | As of April 30, 2014, cash in the amount of $315,000 is on deposit with a broker for futures transactions. |
(i) | As of April 30, 2014, cost was $169,509,349 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 7,332,389 | ||
Gross unrealized depreciation | (1,369,506 | ) | ||
|
| |||
Net unrealized appreciation | $ | 5,962,883 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 13 |
The following is a summary of the fair valuations according to the inputs used as of April 30, 2014, 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 | $ | — | $ | 2,871,127 | $ | — | $ | 2,871,127 | ||||||||
Corporate Bonds | — | 3,111,302 | — | 3,111,302 | ||||||||||||
Mortgage-Backed Securities (b) | — | 1,163,832 | 1,027,451 | 2,191,283 | ||||||||||||
U.S. Government & Federal Agencies | — | 165,770,248 | — | 165,770,248 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Long-Term Bonds | — | 172,916,509 | 1,027,451 | 173,943,960 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 1,528,272 | — | 1,528,272 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | — | 174,444,781 | 1,027,451 | 175,472,232 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts Short (c) | 15,493 | — | — | 15,493 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities and Other Financial Instruments | $ | 15,493 | $ | 174,444,781 | $ | 1,027,451 | $ | 175,487,725 | ||||||||
|
|
|
|
|
|
|
|
Portfolio of Investments April 30, 2014 (Unaudited) (continued)
Liability Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts Short (c) | $ | (44,490 | ) | $ | — | $ | — | $ | (44,490 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
Total Other Financial Instruments | $ | (44,490 | ) | $ | — | $ | — | $ | (44,490 | ) | ||||||
|
|
|
|
|
|
|
|
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The Level 3 security valued at $1,027,451 is held in Residential Mortgage (Collateralized Mortgage Obligation) 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 period ended April 30, 2014, the Fund did not have an 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 | Balance as of | Accrued Discounts (Premiums) | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Purchases | Sales | Transfers Level 3 | Transfers out of Level 3 | Balance as of | Change in 2014 (a) | ||||||||||||||||||||||||||||||
Long-Term Bonds | ||||||||||||||||||||||||||||||||||||||||
Mortgage-Backed Securities | ||||||||||||||||||||||||||||||||||||||||
Residential Mortgage (Collateralized Mortgage Obligation) | $ | 1,026,952 | $ | 676 | $ | 4,274 | $ | 118,048 | $ | — | $ | (122,499 | )(b) | $ | — | $ | — | $ | 1,027,451 | $ | 68,566 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total | $ | 1,026,952 | $ | 676 | $ | 4,274 | $ | 118,048 | $ | — | $ | (122,499 | ) | $ | — | $ | — | $ | 1,027,451 | $ | 68,566 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Included in “Net change in unrealized appreciation (depreciation) on investments” in the Statement of Operations. |
(b) | Sales include principal reductions. |
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. |
Statement of Assets and Liabilities as of April 30, 2014 (Unaudited)
Assets | ||||
Investment in securities, at value (identified cost $169,509,349) | $ | 175,472,232 | ||
Cash collateral on deposit at broker | 315,000 | |||
Receivables: | ||||
Interest | 677,674 | |||
Fund shares sold | 25,831 | |||
Investment securities sold | 3,769 | |||
Other assets | 42,793 | |||
|
| |||
Total assets | 176,537,299 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Fund shares redeemed | 308,521 | |||
Transfer agent (See Note 3) | 117,147 | |||
Variation margin on futures contracts | 105,000 | |||
Manager (See Note 3) | 85,157 | |||
NYLIFE Distributors (See Note 3) | 49,243 | |||
Shareholder communication | 35,657 | |||
Professional fees | 32,170 | |||
Trustees | 681 | |||
Custodian | 190 | |||
Accrued expenses | 2,375 | |||
Dividend payable | 29,362 | |||
|
| |||
Total liabilities | 765,503 | |||
|
| |||
Net assets | $ | 175,771,796 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 204,960 | ||
Additional paid-in capital | 168,636,118 | |||
|
| |||
168,841,078 | ||||
Distributions in excess of net investment income | (26,769 | ) | ||
Accumulated net realized gain (loss) on investments and futures transactions | 1,023,601 | |||
Net unrealized appreciation (depreciation) on investments and futures contracts | 5,933,886 | |||
|
| |||
Net assets | $ | 175,771,796 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 47,556,986 | ||
|
| |||
Shares of beneficial interest outstanding | 5,530,368 | |||
|
| |||
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 | $ | 102,797,711 | ||
|
| |||
Shares of beneficial interest outstanding | 12,001,629 | |||
|
| |||
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 | $ | 12,046,708 | ||
|
| |||
Shares of beneficial interest outstanding | 1,406,532 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 8.56 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 9,716,520 | ||
|
| |||
Shares of beneficial interest outstanding | 1,135,116 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 8.56 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 3,653,871 | ||
|
| |||
Shares of beneficial interest outstanding | 422,327 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 8.65 | ||
|
|
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 six months ended April 30, 2014 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 3,340,407 | ||
|
| |||
Expenses | ||||
Manager (See Note 3) | 471,744 | |||
Distribution/Service—Investor Class (See Note 3) | 60,191 | |||
Distribution/Service—Class A (See Note 3) | 141,038 | |||
Distribution/Service—Class B (See Note 3) | 67,188 | |||
Distribution/Service—Class C (See Note 3) | 54,375 | |||
Transfer agent (See Note 3) | 271,884 | |||
Registration | 33,508 | |||
Professional fees | 29,192 | |||
Shareholder communication | 24,007 | |||
Custodian | 9,466 | |||
Trustees | 2,063 | |||
Miscellaneous | 6,458 | |||
|
| |||
Total expenses before waiver/reimbursement | 1,171,114 | |||
Expense waiver/reimbursement from Manager (See Note 3) | (40,400 | ) | ||
|
| |||
Net expenses | 1,130,714 | |||
|
| |||
Net investment income (loss) | 2,209,693 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments and Futures Contracts | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 912,468 | |||
Futures transactions | (686,368 | ) | ||
|
| |||
Net realized gain (loss) on investments and futures transactions | 226,100 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (932,079 | ) | ||
Futures contracts | 768,653 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on investments and futures contracts | (163,426 | ) | ||
|
| |||
Net realized and unrealized gain (loss) on investments and futures transactions | 62,674 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 2,272,367 | ||
|
|
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. |
Statements of Changes in Net Assets
for the six months ended April 30, 2014 (Unaudited) and the year ended October 31, 2013
2014 | 2013 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 2,209,693 | $ | 5,136,274 | ||||
Net realized gain (loss) on investments and futures transactions | 226,100 | 1,220,334 | ||||||
Net change in unrealized appreciation (depreciation) on investments and futures contracts | (163,426 | ) | (13,506,447 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 2,272,367 | (7,149,839 | ) | |||||
|
| |||||||
Dividends and distributions to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (559,880 | ) | (1,111,828 | ) | ||||
Class A | (1,409,428 | ) | (3,529,657 | ) | ||||
Class B | (105,196 | ) | (240,849 | ) | ||||
Class C | (84,879 | ) | (251,321 | ) | ||||
Class I | (47,421 | ) | (100,949 | ) | ||||
|
| |||||||
(2,206,804 | ) | (5,234,604 | ) | |||||
|
| |||||||
From net realized gain on investments: | ||||||||
Investor Class | (103,815 | ) | (199,692 | ) | ||||
Class A | (225,506 | ) | (601,802 | ) | ||||
Class B | (29,851 | ) | (75,460 | ) | ||||
Class C | (24,923 | ) | (94,570 | ) | ||||
Class I | (7,198 | ) | (19,247 | ) | ||||
|
| |||||||
(391,293 | ) | (990,771 | ) | |||||
|
| |||||||
Total dividends and distributions to shareholders | (2,598,097 | ) | (6,225,375 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 9,623,563 | 15,207,807 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 2,391,506 | 5,625,135 | ||||||
Cost of shares redeemed | (60,289,423 | ) | (70,561,537 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | (48,274,354 | ) | (49,728,595 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets | (48,600,084 | ) | (63,103,809 | ) | ||||
Net Assets | ||||||||
Beginning of period | 224,371,880 | 287,475,689 | ||||||
|
| |||||||
End of period | $ | 175,771,796 | $ | 224,371,880 | ||||
|
| |||||||
Distributions in excess of net investment income at end of period | $ | (26,769 | ) | $ | (29,658 | ) | ||
|
|
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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Investor Class | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 8.60 | $ | 9.05 | $ | 8.90 | $ | 9.03 | $ | 8.75 | $ | 8.16 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.10 | 0.18 | 0.21 | 0.23 | 0.21 | 0.26 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.02 | (0.42 | ) | 0.17 | (0.00 | )‡ | 0.28 | 0.59 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.12 | (0.24 | ) | 0.38 | 0.23 | 0.49 | 0.85 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.10 | ) | (0.18 | ) | (0.21 | ) | (0.27 | ) | (0.21 | ) | (0.26 | ) | ||||||||||||||
From net realized gain on investments | (0.02 | ) | (0.03 | ) | (0.02 | ) | (0.09 | ) | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.12 | ) | (0.21 | ) | (0.23 | ) | (0.36 | ) | (0.21 | ) | (0.26 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 8.60 | $ | 8.60 | $ | 9.05 | $ | 8.90 | $ | 9.03 | $ | 8.75 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 1.38 | %(c) | (2.66 | %) | 4.42 | % | 2.73 | % | 5.67 | % | 10.67 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 2.31 | %†† | 2.01 | % | 2.32 | % | 2.61 | % | 2.37 | % | 2.99 | % | ||||||||||||||
Net expenses | 1.25 | %†† | 1.19 | % | 1.17 | % | 1.17 | % | 1.15 | % | 1.04 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.29 | %†† | 1.25 | % | 1.28 | % | 1.31 | % | 1.32 | % | 1.34 | % | ||||||||||||||
Portfolio turnover rate (d) | 6 | % | 28 | % | 37 | % | 62 | % | 132 | % | 103 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 47,557 | $ | 50,200 | $ | 57,666 | $ | 59,533 | $ | 62,350 | $ | 63,591 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
(d) | The portfolio turnover rates not including mortgage dollar rolls were 6%, 7%, 16%, 43%, 19% and 45% for the six months ended April 30, 2014 and for the years ended October 31, 2013, 2012, 2011, 2010 and 2009, respectively. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class A | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 8.57 | $ | 9.02 | $ | 8.86 | $ | 9.00 | $ | 8.72 | $ | 8.13 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.11 | 0.19 | 0.22 | 0.24 | 0.22 | 0.27 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.02 | (0.41 | ) | 0.19 | (0.01 | ) | 0.28 | 0.59 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.13 | (0.22 | ) | 0.41 | 0.23 | 0.50 | 0.86 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.11 | ) | (0.20 | ) | (0.23 | ) | (0.28 | ) | (0.22 | ) | (0.27 | ) | ||||||||||||||
From net realized gain on investments | (0.02 | ) | (0.03 | ) | (0.02 | ) | (0.09 | ) | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.13 | ) | (0.23 | ) | (0.25 | ) | (0.37 | ) | (0.22 | ) | (0.27 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 8.57 | $ | 8.57 | $ | 9.02 | $ | 8.86 | $ | 9.00 | $ | 8.72 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 1.50 | %(c) | (2.50 | %) | 4.70 | % | 2.76 | % | 5.81 | % | 10.71 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 2.51 | %†† | 2.17 | % | 2.46 | % | 2.74 | % | 2.49 | % | 3.11 | % | ||||||||||||||
Net expenses | 1.02 | %†† | 1.03 | % | 1.03 | % | 1.03 | % | 1.03 | % | 0.92 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.06 | %†† | 1.09 | % | 1.14 | % | 1.17 | % | 1.20 | % | 1.21 | % | ||||||||||||||
Portfolio turnover rate (d) | 6 | % | 28 | % | 37 | % | 62 | % | 132 | % | 103 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 102,798 | $ | 143,234 | $ | 174,621 | $ | 176,253 | $ | 187,828 | $ | 187,771 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
(d) | The portfolio turnover rates not including mortgage dollar rolls were 6%, 7%, 16%, 43%, 19% and 45% for the six months ended April 30, 2014 and for the years ended October 31, 2013, 2012, 2011, 2010 and 2009, respectively. |
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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class B | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 8.57 | $ | 9.02 | $ | 8.86 | $ | 9.00 | $ | 8.71 | $ | 8.13 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.07 | 0.11 | 0.14 | 0.16 | 0.14 | 0.19 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.01 | (0.42 | ) | 0.19 | (0.00 | )‡ | 0.29 | 0.59 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.08 | (0.31 | ) | 0.33 | 0.16 | 0.43 | 0.78 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.07 | ) | (0.11 | ) | (0.15 | ) | (0.21 | ) | (0.14 | ) | (0.20 | ) | ||||||||||||||
From net realized gain on investments | (0.02 | ) | (0.03 | ) | (0.02 | ) | (0.09 | ) | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.09 | ) | (0.14 | ) | (0.17 | ) | (0.30 | ) | (0.14 | ) | (0.20 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 8.56 | $ | 8.57 | $ | 9.02 | $ | 8.86 | $ | 9.00 | $ | 8.71 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 0.89 | %(c) | (3.40 | %) | 3.77 | % | 1.85 | % | 5.02 | % | 9.62 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 1.55 | %†† | 1.26 | % | 1.57 | % | 1.85 | % | 1.62 | % | 2.24 | % | ||||||||||||||
Net expenses | 1.99 | %†† | 1.94 | % | 1.92 | % | 1.92 | % | 1.90 | % | 1.79 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 2.03 | %†† | 2.00 | % | 2.03 | % | 2.06 | % | 2.07 | % | 2.09 | % | ||||||||||||||
Portfolio turnover rate (d) | 6 | % | 28 | % | 37 | % | 62 | % | 132 | % | 103 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 12,047 | $ | 14,783 | $ | 21,826 | $ | 25,644 | $ | 36,859 | $ | 45,178 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
(d) | The portfolio turnover rates not including mortgage dollar rolls were 6%, 7%, 16%, 43%, 19% and 45% for the six months ended April 30, 2014 and for the years ended October 31, 2013, 2012, 2011, 2010 and 2009, respectively. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class C | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 8.56 | $ | 9.01 | $ | 8.86 | $ | 9.00 | $ | 8.71 | $ | 8.12 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.07 | 0.11 | 0.14 | 0.16 | 0.14 | 0.19 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.02 | (0.42 | ) | 0.18 | (0.00 | )‡ | 0.29 | 0.60 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.09 | (0.31 | ) | 0.32 | 0.16 | 0.43 | 0.79 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.07 | ) | (0.11 | ) | (0.15 | ) | (0.21 | ) | (0.14 | ) | (0.20 | ) | ||||||||||||||
From net realized gain on investments | (0.02 | ) | (0.03 | ) | (0.02 | ) | (0.09 | ) | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.09 | ) | (0.14 | ) | (0.17 | ) | (0.30 | ) | (0.14 | ) | (0.20 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 8.56 | $ | 8.56 | $ | 9.01 | $ | 8.86 | $ | 9.00 | $ | 8.71 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 1.00 | %(c) | (3.41 | %) | 3.66 | % | 1.85 | % | 5.02 | % | 9.75 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 1.55 | %†† | 1.24 | % | 1.57 | % | 1.86 | % | 1.62 | % | 2.23 | % | ||||||||||||||
Net expenses | 1.99 | %†† | 1.94 | % | 1.92 | % | 1.92 | % | 1.90 | % | 1.80 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 2.03 | %†† | 2.00 | % | 2.03 | % | 2.06 | % | 2.07 | % | 2.09 | % | ||||||||||||||
Portfolio turnover rate (d) | 6 | % | 28 | % | 37 | % | 62 | % | 132 | % | 103 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 9,717 | $ | 12,593 | $ | 27,610 | $ | 29,441 | $ | 33,523 | $ | 32,659 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
(d) | The portfolio turnover rates not including mortgage dollar rolls were 6%, 7%, 16%, 43%, 19% and 45% for the six months ended April 30, 2014 and 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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class I | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 8.65 | $ | 9.10 | $ | 8.94 | $ | 9.08 | $ | 8.79 | $ | 8.19 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.12 | 0.21 | 0.24 | 0.26 | 0.24 | 0.30 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.02 | (0.41 | ) | 0.19 | (0.00 | )‡ | 0.29 | 0.61 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.14 | (0.20 | ) | 0.43 | 0.26 | 0.53 | 0.91 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.12 | ) | (0.22 | ) | (0.25 | ) | (0.31 | ) | (0.24 | ) | (0.31 | ) | ||||||||||||||
From net realized gain on investments | (0.02 | ) | (0.03 | ) | (0.02 | ) | (0.09 | ) | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.14 | ) | (0.25 | ) | (0.27 | ) | (0.40 | ) | (0.24 | ) | (0.31 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 8.65 | $ | 8.65 | $ | 9.10 | $ | 8.94 | $ | 9.08 | $ | 8.79 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 1.61 | %(c) | (2.24 | %) | 4.92 | % | 2.99 | % | 6.14 | % | 11.21 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 2.79 | %†† | 2.42 | % | 2.69 | % | 2.99 | % | 2.74 | % | 3.52 | % | ||||||||||||||
Net expenses | 0.77 | %†† | 0.78 | % | 0.78 | % | 0.78 | % | 0.78 | % | 0.51 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 0.81 | %†† | 0.84 | % | 0.89 | % | 0.92 | % | 0.95 | % | 0.97 | % | ||||||||||||||
Portfolio turnover rate (d) | 6 | % | 28 | % | 37 | % | 62 | % | 132 | % | 103 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 3,654 | $ | 3,561 | $ | 5,753 | $ | 3,998 | $ | 4,284 | $ | 1,746 |
* | Unaudited. |
†† | 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 I shares are not subject to sales charges. |
(c) | Total investment return is not annualized. |
(d) | The portfolio turnover rates not including mortgage dollar rolls were 6%, 7%, 16%, 43%, 19% and 45% for the six months ended April 30, 2014 and 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. |
Notes to Financial Statements (Unaudited)
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 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”) adopted procedures for the valuation of the Fund’s securities and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board 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 Sub-Committee deals in the first instance with such valuation and 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. Any action taken by the Sub-Committee with respect to the valuation of a portfolio security is submitted by the Valuation Committee to the Board for its review at its next regularly scheduled meeting immediately after such action.
“Fair value” is defined as the price that the Fund would receive upon selling an asset or liability in an orderly transaction to an independent buyer in the principal or most advantageous market for the asset or liability. Fair value measurements are determined within a framework that 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” refer 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 based on the information available. 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 below.
• | Level 1—quoted prices in active markets for an identical asset or liability |
• | Level 2—other significant observable inputs (including quoted prices for a similar asset or liability in active markets, interest rates and yield curves, prepayment speeds, credit risk etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring fair value of an asset or liability) |
mainstayinvestments.com | 21 |
Notes to Financial Statements (Unaudited) (continued)
The aggregate value by input level, as of April 30, 2014, for the Fund’s assets or liabilities is included at the end of the Fund’s Portfolio of Investments.
The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs among others:
• 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 |
An asset or liability for which market values cannot be measured using the methodologies described above are valued by methods deemed reasonable and in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund generally 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 asset or liability are discounted to calculate fair value. Discounts may also be applied due to the nature and/or duration of any restrictions on the disposition of the asset or liability. Due to the inherent valuation uncertainty of such assets or liabilities, fair values may differ significantly from values that would have been used had an active market existed. For the six-month period ended April 30, 2014, there have been no material 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 readily available from a third party pricing source or, if so provided, does not, in the opinion of the Manager or Subadvisor reflect the security’s market value; (vi) a security subject to trading collars for which no or limited trading takes place; and (vii) 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 April 30, 2014, 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 Manager, in consultation with the Subadvisor. Those prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Manager, in consultation with the Subadvisor, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities purchased on a 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 at the time of purchase (“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 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
22 | MainStay Government 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) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends from net investment income, if any, at least monthly and distributions from 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. The straight-line method approximates the effective interest method for short-term investments. Income from payment-in-kind securities is recorded daily based on the effective interest method of accrual. 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 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 if 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 market 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 they simultaneously agree to buy a similar
mainstayinvestments.com | 23 |
Notes to Financial Statements (Unaudited) (continued)
security on a delayed delivery basis. The dollar roll transactions of the Fund are generally 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.
(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 April 30, 2014.
(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. The amounts disclosed in the table represent the monthly average held during the six-month period ended April 30, 2014.
Fair value of derivatives instruments as of April 30, 2014:
Asset 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) | $ | 15,493 | $ | 15,493 | |||||
|
| |||||||||
Total Fair Value | $ | 15,493 | $ | 15,493 | ||||||
|
|
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) | $ | (44,490 | ) | $ | (44,490 | ) | |||
|
| |||||||||
Total Fair Value | $ | (44,490 | ) | $ | (44,490 | ) | ||||
|
|
(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 period ended April 30, 2014:
Realized Gain (Loss)
Statement of Operations Location | Interest Rate Contracts Risk | Total | ||||||||
Futures Contracts | Net realized gain (loss) on futures transactions | $ | (686,368 | ) | $ | (686,368 | ) | |||
|
| |||||||||
Total Realized Gain (Loss) | $ | (686,368 | ) | $ | (686,368 | ) | ||||
|
|
24 | MainStay Government Fund |
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 | $ | 768,653 | $ | 768,653 | |||||
|
| |||||||||
Total Change in Unrealized Appreciation (Depreciation) | $ | 768,653 | $ | 768,653 | ||||||
|
|
Number of Contracts, Notional Amounts or Shares/Units
Interest Rate Contracts Risk | Total | |||||||
Futures Contracts Short (Average number of contracts) | (310 | ) | (310 | ) | ||||
|
|
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 compensation 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 the 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 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.
The effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.50% for the six-month period ended April 30, 2014.
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 1.00% 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, 2015, 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. 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. 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, 2014, New York Life Investments had contractually agreed to waive fees and/or reimburse expenses so that Total Annual Fund Operating Expenses for the Fund’s Class A shares did not exceed 1.03% of its average daily net assets.
For the six-month period ended April 30, 2014, New York Life Investments earned fees from the Fund in the amount of $471,744 and waived its fees and/or reimbursed expenses in the amount of $40,400.
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 $2,314 and $3,200, respectively, for the six-month period ended April 30, 2014. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $7, $14, $18,398 and $148, respectively, for the six-month period ended April 30, 2014.
mainstayinvestments.com | 25 |
Notes to Financial Statements (Unaudited) (continued)
(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 six-month period ended April 30, 2014, were as follows:
Investor Class | $ | 102,317 | ||
Class A | 114,588 | |||
Class B | 28,556 | |||
Class C | 23,114 | |||
Class I | 3,309 |
(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
The tax character of distributions paid during the year ended October 31, 2013, shown in the Statements of Changes in Net Assets was as follows:
2013 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 5,193,857 | ||
Long-Term Capital Gain | 1,031,518 | |||
Total | $ | 6,225,375 |
Note 5–Custodian
State Street is the custodian of cash and securities held by the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities held by 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, who serves as the agent 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. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the six-month period ended April 30, 2014.
Note 7–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2014, purchases and sales of U.S. government securities were $11,398 and $41,223, respectively. Purchases and sales of securities, other than U.S. government securities and short-term securities, were $0 and $19,007, respectively.
Note 8–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 120,174 | $ | 1,029,162 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 73,932 | 632,221 | ||||||
Shares redeemed | (505,773 | ) | (4,333,057 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (311,667 | ) | (2,671,674 | ) | ||||
Shares converted into Investor Class (See Note 1) | 75,709 | 648,183 | ||||||
Shares converted from Investor Class (See Note 1) | (69,871 | ) | (597,040 | ) | ||||
|
| |||||||
Net increase (decrease) | (305,829 | ) | $ | (2,620,531 | ) | |||
|
| |||||||
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 | ) | |||
|
|
26 | MainStay Government Fund |
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 741,222 | $ | 6,334,727 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 175,257 | 1,493,463 | ||||||
Shares redeemed | (5,729,044 | ) | (48,840,249 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (4,812,565 | ) | (41,012,059 | ) | ||||
Shares converted into Class A (See Note 1) | 99,375 | 845,507 | ||||||
|
| |||||||
Net increase (decrease) | (4,713,190 | ) | $ | (40,166,552 | ) | |||
|
| |||||||
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 | ) | |||
|
| |||||||
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 65,426 | $ | 558,059 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 14,001 | 119,203 | ||||||
Shares redeemed | (293,195 | ) | (2,501,233 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (213,768 | ) | (1,823,971 | ) | ||||
Shares converted from Class B (See Note 1) | (105,238 | ) | (896,650 | ) | ||||
|
| |||||||
Net increase (decrease) | (319,006 | ) | $ | (2,720,621 | ) | |||
|
| |||||||
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 | ) | |||
|
| |||||||
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 57,830 | $ | 493,021 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 11,493 | 97,749 | ||||||
Shares redeemed | (404,926 | ) | (3,451,576 | ) | ||||
|
| |||||||
Net increase (decrease) | (335,603 | ) | $ | (2,860,806 | ) | |||
|
| |||||||
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 | ) | |||
|
| |||||||
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 140,175 | $ | 1,208,594 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 5,679 | 48,870 | ||||||
Shares redeemed | (135,057 | ) | (1,163,308 | ) | ||||
|
| |||||||
Net increase (decrease) | 10,797 | $ | 94,156 | |||||
|
| |||||||
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 | ) | |||
|
|
Note 9–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the six-month period ended April 30, 2014, events and transactions subsequent to April 30, 2014, 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 | 27 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”) requires that each mutual fund’s board of trustees, including a majority of the independent trustees, annually review and approve the fund’s investment advisory agreements. At its December 10-11, 2013 meeting, the Board of Trustees of the MainStay Group of Funds (“Board”) unanimously approved the Management Agreement with respect to the MainStay Government Fund (“Fund”) and New York Life Investment Management LLC (“New York Life Investments”) and the Subadvisory Agreement between New York Life Investments and MacKay Shields LLC (“MacKay Shields.”) with respect to the Fund.
In reaching its decision to approve the Agreements, the Board considered information furnished by New York Life Investments and MacKay Shields in connection with a contract review process that took place at various meetings of the Board and its Contracts Committee between September 2013 and December 2013 as well as other relevant information furnished to the Board throughout the year by New York Life Investments and MacKay Shields. Information requested by and furnished to the Board in connection with the contract review process included, among other items, reports on the Fund and “peer funds” prepared by Strategic Insight Mutual Fund Research and Consulting, LLC (“Strategic Insight”), an independent third-party service provider engaged by the Board to report objectively on the Fund’s investment performance, management and subadvisory fees and ordinary operating expenses. The Board also considered information provided by New York Life Investments and MacKay Shields on the fees charged to other investment advisory clients (including institutional separate accounts) that follow investment strategies similar to the Fund and the rationale for any differences in the Fund’s management and subadvisory fees and the fees charged to those other investment advisory clients. In addition, the Board requested and received information on the profitability of the Fund to New York Life Investments and its affiliates, including MacKay Shields as subadvisor to the Fund and responses from New York Life Investments and MacKay Shields to a series of questions encompassing a variety of topics prepared on behalf of the Board by independent legal counsel to the Board and its independent trustees (the “Independent Trustees”). Information provided to the Board at its meetings throughout the year included, among other items, detailed investment performance reports on the Fund prepared by the Investment Consulting Group at New York Life Investments. The structure and format for this regular reporting were developed in consultation with the Board. The Board also received from New York Life Investments throughout the year, among other items, periodic reports on legal and compliance matters, portfolio turnover, and sales and marketing activity.
In considering the Agreements, the members of the Board reviewed and evaluated all of the information and factors they believed to be relevant and appropriate in light of legal advice furnished to them by independent legal counsel and through the exercise of their own business judgment. The broad factors considered by the Board are discussed in greater detail below and included, among other items: (i) the nature, scope and quality of the services provided to the Fund by New York Life Investments and MacKay Shields; (ii) the investment performance of the Fund, New York Life Investments and MacKay Shields; (iii) the costs of the services provided, and profits realized, by New York Life Investments and MacKay Shields from their relationships with the
Fund; (iv) the extent to which economies of scale may be realized as the Fund grows and the extent to which economies of scale may benefit Fund investors; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to similar funds and accounts managed by New York Life Investments and MacKay Shields and peer funds identified by Strategic Insight.
While individual members of the Board may have weighed certain factors differently, the Board’s decision to approve the Agreements was based on a consideration of all the information provided to the Board, including information provided to the Board throughout the year and specifically in connection with the contract review process. The Board’s conclusions with respect to the Agreements also were based, in part, on the Board’s consideration of the Agreements in prior years. In addition to considering the above-referenced factors, the Board observed that in the marketplace there are a range of investment options available to shareholders of the Fund and that the Fund’s shareholders, having had the opportunity to consider other investment options, have chosen to invest in the Fund. A more detailed discussion of the factors that figured prominently in the Board’s decisions to approve the Agreements is provided below.
Nature, Scope and Quality of Services to Be Provided by New York Life Investments and MacKay Shields
The Board examined the nature, scope and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience in serving as manager of the Fund, noting that New York Life Investments manages other mutual funds, serves a variety of other investment advisory clients, including other pooled investment vehicles, and has experience with overseeing mutual fund service providers, including subadvisors. The Board considered the experience of senior personnel at New York Life Investments providing management and administrative services to the Fund as well as New York Life Investments’ reputation and financial condition. The Board also considered the full range of non-advisory services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and oversight services provided by New York Life Investments’ Fund Accounting and Administration Group; (ii) investment oversight and analytical services provided by New York Life Investments’ Investment Consulting Group; (iii) compliance services provided by the Fund’s Chief Compliance Officer as well as New York Life Investments’ compliance department, including oversight and implementation of the Fund’s compliance program; and (iv) legal services provided by New York Life Investments’ Office of the General Counsel. Additional information about the non-advisory services provided by New York Life Investments is set forth in the Fund’s Management Agreement. The Board also considered New York Life Investments’ willingness to invest in personnel and infrastructure that benefit the Fund and noted that New York Life Investments is responsible for compensating the Fund’s officers. The Board also considered benefits to shareholders of being part of the MainStay Group of Funds, including the privilege of exchanging investments between the same class of shares without the imposition of a sales charge, as described more fully in the Fund’s prospectus.
28 | MainStay Government Fund |
The Board also examined the nature, scope and quality of the advisory services that MacKay Shields provides to the Fund. The Board evaluated MacKay Shields’ experience in serving as subadvisor to the Fund and managing other portfolios. It examined MacKay Shields’ track record and experience in providing investment advisory services, the experience of investment advisory, senior management and administrative personnel at MacKay Shields, and MacKay Shields’ overall legal and compliance environment. The Board also reviewed MacKay Shields’ willingness to invest in personnel that benefit the Fund. In this regard, the Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers and the method for compensating portfolio managers.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund should continue to benefit from the nature, scope and quality of these services as a result of New York Life Investments’ and MacKay Shields’ experience, personnel, operations and resources.
Investment Performance
In evaluating the Fund’s investment performance, the Board considered investment performance results in light of the Fund’s investment objective, strategies and risks, as disclosed in the Fund’s prospectus. The Board particularly considered detailed investment reports on the Fund’s performance provided to the Board throughout the year by the Investment Consulting Group of New York Life Investments. These reports include, among other items, information on the Fund’s gross and net returns, the Fund’s investment performance relative to relevant investment categories and Fund benchmarks, the Fund’s risk-adjusted investment performance, and the Fund’s investment performance as compared to peer funds, as appropriate. The Board also considered information provided by Strategic Insight showing the investment performance of the Fund as compared to peer funds.
In considering the Fund’s investment performance, the Board focused principally on the Fund’s long-term performance track record. The Board also gave weight to its ongoing discussions with senior management at New York Life Investments concerning the Fund’s investment performance as well as discussions between the Fund’s portfolio managers and the Board that generally occur on an annual basis. In addition, the Board considered any specific actions that New York Life Investments or MacKay Shields had taken, or had agreed with the Board to take, to enhance Fund investment performance and the results of those actions.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the long-term investment performance of the Fund, along with ongoing efforts by New York Life Investments and MacKay Shields to enhance investment returns, supported a determination to approve the Agreements. The Fund discloses more information about investment performance in the Portfolio Management Discussion and Analysis, Investment and Performance Comparison and Financial Highlights sections of this Semiannual Report and in the Fund’s prospectus.
Costs of the Services Provided, and Profits Realized, by New York Life Investments and MacKay Shields
The Board considered the costs of the services provided by New York Life Investments and MacKay Shields under the Agreements and the profits realized by New York Life Investments and its affiliates, including MacKay Shields, due to their relationships with the Fund. Because MacKay Shields is an affiliate of New York Life Investments whose subadvisory fees are paid directly by New York Life Investments, the Board considered cost and profitability information for New York Life Investments and MacKay Shields in the aggregate.
In evaluating the costs and profits of New York Life Investments and its affiliates, including MacKay Shields, the Board considered, among other factors, each party’s investments in personnel, systems, equipment and other resources necessary to manage the Fund, and that New York Life Investments is responsible for paying the subadvisory fees for the Fund. The Board acknowledged that New York Life Investments and MacKay Shields must be in a position to pay and retain experienced professional personnel to provide services to the Fund and that the ability to maintain a strong financial position is important in order for New York Life Investments and MacKay Shields to continue to provide high-quality services to the Fund. The Board also noted that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds.
In addition, the Board noted the difficulty in obtaining reliable comparative data about mutual fund managers’ profitability, since such information generally is not publicly available and may be impacted by numerous factors, including the structure of a fund manager’s organization, the types of funds it manages, the methodology used to allocate certain fixed costs to specific funds, and the manager’s capital structure and costs of capital. While recognizing the difficulty in evaluating a manager’s profitability with respect to the Fund and noting that other profitability methodologies may also be reasonable, the Board concluded that the profitability methodology presented by New York Life Investments to the Board, which was developed by New York Life Investments in consultation with an independent consultant, was reasonable in all material respects.
In considering the costs and profitability of the Fund, the Board also considered certain fall-out benefits that may be realized by New York Life Investments and its affiliates due to their relationships with the Fund. The Board recognized, for example, the benefits to MacKay Shields from legally permitted “soft-dollar” arrangements by which brokers provide research and other services to MacKay Shields in exchange for commissions paid by the Fund with respect to trades on the Fund’s portfolio securities.
The Board further considered that, in addition to fees earned by New York Life Investments for managing the Fund, New York Life Investments’ affiliates also earn revenues from serving the Fund in various other capacities, including as the Fund’s transfer agent and distributor. The Board observed that information about these other revenues, and their impact on the profitability of the Fund to New York Life Investments and its affiliates, was furnished to the Board as part of the 15(c) process. The Board noted that, although it assessed the overall profitability of the Fund to New York Life Investments and its affiliates as part of the contract review process, when considering the reasonableness of the fees to be paid to New York Life Investments and its affiliates under the
mainstayinvestments.com | 29 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
Agreements, the Board considered the profitability of New York Life Investments’ relationship with the Fund on a pre-tax basis and without regard to distribution expenses.
After evaluating the information presented to the Board, the Board concluded, within the context of its overall determinations regarding the Agreements, that any profits realized by New York Life Investments and its affiliates, including MacKay Shields, due to their relationships with the Fund supported the Board’s decision to approve the Agreements.
Extent to Which Economies of Scale May Be Realized as the Fund Grows
The Board considered whether the Fund’s expense structure permits economies of scale to be shared with Fund investors. The Board also considered a report from New York Life Investments, prepared at the request of the Board, that addressed economies of scale in the mutual fund business generally, the changing economics of the mutual fund business and the various ways in which the benefits of economies of scale may be shared with the MainStay Group of Funds. The Board reviewed information from New York Life Investments showing how the Fund’s management fee schedule compared to fee schedules of other funds and accounts managed by New York Life Investments. The Board also reviewed information from Strategic Insight showing how the Fund’s management fee schedule hypothetically would compare with fees paid for similar services by peer funds at varying asset levels. While recognizing the difficulty of determining economies of scale with precision, the Board acknowledged that economies of scale may be shared with the Fund in a number of ways, including, for example, through the imposition of management fee breakpoints and by initially setting relatively low management fees.
Based on this information, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund’s expense structure appropriately reflects economies of scale for the benefit of Fund investors. The Board noted, however, that it would continue to evaluate the reasonableness of the Fund’s expense structure as the Fund grows over time.
Management and Subadvisory Fees and Total Ordinary Operating Expenses
The Board evaluated the reasonableness of the fees to be paid under the Agreements and the Fund’s expected total ordinary operating expenses. The Board primarily considered the reasonableness of the management fee paid by the Fund to New York Life Investments, since the fees paid to MacKay Shields are paid by New York Life Investments, not the Fund.
In assessing the reasonableness of the Fund’s fees and expenses, the Board primarily considered comparative data provided by Strategic Insight on the fees and expenses charged by similar mutual funds managed by other investment advisers. In addition, the Board considered information provided by New York Life Investments and MacKay Shields on fees charged to other investment advisory clients, including institutional separate accounts and other funds with similar investment objectives as the Fund. The Board particularly considered differences in the contractual management fee schedules of the retail MainStay Funds and similarly-managed MainStay VP Portfolios, taking into account
New York Life Investments’ rationale for any differences in fee schedules. The Board also took into account explanations provided by New York Life Investments about the different scope of services provided to mutual funds as compared with other investment advisory clients. Additionally, the Board considered the impact of any contractual breakpoints, voluntary waivers and expense limitation arrangements on the Fund’s net management fee and expenses. In addition, the Board negotiated a modification to the Fund’s contractual expense limitation arrangements, resulting in additional reimbursement of Fund expenses by New York Life Investments.
The Board noted that, outside of the Fund’s management fee and] the fees charged under a share class’s Rule 12b-1 and/or shareholder services plans, a share class’s most significant “other expenses” are transfer agent fees. Transfer agent fees are charged to the Fund based on the number of shareholder accounts (a “per-account” fee) as compared with certain other fees (e.g., management fees), which are charged based on the Fund’s average net assets. The Board took into account information from New York Life Investments showing that the Fund’s transfer agent fee schedule is reasonable, including industry data showing that the per-account fees that NYLIM Service Company LLC, the Fund’s transfer agent, charges the Fund are within the range of per-account fees charged by transfer agents to other mutual funds. In addition, the Board considered NYLIM Service Company LLC’s profitability in connection with the transfer agent services it provides to the Fund.
The Board considered that, because the Fund’s transfer agent fees are billed on a per-account basis, the impact of transfer agent fees on a share class’s expense ratio may be more significant in cases where the share class has a high number of accounts with limited assets (i.e., small accounts). The Board observed that transfer agent fees are a significant portion of total expenses of many Funds in the MainStay Group of Funds. The impact of transfer agent fees on the expense ratios of these MainStay Funds tend to be greater than for other open-end retail funds, because the MainStay Group of Funds generally has a significant number of small accounts relative to competitor funds. The Board acknowledged the role that the MainStay Group of Funds historically has played in serving the investment needs of New York Life Insurance Company (“New York Life”) policyholders, who often maintain smaller account balances than other fund investors. The Board also acknowledged measures that it and New York Life Investments have taken in recent years to mitigate the effect of small accounts on the expense ratios of Fund share classes, including: (i) encouraging New York Life agents to consolidate multiple small accounts held by the same investor into one MainStay Asset Allocation Fund account; (ii) increasing investment minimums from $500 to $1,000 in 2003; (iii) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iv) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (v) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (vi) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vii) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. In addition, the Board acknowledged New York Life
30 | MainStay Government Fund |
Investments’ efforts to encourage intermediaries to consolidate small accounts in multiple Funds held by the same investor into a single Asset Allocation Fund account, if appropriate under the circumstances, in an effort to mitigate the effect of small accounts on the Funds in the MainStay Group of Funds.
After considering all of the factors outlined above, the Board concluded that the Fund’s management and subadvisory fees and total ordinary operating expenses were within a range that is competitive and, within the context of the Board’s overall conclusions regarding the Agreements, support a conclusion that these fees and expenses are reasonable.
Conclusion
On the basis of the information provided to it and its evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the Agreements.
mainstayinvestments.com | 31 |
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 Government 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 Fund
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 Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund1
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund2
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 LLC3
New York, New York
Cornerstone Capital Management LLC3
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC3
Chicago, Illinois
MacKay Shields LLC3
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC3
New York, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP4
PricewaterhouseCoopers LLP5
1. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
2. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
3. An affiliate of New York Life Investment Management LLC.
4. For all Funds listed above except MainStay Marketfield Fund.
5. For MainStay Marketfield Fund only.
Not part of the Semiannual 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.
©2014 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-34019 MS164-14 | MSG10-06/14 NL007 |
MainStay High Yield Corporate Bond Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2014
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Message from the President
Stocks and bonds generally advanced during the six months ended April 30, 2014, but results varied across different markets, asset classes and regions.
According to Russell data, mid-capitalization stocks tended to provide the strongest returns, outperforming large-cap stocks overall. As a group, small-cap stocks tended to underperform their larger-capitalization counterparts. Value outperformed growth at all capitalization levels as the 2013 market rally ended and investors moved from rapid-growth stocks toward utilities, real estate investment trusts (REITs) and other stocks that tend to be more defensive.
The reporting period opened with investors still reacting to the government shutdown and asking questions about the debt ceiling and the so-called fiscal cliff. Even so, U.S. stocks climbed relatively steadily through the end of 2013. After reaching a high point in January, the U.S. stock market tumbled to its low point for the reporting period in early February, hurt by weaker economic data and severe weather in the Northeast. From that point, domestic stocks generally recovered, advancing to new highs before the end of the reporting period.
International stocks benefited from the European Central Bank’s accommodative policies and an improving European economy, despite high levels of debt and unemployment. In Japan, a weaker currency and accommodative central bank policies had fueled a stock rally in 2013, but Japanese stocks began to decline in mid-January on concerns about the Prime Minister’s economic policies, including a substantial increase in the nation’s sales tax. International stocks also felt the effects of tensions in Ukraine and slowing growth in China.
Throughout the reporting period, the Federal Reserve held the federal funds target rate in a range close to zero. On December 18, 2013, the Federal Open Market Committee announced plans to begin tapering its direct security purchases (widely known as quantitative easing) in January of 2014. The announcement led investors to anticipate rising interest rates.
According to U.S. Department of the Treasury data, yields did rise through the early part of 2014. After peaking early in the year, however, U.S. Treasury yields generally trended downward. As of April 30, 2014, yields at the short and long ends of the U.S. Treasury yield curve1 were slightly lower than at the beginning of the reporting period, while yields on 1- to 10-year U.S. Treasury securities had moved slightly higher.
In harmony with these trends, extensive tax-loss harvesting in the municipal market tended to push municipal yields higher in November and December. Redemptions slowed as the new year progressed, and a scarcity of municipal supply pushed municipal bond prices higher—and yields lower—during the last four months of the reporting period.
Throughout the reporting period, our portfolio managers pursued the investment objectives of their respective Funds within the investment strategies outlined in the Prospectus. Using time-tested security-selection, portfolio-monitoring and risk-management techniques, they sought to maximize exposure to potential opportunities while seeking to minimize exposure to unnecessary risks.
The report that follows provides additional information about the decisions, securities and market forces that affected your MainStay Fund during the six months ended April 30, 2014. We encourage you to read this information carefully. It can help you evaluate your diversification and assess your asset allocation as you pursue your long-range financial goals.
We thank you for choosing MainStay Funds, and we look forward to a lasting and productive relationship.
Sincerely,
Stephen P. Fisher
1. | 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 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. Past performance is no guarantee of future results.
Not part of the Semiannual 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 Period Ended April 30, 2014
Class | Sales Charge | Six Months | One Year | Five Years | Ten Years | Gross Ratio2 | ||||||||||||||||||
Investor Class Shares3 | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges |
| –0.83 3.84 | %
|
| 0.51 5.24 | %
|
| 11.87 12.91 | %
|
| 6.92 7.42 | %
|
| 1.02 1.02 | %
| |||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges |
| –0.81 3.87 |
|
| 0.56 5.30 |
|
| 11.94 12.97 |
|
| 6.95 7.44 |
|
| 1.01 1.01 |
| |||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First | With sales charges Excluding sales charges |
| –1.52 3.48 |
|
| –0.41 4.50 |
|
| 11.83 12.09 |
|
| 6.61 6.61 |
|
| 1.77 1.77 |
| |||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges |
| 2.65 3.65 |
|
| 3.52 4.50 |
|
| 12.12 12.12 |
|
| 6.62 6.62 |
|
| 1.77 1.77 |
| |||||||
Class I Shares | No Sales Charge | 4.16 | 5.55 | 13.28 | 7.72 | 0.76 | ||||||||||||||||||
Class R1 Shares4 | No Sales Charge | 3.95 | 5.46 | 13.10 | 7.57 | 0.86 | ||||||||||||||||||
Class R2 Shares5 | No Sales Charge | 3.99 | 5.20 | 12.86 | 7.36 | 1.11 | ||||||||||||||||||
Class R6 Shares6 | No Sales Charge | 4.09 | 5.72 | 13.32 | 7.74 | 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 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. |
5. | 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. |
6. | Performance figures for Class R6 shares, first offered on June 17, 2013, include the historical performance of Class I shares through June 16, 2013. 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 | Six Months | One Year | Five Years | Ten Years | ||||||||||||
Credit Suisse High Yield Index7 | 4.78 | % | 6.41 | % | 15.38 | % | 8.47 | % | ||||||||
Average Lipper High Yield Fund8 | 4.09 | 5.46 | 14.00 | 7.42 |
7. | 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. |
8. | 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 November 1, 2013, to April 30, 2014, 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 November 1, 2013, to April 30, 2014.
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 April 30, 2014. 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 11/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/14 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/14 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,038.40 | $ | 5.10 | $ | 1,019.80 | $ | 5.06 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,038.70 | $ | 5.00 | $ | 1,019.90 | $ | 4.96 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,034.80 | $ | 8.88 | $ | 1,016.10 | $ | 8.80 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,036.50 | $ | 8.89 | $ | 1,016.10 | $ | 8.80 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,041.60 | $ | 3.75 | $ | 1,021.10 | $ | 3.71 | ||||||||||
Class R1 Shares | $ | 1,000.00 | $ | 1,039.50 | $ | 4.25 | $ | 1,020.60 | $ | 4.21 | ||||||||||
Class R2 Shares | $ | 1,000.00 | $ | 1,039.90 | $ | 5.51 | $ | 1,019.40 | $ | 5.46 | ||||||||||
Class R6 Shares | $ | 1,000.00 | $ | 1,040.90 | $ | 2.93 | $ | 1,021.90 | $ | 2.91 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.01% for Investor Class, 0.99% for Class A, 1.76% for Class B and C, 0.74% for Class I, 0.84% for Class R1, 1.09% for Class R2 and 0.58% for Class R6) multiplied by the average account value over the period, divided by 365 and multiplied by 181 (to reflect the six-month period). The table above represents actual expenses incurred during the six-month period. |
mainstayinvestments.com | 7 |
Portfolio Composition as of April 30, 2014 (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 April 30, 2014 (excluding short-term investment) (Unaudited)
1. | T-Mobile USA, Inc., 6.125%–6.731%, due 4/1/21–1/15/24 |
2. | GenOn Energy, Inc., 7.875%–9.50%, due 6/15/17–10/15/18 |
3. | Texas Industries, Inc., 9.25%, due 8/15/20 |
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. | Nationstar Mortgage LLC / Nationstar Capital Corp., 6.50%–10.875%, due 4/1/15–7/1/21 |
7. | Ally Financial, Inc., 6.25%–8.30%, due 2/12/15–11/1/31 |
8. | Algeco Scotsman Global Finance PLC, 8.50%–10.75%, due 10/15/18–10/15/19 |
9. | New Enterprise Stone & Lime Co., Inc., 11.00%–13.00%, due 3/15/18–9/1/18 |
10. | DISH DBS Corp., 4.25%–5.125%, due 7/15/17–3/15/23 |
8 | MainStay High Yield Corporate Bond Fund |
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio manager 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 six months ended April 30, 2014?
Excluding all sales charges, MainStay High Yield Corporate Bond Fund returned 3.84% for Investor Class shares, 3.87% for Class A shares, 3.48% for Class B shares and 3.65% for Class C shares for the six months ended April 30, 2014. Over the same period, Class I shares returned 4.16%, Class R1 shares returned 3.95%, Class R2 shares returned 3.99% and Class R6 shares returned 4.09%. For the six months ended April 30, 2014, all share classes underperformed the 4.78% return of the Credit Suisse High Yield Index,1 which is the Fund’s broad-based securities-market index. Over the same period, Class I shares outperformed, Class R6 shares performed in line with, and all other share classes underperformed the 4.09% return of the average Lipper2 high yield fund. See page 5 for Fund returns with applicable sales charges.
Were there any changes to the Fund during the reporting period?
Effective February 28, 2014, the Fund’s principal investment strategies were adjusted to expand the Fund’s ability to invest in derivatives, such as futures, options and swap agreements.
What factors affected the Fund’s relative performance during the reporting period?
The Fund is managed in a 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 of the attractive valuations (as measured by spreads)3 and the resiliency of the credit profiles in the higher-quality portion of the market. On the other hand, valuations in the lower-quality (or higher-risk) portion of the high-yield market were generally unattractive. Many riskier high-yield bonds are poorly capitalized to survive in the long run; and in our opinion, investors are currently receiving too little compensation for assuming significant additional credit risk.
The Fund remained underweight in credit risk relative to the broad high yield market. This positioning detracted from relative performance during the reporting period, as CCC-rated4 credits continued to slightly outperform the rest of the market.
What was the Fund’s duration5 strategy during the reporting period?
The Fund’s duration was shorter than that of the Credit Suisse High Yield Index during the reporting period. This was a residual of our bottom-up investment process and not an intentional investment decision. At the end of the reporting period, the Fund’s modified duration was approximately 3.2 years.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
The Fund is managed with a bottom-up investment style, so the factors that prompt significant decisions are specific to each individual company. Generally speaking, we believe that higher-quality high-yield bonds currently represent the most attractive risk-adjusted spreads. For this reason, we remained conservatively positioned throughout the reporting period. We believe that valuations for riskier credits in the CCC market segment are unattractive and that their weaker credit profiles make them vulnerable to higher default rates. The spread difference between CCC and B credits6 continues to be historically narrow, and many bonds with significantly different credit profiles trade at similar yields and spreads. Corporate credit profiles for the majority of high-yield issuers continue to be resilient. Defaults remain near historical lows, with balance sheets and cash flow generally remaining strong. During the reporting period, the Fund’s positioning did not undergo any material changes.
Which industries were the strongest contributors to the Fund’s performance and which industries were particularly weak?
During the reporting period, the Fund’s investments in the energy, transportation and financials industries made the greatest contribution to absolute performance. (Contributions take weightings and total returns into account.) Although no industries generated negative absolute returns, the Fund’s investments in the food and drug, retail, and aerospace industries contributed the least to performance.
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. |
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. |
6. | An obligation rated ‘B’ by S&P is deemed by S&P to be more vulnerable to nonpayment than obligations rated ‘BB’, but in the opinion of S&P, the obligor currently has the capacity to meet its financial commitment on the obligation. It is the opinion of S&P that adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness 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 |
Did the Fund make any significant purchases or sales during the reporting period?
The Fund purchased a position in Forest Laboratories during the reporting period because of good cash flow generation and improving fundamentals. Since the purchase, the company has agreed to be acquired, and the bonds have appreciated, as the company’s credit profile improved. The Fund also purchased bonds of France’s largest cable operator, Numericable. The company used proceeds from the issue to acquire wireless company SFR, which we perceived to be a good strategic asset. The bonds we purchased were first lien with moderate leverage.
During the reporting period, the Fund sold bonds of tire manufacturer Continental Rubber when the bonds were upgraded to investment grade, which moved the bond price substantially higher. The Fund also sold bonds of financial services company Dollar Financial because valuations were affected when the bonds traded at a meaningful premium.
How did the Fund’s industry weightings change during the reporting period?
During the reporting period, there were no material changes to the industry weightings in the Fund. There was a small increase to the Fund’s exposure to consumer products and metals/minerals as a result of attractive valuations and yields. The Fund reduced its exposure to the transportation and financials industries.
How was the Fund positioned at the end of the reporting period?
As of April 30, 2014, the Fund held overweight positions relative to the Credit Suisse High Yield Index in transportation, housing and consumer products. As of the same date, the Fund held underweight positions in information technology, media and energy.
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 High Yield Corporate Bond Fund |
Portfolio of Investments April 30, 2014 (Unaudited)
Principal Amount | Value | |||||||
Long-Term Bonds 94.9%† Convertible Bond 0.1% | ||||||||
Electric 0.1% | ||||||||
Somerset Cayuga Holding Co., Inc. | $ | 4,546,264 | $ | 6,683,007 | ||||
|
| |||||||
Total Convertible Bond | 6,683,007 | |||||||
|
| |||||||
Corporate Bonds 90.9% | ||||||||
Advertising 0.6% | ||||||||
CBS Outdoor Americas Capital LLC / CBS Outdoor Americas Capital Corp. | ||||||||
5.25%, due 2/15/22 (a) | 14,474,000 | 14,835,850 | ||||||
5.625%, due 2/15/24 (a) | 12,625,000 | 12,972,188 | ||||||
Lamar Media Corp. | ||||||||
5.00%, due 5/1/23 | 12,095,000 | 12,155,475 | ||||||
5.375%, due 1/15/24 (a) | 3,960,000 | 4,103,550 | ||||||
5.875%, due 2/1/22 | 11,000,000 | 11,742,500 | ||||||
|
| |||||||
55,809,563 | ||||||||
|
| |||||||
Aerospace & Defense 1.8% | ||||||||
AAR Corp. | 29,360,000 | 31,782,200 | ||||||
Alliant Techsystems, Inc. | ||||||||
5.25%, due 10/1/21 (a) | 12,605,000 | 13,077,688 | ||||||
6.875%, due 9/15/20 | 12,270,000 | 13,343,625 | ||||||
B/E Aerospace, Inc. | 35,218,000 | 36,450,630 | ||||||
GenCorp, Inc. | 24,434,000 | 26,510,890 | ||||||
Spirit AeroSystems, Inc. | 11,935,000 | 12,099,106 | ||||||
TransDigm, Inc. | ||||||||
5.50%, due 10/15/20 | 4,840,000 | 4,888,400 | ||||||
7.75%, due 12/15/18 | 24,730,000 | 26,337,450 | ||||||
|
| |||||||
164,489,989 | ||||||||
|
| |||||||
Apparel 0.4% | ||||||||
William Carter Co. (The) | 17,520,000 | 18,133,200 | ||||||
Wolverine World Wide, Inc. | 15,613,000 | 16,862,040 | ||||||
|
| |||||||
34,995,240 | ||||||||
|
| |||||||
Auto Manufacturers 0.9% | ||||||||
Allied Specialty Vehicles, Inc. | 28,000,000 | 30,030,000 | ||||||
Chrysler Group LLC / CG | ||||||||
8.00%, due 6/15/19 (a) | 4,120,000 | 4,511,400 | ||||||
8.25%, due 6/15/21 (a) | 12,045,000 | 13,535,569 |
Principal Amount | Value | |||||||
Auto Manufacturers (continued) | ||||||||
Jaguar Land Rover Automotive PLC | ||||||||
4.125%, due 12/15/18 (a) | $ | 7,800,000 | $ | 8,053,500 | ||||
5.625%, due 2/1/23 (a) | 8,495,000 | 8,866,656 | ||||||
8.125%, due 5/15/21 (a) | 9,590,000 | 10,848,687 | ||||||
Oshkosh Corp. | 2,010,000 | 2,198,438 | ||||||
|
| |||||||
78,044,250 | ||||||||
|
| |||||||
Auto Parts & Equipment 3.5% | ||||||||
Allison Transmission, Inc. | 31,185,000 | 33,679,800 | ||||||
Chassix, Inc. | 16,515,000 | 17,898,131 | ||||||
Dana Holding Corp. | ||||||||
6.50%, due 2/15/19 | 9,503,000 | 10,096,938 | ||||||
6.75%, due 2/15/21 | 6,898,000 | 7,475,708 | ||||||
Delphi Corp. | 1,300,000 | 1,447,875 | ||||||
Exide Technologies | 64,863,000 | 42,809,580 | ||||||
International Automotive Components Group S.A. | 13,960,000 | 14,832,500 | ||||||
¨Schaeffler Finance B.V. | ||||||||
4.75%, due 5/15/21 (a) | 36,944,000 | 37,913,780 | ||||||
7.75%, due 2/15/17 (a) | 45,603,000 | 51,759,405 | ||||||
8.50%, due 2/15/19 (a) | 12,575,000 | 14,133,042 | ||||||
Schaeffler Holding Finance B.V. | 48,612,000 | 51,589,485 | ||||||
Tenneco, Inc. | ||||||||
6.875%, due 12/15/20 | 10,225,000 | 11,196,375 | ||||||
7.75%, due 8/15/18 | 1,300,000 | 1,368,250 | ||||||
Titan International, Inc. | 8,640,000 | 9,158,400 | ||||||
TRW Automotive, Inc. | ||||||||
4.50%, due 3/1/21 (a) | 7,961,000 | 8,279,440 | ||||||
7.25%, due 3/15/17 (a) | 4,400,000 | 5,060,000 | ||||||
|
| |||||||
318,698,709 | ||||||||
|
| |||||||
Banks 0.2% | ||||||||
Provident Funding Associates, L.P. / PFG Finance Corp. | ||||||||
6.75%, due 6/15/21 (a) | 10,950,000 | 11,196,375 | ||||||
10.125%, due 2/15/19 (a) | 6,460,000 | 7,073,700 | ||||||
|
| |||||||
18,270,075 | ||||||||
|
| |||||||
Beverages 0.2% | ||||||||
Constellation Brands, Inc. | 9,385,000 | 9,220,763 |
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings or issuers held, as of April 30, 2014, 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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Beverages (continued) | ||||||||
Cott Beverages, Inc. | $ | 10,215,000 | $ | 10,802,362 | ||||
|
| |||||||
20,023,125 | ||||||||
|
| |||||||
Building Materials 3.5% | ||||||||
Boise Cascade Co. | 21,625,000 | 23,246,875 | ||||||
Building Materials Corporation of America | ||||||||
6.75%, due 5/1/21 (a) | 11,681,000 | 12,644,682 | ||||||
6.875%, due 8/15/18 (a) | 17,498,000 | 18,263,537 | ||||||
7.00%, due 2/15/20 (a) | 8,265,000 | 8,781,562 | ||||||
7.50%, due 3/15/20 (a) | 18,875,000 | 20,243,437 | ||||||
Century Communities, Inc. | 1,116,000 | 1,107,507 | ||||||
Gibraltar Industries, Inc. | 8,525,000 | 9,036,500 | ||||||
Griffon Corp. | 12,978,000 | 12,815,775 | ||||||
Headwaters, Inc. | ||||||||
7.25%, due 1/15/19 (a) | 19,200,000 | 20,208,000 | ||||||
7.625%, due 4/1/19 | 18,665,000 | 20,064,875 | ||||||
Jeld-Wen, Inc. | 20,585,000 | 22,720,694 | ||||||
Summit Materials LLC / Summit Materials Finance Corp. | 4,375,000 | 4,910,938 | ||||||
¨Texas Industries, Inc. | 98,575,000 | 112,868,375 | ||||||
USG Corp. | ||||||||
6.30%, due 11/15/16 | 6,565,000 | 7,090,200 | ||||||
7.875%, due 3/30/20 (a) | 13,850,000 | 15,442,750 | ||||||
Vulcan Materials Co. | ||||||||
6.50%, due 12/1/16 | 3,127,000 | 3,478,788 | ||||||
7.50%, due 6/15/21 | 3,655,000 | 4,303,763 | ||||||
|
| |||||||
317,228,258 | ||||||||
|
| |||||||
Chemicals 2.4% | ||||||||
Axiall Corp. | 13,333,000 | 13,033,007 | ||||||
Celanese U.S. Holdings LLC | 8,955,000 | 8,999,775 | ||||||
Eagle Spinco, Inc. | 1,639,000 | 1,630,805 | ||||||
Ineos Finance PLC | ||||||||
7.50%, due 5/1/20 (a) | 18,965,000 | 20,742,969 | ||||||
8.375%, due 2/15/19 (a) | 11,120,000 | 12,245,900 | ||||||
Kraton Polymers LLC / Kraton Polymers Capital Corp. | 17,200,000 | 18,275,000 |
Principal Amount | Value | |||||||
Chemicals (continued) | ||||||||
Nexeo Solutions LLC / Nexeo Solutions Finance Corp. | $ | 15,240,000 | $ | 15,392,400 | ||||
NOVA Chemicals Corp. | 7,035,000 | 7,571,419 | ||||||
Olin Corp. | ||||||||
5.50%, due 8/15/22 | 12,924,000 | 13,279,410 | ||||||
8.875%, due 8/15/19 | 23,156,000 | 24,632,195 | ||||||
Phibro Animal Health Corp. | 51,425,000 | 54,381,937 | ||||||
PolyOne Corp. | ||||||||
5.25%, due 3/15/23 | 29,441,000 | 29,735,410 | ||||||
7.375%, due 9/15/20 | 726,000 | 794,970 | ||||||
|
| |||||||
220,715,197 | ||||||||
|
| |||||||
Coal 1.7% | ||||||||
Arch Coal, Inc. | ||||||||
7.00%, due 6/15/19 | 39,783,000 | 30,632,910 | ||||||
7.25%, due 10/1/20 | 6,520,000 | 4,938,900 | ||||||
7.25%, due 6/15/21 | 1,865,000 | 1,394,088 | ||||||
8.00%, due 1/15/19 (a) | 15,890,000 | 15,850,275 | ||||||
9.875%, due 6/15/19 | 4,895,000 | 4,209,700 | ||||||
CONSOL Energy, Inc. | ||||||||
5.875%, due 4/15/22 (a) | 30,740,000 | 31,662,200 | ||||||
6.375%, due 3/1/21 | 2,729,000 | 2,875,684 | ||||||
Peabody Energy Corp. | ||||||||
6.00%, due 11/15/18 | 11,520,000 | 12,240,000 | ||||||
6.25%, due 11/15/21 | 13,830,000 | 14,037,450 | ||||||
6.50%, due 9/15/20 | 31,490,000 | 32,828,325 | ||||||
7.875%, due 11/1/26 | 1,642,000 | 1,717,942 | ||||||
|
| |||||||
152,387,474 | ||||||||
|
| |||||||
Commercial Services 4.0% | ||||||||
ADT Corp. (The) | 11,765,000 | 12,265,013 | ||||||
Alliance Data Systems Corp. | ||||||||
5.25%, due 12/1/17 (a) | 20,200,000 | 21,311,000 | ||||||
6.375%, due 4/1/20 (a) | 14,980,000 | 15,953,700 | ||||||
American Capital, Ltd. | 28,595,000 | 30,382,187 | ||||||
Ashtead Capital, Inc. | 12,790,000 | 13,877,150 | ||||||
Avis Budget Car Rental LLC / Avis Budget Finance, Inc. | ||||||||
5.50%, due 4/1/23 | 16,776,000 | 16,943,760 | ||||||
8.25%, due 1/15/19 | 3,013,000 | 3,208,845 | ||||||
9.75%, due 3/15/20 | 16,240,000 | 18,513,600 | ||||||
Catalent Pharma Solutions, Inc. | 5,265,000 | 5,354,505 | ||||||
Cenveo Corp. | 16,760,000 | 17,325,650 |
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 (continued) | ||||||||
Great Lakes Dredge & Dock Corp. | $ | 33,706,000 | $ | 35,264,902 | ||||
Hertz Corp. (The) | ||||||||
4.25%, due 4/1/18 | 8,740,000 | 9,024,050 | ||||||
5.875%, due 10/15/20 | 2,385,000 | 2,528,100 | ||||||
Jaguar Holding Co. I | 12,570,000 | 13,135,650 | ||||||
Modular Space Corp. | 12,500,000 | 13,031,250 | ||||||
PHH Corp. | ||||||||
7.375%, due 9/1/19 | 11,294,000 | 12,479,870 | ||||||
9.25%, due 3/1/16 | 12,151,000 | 13,609,120 | ||||||
Quebecor World, Inc. (Litigation Recovery Trust—Escrow Shares) | ||||||||
6.50% (c)(d)(e)(g) | 460,000 | 6,762 | ||||||
9.75% (c)(d)(e)(g) | 26,020,000 | 382,494 | ||||||
Service Corp. International | 6,000,000 | 6,120,000 | ||||||
Sotheby’s | 10,335,000 | 10,024,950 | ||||||
Speedy Cash Intermediate Holdings Corp. | 24,985,000 | 24,797,613 | ||||||
United Rentals North America, Inc. | ||||||||
5.75%, due 7/15/18 | 12,005,000 | 12,845,350 | ||||||
5.75%, due 11/15/24 | 6,990,000 | 7,252,125 | ||||||
6.125%, due 6/15/23 | 245,000 | 263,375 | ||||||
7.375%, due 5/15/20 | 3,624,000 | 4,013,580 | ||||||
7.625%, due 4/15/22 | 19,217,000 | 21,619,125 | ||||||
WEX, Inc. | 18,700,000 | 17,718,250 | ||||||
|
| |||||||
359,251,976 | ||||||||
|
| |||||||
Computers 1.5% | ||||||||
iGATE Corp. | 3,740,000 | 3,782,075 | ||||||
NCR Corp. | ||||||||
4.625%, due 2/15/21 | 13,235,000 | 13,334,262 | ||||||
5.00%, due 7/15/22 | 5,600,000 | 5,698,000 | ||||||
5.875%, due 12/15/21 (a) | 4,000,000 | 4,240,000 | ||||||
6.375%, due 12/15/23 (a) | 15,300,000 | 16,371,000 | ||||||
¨Seagate HDD Cayman |
| |||||||
4.75%, due 6/1/23 (a) | 83,815,000 | 83,919,769 | ||||||
7.00%, due 11/1/21 | 5,640,000 | 6,323,850 | ||||||
|
| |||||||
133,668,956 | ||||||||
|
| |||||||
Distribution & Wholesale 0.6% | ||||||||
American Tire Distributors, Inc. | 35,895,000 | 37,824,356 | ||||||
LKQ Corp. | 20,458,000 | 19,639,680 | ||||||
|
| |||||||
57,464,036 | ||||||||
|
|
Principal Amount | Value | |||||||
Diversified Financial Services 0.9% |
| |||||||
CNG Holdings, Inc. | $ | 21,424,000 | $ | 19,495,840 | ||||
Community Choice Financial, Inc. | ||||||||
10.75%, due 5/1/19 | 31,860,000 | 25,886,250 | ||||||
12.75%, due 5/1/20 (a)(c) | 9,500,000 | 7,908,750 | ||||||
Ford Holdings LLC | ||||||||
9.30%, due 3/1/30 | 18,155,000 | 26,362,603 | ||||||
9.375%, due 3/1/20 | 1,695,000 | 2,183,164 | ||||||
|
| |||||||
81,836,607 | ||||||||
|
| |||||||
Electric 2.3% | ||||||||
Calpine Corp. | ||||||||
5.875%, due 1/15/24 (a) | 16,436,000 | 16,867,445 | ||||||
6.00%, due 1/15/22 (a) | 24,390,000 | 25,914,375 | ||||||
7.50%, due 2/15/21 (a) | 3,709,000 | 4,052,083 | ||||||
GenOn Americas Generation LLC 9.125%, due 5/1/31 | 21,690,000 | 21,418,875 | ||||||
¨GenOn Energy, Inc. |
| |||||||
7.875%, due 6/15/17 | 82,770,000 | 85,046,175 | ||||||
9.50%, due 10/15/18 | 35,855,000 | 37,916,663 | ||||||
NRG REMA LLC | ||||||||
Series C | 6,425,000 | 6,810,500 | ||||||
PNM Resources, Inc. | 6,241,000 | 6,771,547 | ||||||
Public Service Co. of New Mexico | 5,812,000 | 6,919,947 | ||||||
|
| |||||||
211,717,610 | ||||||||
|
| |||||||
Electrical Components & Equipment 1.1% |
| |||||||
Anixter, Inc. | 8,110,000 | 8,657,425 | ||||||
Belden, Inc. | 41,702,000 | 42,431,785 | ||||||
General Cable Corp. | 32,050,000 | 32,130,125 | ||||||
WESCO Distribution, Inc. | 17,520,000 | 17,826,600 | ||||||
|
| |||||||
101,045,935 | ||||||||
|
| |||||||
Electronics 0.3% | ||||||||
Kemet Corp. | 26,939,000 | 28,218,603 | ||||||
|
| |||||||
Engineering & Construction 0.9% | ||||||||
¨New Enterprise Stone & Lime Co., Inc. |
| |||||||
11.00%, due 9/1/18 | 32,115,000 | 30,669,825 | ||||||
13.00%, due 3/15/18 (b) | 42,572,702 | 48,639,312 | ||||||
Weekley Homes LLC / Weekley Finance Corp. 6.00%, due 2/1/23 | 3,280,000 | 3,280,000 | ||||||
|
| |||||||
82,589,137 | ||||||||
|
|
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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Entertainment 2.4% | ||||||||
Affinity Gaming LLC / Affinity Gaming Finance Corp. | $ | 38,020,000 | $ | 40,301,200 | ||||
Churchill Downs, Inc. | 26,075,000 | 26,726,875 | ||||||
GLP Capital LP / GLP Financing II, Inc. |
| |||||||
4.375%, due 11/1/18 (a) | 7,880,000 | 8,155,800 | ||||||
4.875%, due 11/1/20 (a) | 10,505,000 | 10,846,413 | ||||||
5.375%, due 11/1/23 (a) | 10,480,000 | 10,794,400 | ||||||
Isle of Capri Casinos, Inc. | 1,790,000 | 1,785,525 | ||||||
MU Finance PLC | 24,801,547 | 25,917,616 | ||||||
NAI Entertainment Holdings / NAI Entertainment Holdings Finance Corp. | 15,890,000 | 16,565,325 | ||||||
Pinnacle Entertainment, Inc. | 8,209,000 | 8,927,288 | ||||||
Rivers Pittsburgh Borrower L.P. / Rivers Pittsburgh Finance Corp. | 11,083,000 | 12,108,177 | ||||||
Speedway Motorsports, Inc. | 4,760,000 | 5,045,600 | ||||||
Sterling Entertainment Enterprise LLC | 35,000,000 | 36,312,500 | ||||||
United Artists Theatre Circuit, Inc. | ||||||||
Series BA7 | 459,249 | 321,474 | ||||||
Vail Resorts, Inc. | 15,710,000 | 16,534,775 | ||||||
|
| |||||||
220,342,968 | ||||||||
|
| |||||||
Environmental Controls 0.3% |
| |||||||
Clean Harbors, Inc. |
| |||||||
5.125%, due 6/1/21 | 6,755,000 | 6,830,994 | ||||||
5.25%, due 8/1/20 | 17,015,000 | 17,440,375 | ||||||
|
| |||||||
24,271,369 | ||||||||
|
| |||||||
Finance—Auto Loans 2.0% |
| |||||||
¨Ally Financial, Inc. |
| |||||||
6.25%, due 12/1/17 | 9,836,000 | 10,979,435 | ||||||
7.50%, due 9/15/20 | 10,228,000 | 12,120,180 | ||||||
8.00%, due 11/1/31 | 27,822,000 | 34,151,505 | ||||||
8.30%, due 2/12/15 | 22,520,000 | 23,730,450 | ||||||
Ford Motor Credit Co. LLC | 16,960,000 | 18,915,709 | ||||||
General Motors Financial Co., Inc. |
| |||||||
4.25%, due 5/15/23 | 15,249,000 | 14,963,081 | ||||||
4.75%, due 8/15/17 | 15,765,000 | 16,868,550 | ||||||
6.75%, due 6/1/18 | 38,620,000 | 43,930,250 | ||||||
|
| |||||||
175,659,160 | ||||||||
|
|
Principal Amount | Value | |||||||
Finance—Consumer Loans 0.2% |
| |||||||
TMX Finance LLC / TitleMax Finance Corp. | $ | 16,590,000 | $ | 17,668,350 | ||||
|
| |||||||
Finance—Mortgage Loan/Banker 0.1% |
| |||||||
Stearns Holdings, Inc. | 11,050,000 | 11,547,250 | ||||||
|
| |||||||
Finance—Other Services 1.7% |
| |||||||
Cantor Commercial Real Estate Co., L.P. / CCRE Finance Corp. | 19,115,000 | 20,644,200 | ||||||
Cogent Communications Finance, Inc. | 36,970,000 | 36,323,025 | ||||||
¨Nationstar Mortgage LLC / Nationstar Capital Corp. | ||||||||
6.50%, due 8/1/18 | 13,000,000 | 13,097,500 | ||||||
6.50%, due 7/1/21 | 5,992,000 | 5,714,870 | ||||||
7.875%, due 10/1/20 | 24,060,000 | 24,601,350 | ||||||
9.625%, due 5/1/19 | 14,081,000 | 15,629,910 | ||||||
10.875%, due 4/1/15 | 29,132,000 | 29,314,075 | ||||||
SquareTwo Financial Corp. | 11,538,000 | 11,509,155 | ||||||
|
| |||||||
156,834,085 | ||||||||
|
| |||||||
Food 1.9% |
| |||||||
American Seafoods Group LLC / American Seafoods Finance, Inc. | 15,408,000 | 15,851,750 | ||||||
ASG Consolidated LLC / ASG Finance, Inc. | 20,819,058 | 20,090,391 | ||||||
B&G Foods, Inc. | 30,835,000 | 30,680,825 | ||||||
C&S Group Enterprises LLC | 8,170,000 | 8,527,846 | ||||||
Ingles Markets, Inc. | 36,535,000 | 36,443,662 | ||||||
KeHE Distributors LLC / KeHE Distributors Finance Corp. | 12,410,000 | 13,433,825 | ||||||
Land O’ Lakes, Inc. | 30,135,000 | 32,018,438 | ||||||
Wells Enterprises, Inc. | 15,085,000 | 15,612,975 | ||||||
|
| |||||||
172,659,712 | ||||||||
|
| |||||||
Forest Products & Paper 0.5% |
| |||||||
Clearwater Paper Corp. | 9,720,000 | 10,291,050 | ||||||
Georgia-Pacific LLC | 19,841,000 | 29,171,925 |
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) | ||||||||
Forest Products & Paper (continued) |
| |||||||
Smurfit Kappa Acquisitions | $ | 1,740,000 | $ | 1,835,700 | ||||
|
| |||||||
41,298,675 | ||||||||
|
| |||||||
Health Care—Products 1.3% |
| |||||||
ConvaTec Healthcare E S.A. | 23,509,000 | 25,859,900 | ||||||
Hanger, Inc. | 22,535,000 | 23,943,437 | ||||||
Hologic, Inc. | 11,205,000 | 11,849,288 | ||||||
Mallinckrodt International Finance S.A. | 8,330,000 | 8,038,450 | ||||||
Teleflex, Inc. | 15,330,000 | 16,364,775 | ||||||
Universal Hospital Services, Inc. | 33,180,000 | 35,502,600 | ||||||
|
| |||||||
121,558,450 | ||||||||
|
| |||||||
Health Care—Services 2.9% |
| |||||||
Centene Corp. | 14,370,000 | 15,699,225 | ||||||
CHS / Community Health Systems, Inc. |
| |||||||
5.125%, due 8/15/18 | 6,365,000 | 6,691,206 | ||||||
6.875%, due 2/1/22 (a) | 24,600,000 | 25,491,750 | ||||||
Fresenius Medical Care U.S. Finance, Inc. |
| |||||||
6.50%, due 9/15/18 (a) | 4,730,000 | 5,309,425 | ||||||
6.875%, due 7/15/17 | 130,000 | 146,900 | ||||||
Fresenius Medical Care U.S. Finance II, Inc. |
| |||||||
5.625%, due 7/31/19 (a) | 11,680,000 | 12,702,000 | ||||||
5.875%, due 1/31/22 (a) | 8,100,000 | 8,626,500 | ||||||
HCA Holdings, Inc. |
| |||||||
6.25%, due 2/15/21 | 7,375,000 | 7,789,844 | ||||||
7.75%, due 5/15/21 | 5,431,000 | 5,967,311 | ||||||
HCA, Inc. |
| |||||||
4.75%, due 5/1/23 | 4,525,000 | 4,445,813 | ||||||
5.875%, due 3/15/22 | 19,855,000 | 21,294,487 | ||||||
5.875%, due 5/1/23 | 9,232,000 | 9,393,560 | ||||||
6.50%, due 2/15/16 | 3,615,000 | 3,922,275 | ||||||
6.50%, due 2/15/20 | 13,269,000 | 14,794,935 | ||||||
7.50%, due 2/15/22 | 5,451,000 | 6,216,865 | ||||||
7.58%, due 9/15/25 | 1,920,000 | 2,025,600 | ||||||
7.69%, due 6/15/25 | 705,000 | 750,825 | ||||||
8.00%, due 10/1/18 | 4,984,000 | 5,912,270 | ||||||
8.36%, due 4/15/24 | 2,494,000 | 2,818,220 | ||||||
9.00%, due 12/15/14 | 3,930,000 | 4,101,938 | ||||||
INC Research LLC | 24,240,000 | 27,512,400 | ||||||
MPH Acquisition Holdings LLC | 36,990,000 | 38,284,650 |
Principal Amount | Value | |||||||
Health Care—Services (continued) |
| |||||||
ResCare, Inc. | $ | 14,300,000 | $ | 15,801,500 | ||||
Tenet Healthcare Corp. | 15,000,000 | 15,750,000 | ||||||
|
| |||||||
261,449,499 | ||||||||
|
| |||||||
Holding Companies—Diversified 0.4% |
| |||||||
CFG Holdings, Ltd. / CFG Finance LLC | 25,895,000 | 27,837,125 | ||||||
Leucadia National Corp. | 5,590,000 | 6,081,361 | ||||||
|
| |||||||
33,918,486 | ||||||||
|
| |||||||
Home Builders 2.2% |
| |||||||
Allegion US Holding Co., Inc. | 17,332,000 | 18,371,920 | ||||||
Ashton Woods USA LLC / Ashton Woods Finance Co. | 23,985,000 | 24,344,775 | ||||||
Brookfield Residential Properties, Inc. / Brookfield Residential U.S. Corp. | 21,153,000 | 21,628,942 | ||||||
D.R. Horton, Inc. |
| |||||||
4.75%, due 2/15/23 | 8,690,000 | 8,646,550 | ||||||
5.75%, due 8/15/23 | 13,225,000 | 14,051,562 | ||||||
Meritage Homes Corp. | 5,640,000 | 6,182,850 | ||||||
Ryland Group, Inc. (The) | ||||||||
5.375%, due 10/1/22 | 4,585,000 | 4,539,150 | ||||||
6.625%, due 5/1/20 | 6,722,000 | 7,293,370 | ||||||
Standard Pacific Corp. | 10,330,000 | 11,053,100 | ||||||
Taylor Morrison Communities, Inc. / Monarch Communities, Inc. | ||||||||
5.25%, due 4/15/21 (a) | 12,130,000 | 12,251,300 | ||||||
7.75%, due 4/15/20 (a) | 12,191,000 | 13,379,623 | ||||||
Toll Brothers Finance Corp. | 15,060,000 | 14,608,200 | ||||||
WCI Communities, Inc. | 19,380,000 | 19,961,400 | ||||||
William Lyon Homes, Inc. | 4,660,000 | 4,753,200 | ||||||
Woodside Homes Co. LLC / Woodside Homes Finance, Inc. | 14,500,000 | 14,790,000 | ||||||
|
| |||||||
195,855,942 | ||||||||
|
| |||||||
Household Products & Wares 0.7% |
| |||||||
Century Intermediate Holding Co. 2 | 7,120,000 | 7,582,800 | ||||||
Jarden Corp. | 19,505,000 | 22,406,369 |
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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Household Products & Wares (continued) |
| |||||||
Prestige Brands, Inc. |
| |||||||
5.375%, due 12/15/21 (a) | $ | 17,611,000 | $ | 18,051,275 | ||||
8.125%, due 2/1/20 | 290,000 | 324,800 | ||||||
Spectrum Brands, Inc. |
| |||||||
6.375%, due 11/15/20 | 5,315,000 | 5,766,775 | ||||||
6.625%, due 11/15/22 | 7,535,000 | 8,231,988 | ||||||
6.75%, due 3/15/20 | 4,195,000 | 4,525,356 | ||||||
|
| |||||||
66,889,363 | ||||||||
|
| |||||||
Housewares 0.0%‡ | ||||||||
Libbey Glass, Inc. | 927,000 | 955,459 | ||||||
|
| |||||||
Insurance 1.2% | ||||||||
A-S Co-issuer Subsidiary, Inc. / A-S Merger Sub LLC | 18,025,000 | 19,106,500 | ||||||
American Equity Investment Life Holding Co. | 21,000,000 | 22,496,250 | ||||||
CNO Financial Group, Inc. | 7,345,000 | 7,932,600 | ||||||
Fidelity & Guaranty Life Holdings, Inc. | 17,600,000 | 18,744,000 | ||||||
Ironshore Holdings (U.S.), Inc. | 16,890,000 | 19,705,614 | ||||||
USI, Inc. | 19,260,000 | 19,885,950 | ||||||
|
| |||||||
107,870,914 | ||||||||
|
| |||||||
Internet 0.8% | ||||||||
Cogent Communications Group, Inc. | 32,215,000 | 34,792,200 | ||||||
Equinix, Inc. | ||||||||
4.875%, due 4/1/20 | 2,000,000 | 2,040,000 | ||||||
5.375%, due 4/1/23 | 14,080,000 | 14,326,400 | ||||||
7.00%, due 7/15/21 | 2,000,000 | 2,232,000 | ||||||
IAC / InterActiveCorp. | ||||||||
4.75%, due 12/15/22 | 4,552,000 | 4,472,340 | ||||||
4.875%, due 11/30/18 | 11,770,000 | 12,299,650 | ||||||
|
| |||||||
70,162,590 | ||||||||
|
| |||||||
Investment Management/Advisory Services 0.2% |
| |||||||
Janus Capital Group, Inc. | 9,070,000 | 10,254,288 | ||||||
National Financial Partners Corp. | 5,450,000 | 5,872,375 | ||||||
|
| |||||||
16,126,663 | ||||||||
|
|
Principal Amount | Value | |||||||
Iron & Steel 0.6% | ||||||||
Allegheny Ludlum Corp. | $ | 6,860,000 | $ | 7,612,707 | ||||
Allegheny Technologies, Inc. | ||||||||
5.875%, due 8/15/23 | 11,020,000 | 11,707,009 | ||||||
9.375%, due 6/1/19 | 7,475,000 | 9,271,347 | ||||||
Bluescope Steel Finance, Ltd. / Bluescope Steel Finance USA LLC | 18,242,000 | 19,610,150 | ||||||
Commercial Metals Co. | 7,476,000 | 7,176,960 | ||||||
|
| |||||||
55,378,173 | ||||||||
|
| |||||||
Leisure Time 1.0% | ||||||||
Brunswick Corp. | 15,291,000 | 15,061,635 | ||||||
Carlson Wagonlit B.V. | 68,090,000 | 72,771,187 | ||||||
|
| |||||||
87,832,822 | ||||||||
|
| |||||||
Lodging 1.3% | ||||||||
Choice Hotels International, Inc. | ||||||||
5.70%, due 8/28/20 | 2,480,000 | 2,641,200 | ||||||
5.75%, due 7/1/22 | 22,880,000 | 24,167,000 | ||||||
Eldorado Resorts LLC / Eldorado Capital Corp. | 22,865,000 | 24,236,900 | ||||||
Hilton Worldwide Finance LLC / Hilton Worldwide Finance Corp. | 21,785,000 | 22,710,863 | ||||||
MTR Gaming Group, Inc. | 25,901,627 | 29,139,330 | ||||||
Playa Resorts Holding B.V. | 7,930,000 | 8,564,400 | ||||||
Sugarhouse HSP Gaming Prop Mezz, L.P. / Sugarhouse HSP Gaming Finance Corp. | 6,795,000 | 6,659,100 | ||||||
|
| |||||||
118,118,793 | ||||||||
|
| |||||||
Machinery—Construction & Mining 0.4% |
| |||||||
BlueLine Rental Finance Corp. | 22,445,000 | 24,016,150 | ||||||
Vander Intermediate Holding II Corp. | 11,730,000 | 12,375,150 | ||||||
|
| |||||||
36,391,300 | ||||||||
|
| |||||||
Machinery—Diversified 0.2% | ||||||||
Briggs & Stratton Corp. | 7,945,000 | 8,818,950 | ||||||
SPL Logistics Escrow LLC / SPL Logistics Finance Corp. | 7,215,000 | 8,026,688 | ||||||
|
| |||||||
16,845,638 | ||||||||
|
|
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) | ||||||||
Media 4.8% | ||||||||
CCO Holdings LLC / CCO Holdings Capital Corp. | ||||||||
5.125%, due 2/15/23 | $ | 19,167,000 | $ | 18,711,784 | ||||
5.25%, due 9/30/22 | 8,465,000 | 8,465,000 | ||||||
7.25%, due 10/30/17 | 3,100,000 | 3,282,125 | ||||||
Cogeco Cable, Inc. | 22,360,000 | 22,471,800 | ||||||
Crown Media Holdings, Inc. | 17,875,000 | 20,288,125 | ||||||
CSC Holdings LLC | ||||||||
7.625%, due 7/15/18 | 13,740,000 | 15,886,875 | ||||||
7.875%, due 2/15/18 | 1,145,000 | 1,325,338 | ||||||
¨DISH DBS Corp. |
| |||||||
4.25%, due 4/1/18 | 7,598,000 | 7,939,910 | ||||||
4.625%, due 7/15/17 | 17,122,000 | 18,213,528 | ||||||
5.00%, due 3/15/23 | 3,532,000 | 3,602,640 | ||||||
5.125%, due 5/1/20 | 44,200,000 | 46,410,000 | ||||||
Nielsen Finance LLC / Nielsen Finance Co. | ||||||||
4.50%, due 10/1/20 | 17,995,000 | 18,129,963 | ||||||
5.00%, due 4/15/22 (a) | 22,560,000 | 22,616,400 | ||||||
7.75%, due 10/15/18 | 32,338,000 | 34,399,547 | ||||||
Numericable Group S.A. | ||||||||
4.875%, due 5/15/19 (a) | 21,800,000 | 22,018,000 | ||||||
6.00%, due 5/15/22 (a) | 29,730,000 | 30,436,087 | ||||||
6.25%, due 5/15/24 (a) | 5,980,000 | 6,122,025 | ||||||
ProQuest LLC / ProQuest Notes Co. | 34,995,000 | 37,182,187 | ||||||
Quebecor Media, Inc. | 41,610,000 | 41,818,050 | ||||||
Time Inc. | 7,980,000 | 7,960,050 | ||||||
Videotron, Ltd. | ||||||||
5.00%, due 7/15/22 | 21,754,000 | 21,917,155 | ||||||
5.375%, due 6/15/24 (a) | 26,720,000 | 26,920,400 | ||||||
|
| |||||||
436,116,989 | ||||||||
|
| |||||||
Metal Fabricate & Hardware 1.2% | ||||||||
A. M. Castle & Co. | 34,161,000 | 38,174,917 | ||||||
Mueller Water Products, Inc. | ||||||||
7.375%, due 6/1/17 | 24,270,000 | 24,634,050 | ||||||
8.75%, due 9/1/20 | 12,109,000 | 13,501,535 | ||||||
Shale-Inland Holdings LLC / Shale-Inland Finance Corp. | 16,350,000 | 16,840,500 | ||||||
Wise Metals Group LLC / Wise Alloys Finance Corp. | 17,725,000 | 18,788,500 | ||||||
|
| |||||||
111,939,502 | ||||||||
|
|
Principal Amount | Value | |||||||
Mining 2.5% | ||||||||
AuRico Gold, Inc. | $ | 18,350,000 | $ | 17,937,125 | ||||
Constellium NV | 21,600,000 | 21,626,503 | ||||||
Hecla Mining Co. | 47,670,000 | 46,120,725 | ||||||
Kaiser Aluminum Corp. | 31,595,000 | 35,623,362 | ||||||
New Gold, Inc. | ||||||||
6.25%, due 11/15/22 (a) | 20,050,000 | 20,551,250 | ||||||
7.00%, due 4/15/20 (a) | 33,015,000 | 34,830,825 | ||||||
Novelis, Inc. | ||||||||
8.375%, due 12/15/17 | 15,425,000 | 16,466,188 | ||||||
8.75%, due 12/15/20 | 7,350,000 | 8,195,250 | ||||||
St. Barbara, Ltd. | 27,680,000 | 22,974,400 | ||||||
|
| |||||||
224,325,628 | ||||||||
|
| |||||||
Miscellaneous—Manufacturing 1.7% |
| |||||||
Actuant Corp. | 9,720,000 | 10,254,600 | ||||||
Amsted Industries, Inc. | 17,600,000 | 17,556,000 | ||||||
CTP Transportation Products LLC / CTP Finance, Inc. | 18,030,000 | 19,472,400 | ||||||
FGI Operating Co. LLC / FGI Finance, Inc. | 25,440,000 | 27,093,600 | ||||||
Koppers, Inc. | 12,155,000 | 12,990,656 | ||||||
LSB Industries, Inc. | 11,900,000 | 12,733,000 | ||||||
Polypore International, Inc. | 21,740,000 | 22,977,006 | ||||||
SPX Corp. | 25,425,000 | 28,857,375 | ||||||
|
| |||||||
151,934,637 | ||||||||
|
| |||||||
Office Furnishings 0.2% | ||||||||
Interface, Inc. | 20,952,000 | 22,235,310 | ||||||
|
| |||||||
Oil & Gas 9.4% | ||||||||
Antero Resources Corp. | 18,300,000 | 18,460,125 | ||||||
Antero Resources Finance Corp. | 22,200,000 | 22,699,500 | ||||||
Approach Resources, Inc. | 3,000,000 | 3,112,500 | ||||||
Berry Petroleum Co., LLC | ||||||||
6.75%, due 11/1/20 | 1,690,000 | 1,785,063 | ||||||
10.25%, due 6/1/14 | 9,915,000 | 9,964,575 |
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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Oil & Gas (continued) | ||||||||
Calumet Specialty Products Partners, L.P. / Calumet Finance Corp. | ||||||||
6.50%, due 4/15/21 (a) | $ | 41,965,000 | $ | 41,860,087 | ||||
7.625%, due 1/15/22 | 9,670,000 | 10,153,500 | ||||||
9.625%, due 8/1/20 | 6,890,000 | 7,923,500 | ||||||
Chesapeake Energy Corp. | 30,590,000 | 34,299,037 | ||||||
Chesapeake Oilfield Operating LLC / Chesapeake Oilfield Finance, Inc. | 33,565,000 | 34,991,512 | ||||||
Comstock Resources, Inc. | ||||||||
7.75%, due 4/1/19 | 10,327,000 | 11,049,890 | ||||||
9.50%, due 6/15/20 | 13,700,000 | 15,652,250 | ||||||
Concho Resources, Inc. | ||||||||
5.50%, due 10/1/22 | 7,235,000 | 7,587,706 | ||||||
5.50%, due 4/1/23 | 8,745,000 | 9,105,731 | ||||||
6.50%, due 1/15/22 | 24,386,000 | 26,702,670 | ||||||
7.00%, due 1/15/21 | 10,325,000 | 11,460,750 | ||||||
Continental Resources, Inc. | ||||||||
5.00%, due 9/15/22 | 19,275,000 | 20,383,312 | ||||||
7.125%, due 4/1/21 | 8,775,000 | 9,937,688 | ||||||
7.375%, due 10/1/20 | 15,775,000 | 17,687,719 | ||||||
EnQuest PLC | 22,110,000 | 22,607,475 | ||||||
Frontier Oil Corp. | 8,390,000 | 8,893,400 | ||||||
Jones Energy Holdings LLC / Jones Energy Finance Corp. | 16,325,000 | 16,937,188 | ||||||
Linn Energy LLC / Linn Energy Finance Corp. | ||||||||
6.50%, due 5/15/19 | 23,890,000 | 24,785,875 | ||||||
7.25%, due 11/1/19 (a) | 13,250,000 | 13,697,188 | ||||||
Murphy Oil USA, Inc. | 11,000,000 | 11,357,500 | ||||||
Newfield Exploration Co. | ||||||||
5.625%, due 7/1/24 | 17,210,000 | 17,941,425 | ||||||
7.125%, due 5/15/18 | 13,020,000 | 13,475,700 | ||||||
Oasis Petroleum, Inc. | ||||||||
6.50%, due 11/1/21 | 11,600,000 | 12,412,000 | ||||||
6.875%, due 3/15/22 (a) | 15,660,000 | 16,991,100 | ||||||
7.25%, due 2/1/19 | 18,840,000 | 20,111,700 | ||||||
PDC Energy, Inc. | 14,500,000 | 15,913,750 | ||||||
PetroHawk Energy Corp. | 7,865,000 | 8,302,176 | ||||||
PetroQuest Energy, Inc. | 60,850,000 | 64,805,250 | ||||||
Range Resources Corp. | ||||||||
5.00%, due 8/15/22 | 5,600,000 | 5,754,000 |
Principal Amount | Value | |||||||
Oil & Gas (continued) | ||||||||
Range Resources Corp. (continued) | ||||||||
5.00%, due 3/15/23 | $ | 16,680,000 | $ | 17,013,600 | ||||
8.00%, due 5/15/19 | 9,425,000 | 9,849,125 | ||||||
Rex Energy Corp. | 36,200,000 | 40,182,000 | ||||||
Rosetta Resources, Inc. | ||||||||
5.625%, due 5/1/21 | 9,600,000 | 9,768,000 | ||||||
5.875%, due 6/1/22 | 25,450,000 | 25,959,000 | ||||||
SM Energy Co. | ||||||||
5.00%, due 1/15/24 (a) | 18,470,000 | 18,100,600 | ||||||
6.50%, due 11/15/21 | 8,300,000 | 8,922,500 | ||||||
6.50%, due 1/1/23 | 2,535,000 | 2,731,463 | ||||||
6.625%, due 2/15/19 | 17,149,000 | 18,327,994 | ||||||
Stone Energy Corp. | 39,595,000 | 42,960,575 | ||||||
Summit Midstream Holdings LLC / Summit Midstream Finance Corp. | 6,720,000 | 7,224,000 | ||||||
W&T Offshore, Inc. | 24,875,000 | 26,865,000 | ||||||
Whiting Petroleum Corp. | 12,970,000 | 13,683,350 | ||||||
WPX Energy, Inc. | 18,240,000 | 18,855,600 | ||||||
|
| |||||||
849,245,649 | ||||||||
|
| |||||||
Oil & Gas Services 1.3% | ||||||||
Expro Finance Luxembourg SCA | 30,255,000 | 31,616,475 | ||||||
Forum Energy Technologies, Inc. | 24,800,000 | 26,350,000 | ||||||
FTS International, Inc. | 15,205,000 | 15,395,062 | ||||||
Hiland Partners, L.P. / Hiland Partners Finance Corp. | 12,375,000 | 13,488,750 | ||||||
Pioneer Energy Services Corp. | 25,620,000 | 26,997,075 | ||||||
|
| |||||||
113,847,362 | ||||||||
|
| |||||||
Packaging & Containers 1.0% | ||||||||
AEP Industries, Inc. | 20,344,000 | 21,640,930 | ||||||
Owens-Brockway Glass Container, Inc. | 4,910,000 | 5,437,825 | ||||||
Plastipak Holdings, Inc. | 26,145,000 | 27,190,800 | ||||||
Silgan Holdings, Inc. | 17,270,000 | 17,788,100 | ||||||
Tekni-Plex, Inc. | 16,207,000 | 18,354,427 | ||||||
|
| |||||||
90,412,082 | ||||||||
|
|
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) | ||||||||
Pharmaceuticals 1.6% | ||||||||
Forest Laboratories, Inc. | ||||||||
4.875%, due 2/15/21 (a) | $ | 9,780,000 | $ | 10,427,925 | ||||
5.00%, due 12/15/21 (a) | 17,580,000 | 18,788,625 | ||||||
Grifols Worldwide Operations, Ltd. | 3,262,000 | 3,310,930 | ||||||
JLL / Delta Dutch Newco B.V. | 19,905,000 | 20,402,625 | ||||||
Lantheus Medical Imaging, Inc. | 20,286,000 | 20,184,570 | ||||||
NBTY, Inc. | 13,725,000 | 14,725,552 | ||||||
Valeant Pharmaceuticals International, Inc. | ||||||||
5.625%, due 12/1/21 (a) | 7,105,000 | 7,389,200 | ||||||
6.375%, due 10/15/20 (a) | 22,784,000 | 24,492,800 | ||||||
6.75%, due 10/1/17 (a) | 3,947,000 | 4,144,350 | ||||||
6.75%, due 8/15/18 (a) | 6,530,000 | 7,068,725 | ||||||
7.00%, due 10/1/20 (a) | 2,548,000 | 2,726,360 | ||||||
7.50%, due 7/15/21 (a) | 11,700,000 | 13,045,500 | ||||||
|
| |||||||
146,707,162 | ||||||||
|
| |||||||
Pipelines 1.6% | ||||||||
Access Midstream Partners, L.P. / ACMP Finance Corp. | 7,284,000 | 7,875,825 | ||||||
ANR Pipeline Co. | ||||||||
7.375%, due 2/15/24 | 2,555,000 | 3,170,137 | ||||||
9.625%, due 11/1/21 | 10,349,000 | 14,503,389 | ||||||
Atlas Pipeline Partners, L.P. / Atlas Pipeline Finance Corp. | ||||||||
4.75%, due 11/15/21 | 1,460,000 | 1,387,000 | ||||||
6.625%, due 10/1/20 | 22,864,000 | 24,235,840 | ||||||
Copano Energy LLC / Copano Energy Finance Corp. | 11,307,000 | 12,807,778 | ||||||
MarkWest Energy Partners, L.P. / MarkWest Energy Finance Corp. | ||||||||
4.50%, due 7/15/23 | 2,145,000 | 2,091,375 | ||||||
5.50%, due 2/15/23 | 16,000,000 | 16,600,000 | ||||||
6.75%, due 11/1/20 | 21,170,000 | 22,969,450 | ||||||
NuStar Logistics, L.P. | 13,145,000 | 14,344,481 | ||||||
Penn Virginia Resource Partners, L.P. / Penn Virginia Resource Finance Corp. II | ||||||||
6.50%, due 5/15/21 | 13,510,000 | 14,523,250 | ||||||
8.375%, due 6/1/20 | 5,700,000 | 6,441,000 | ||||||
|
| |||||||
140,949,525 | ||||||||
|
|
Principal Amount | Value | |||||||
Real Estate 1.5% | ||||||||
CBRE Services, Inc. | $ | 32,487,000 | $ | 32,730,652 | ||||
Crescent Resources LLC / Crescent Ventures, Inc. | 12,210,000 | 13,644,675 | ||||||
Howard Hughes Corp. (The) | 20,500,000 | 22,037,500 | ||||||
Mattamy Group Corp. | 37,687,000 | 38,063,870 | ||||||
Rialto Holdings LLC / Rialto Corp. | 24,200,000 | 25,228,500 | ||||||
|
| |||||||
131,705,197 | ||||||||
|
| |||||||
Real Estate Investment Trusts 1.2% |
| |||||||
Geo Group, Inc. (The) | 18,300,000 | 19,672,500 | ||||||
Host Hotels & Resorts, L.P. | ||||||||
Series C | 14,650,000 | 15,486,661 | ||||||
5.25%, due 3/15/22 | 13,645,000 | 14,991,475 | ||||||
6.00%, due 10/1/21 | 21,920,000 | 25,082,574 | ||||||
MPT Operating Partnership, L.P. / MPT Finance Corp. | 11,681,000 | 11,914,620 | ||||||
Sabra Health Care, L.P. / Sabra Capital Corp. | ||||||||
5.375%, due 6/1/23 | 5,570,000 | 5,709,250 | ||||||
5.50%, due 2/1/21 | 13,635,000 | 14,282,663 | ||||||
|
| |||||||
107,139,743 | ||||||||
|
| |||||||
Retail 3.7% | ||||||||
AmeriGas Finance LLC / AmeriGas Finance Corp. | ||||||||
6.75%, due 5/20/20 | 3,795,000 | 4,127,063 | ||||||
7.00%, due 5/20/22 | 9,697,000 | 10,666,700 | ||||||
AmeriGas Partners, L.P. / AmeriGas Finance Corp. | ||||||||
6.25%, due 8/20/19 | 13,025,000 | 13,936,750 | ||||||
6.50%, due 5/20/21 | 5,828,000 | 6,250,530 | ||||||
Asbury Automotive Group, Inc. | 44,365,000 | 49,688,800 | ||||||
AutoNation, Inc. | 18,661,000 | 21,460,150 | ||||||
Building Materials Holding Corp. | 21,665,000 | 23,560,687 | ||||||
Cash America International, Inc. | 23,100,000 | 23,100,000 | ||||||
DineEquity, Inc. | 52,380,000 | 56,635,875 | ||||||
L Brands, Inc. | ||||||||
5.625%, due 2/15/22 | 4,545,000 | 4,777,931 | ||||||
5.625%, due 10/15/23 | 8,645,000 | 9,012,413 |
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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Retail (continued) | ||||||||
L Brands, Inc. (continued) | ||||||||
6.625%, due 4/1/21 | $ | 13,980,000 | $ | 15,640,125 | ||||
8.50%, due 6/15/19 | 3,395,000 | 4,090,975 | ||||||
Penske Automotive Group, Inc. | 26,025,000 | 27,228,656 | ||||||
Radio Systems Corp. | 14,460,000 | 15,851,775 | ||||||
Sally Holdings LLC / Sally Capital, Inc. | ||||||||
5.75%, due 6/1/22 | 13,640,000 | 14,492,500 | ||||||
6.875%, due 11/15/19 | 9,595,000 | 10,494,531 | ||||||
Sonic Automotive, Inc. | ||||||||
5.00%, due 5/15/23 | 6,626,000 | 6,510,045 | ||||||
7.00%, due 7/15/22 | 11,875,000 | 13,092,188 | ||||||
|
| |||||||
330,617,694 | ||||||||
|
| |||||||
Shipbuilding 0.2% | ||||||||
Huntington Ingalls Industries, Inc. | ||||||||
6.875%, due 3/15/18 | 10,605,000 | 11,347,350 | ||||||
7.125%, due 3/15/21 | 6,905,000 | 7,612,763 | ||||||
|
| |||||||
18,960,113 | ||||||||
|
| |||||||
Software 0.3% | ||||||||
ACI Worldwide, Inc. | 7,465,000 | 7,856,912 | ||||||
Activision Blizzard, Inc. | ||||||||
5.625%, due 9/15/21 (a) | 15,215,000 | 16,222,994 | ||||||
6.125%, due 9/15/23 (a) | 2,400,000 | 2,610,000 | ||||||
|
| |||||||
26,689,906 | ||||||||
|
| |||||||
Storage & Warehousing 0.9% | ||||||||
¨Algeco Scotsman Global Finance PLC | ||||||||
8.50%, due 10/15/18 (a) | 45,100,000 | 48,482,500 | ||||||
10.75%, due 10/15/19 (a) | 30,040,000 | 32,142,800 | ||||||
Mobile Mini, Inc. | 4,285,000 | 4,745,637 | ||||||
|
| |||||||
85,370,937 | ||||||||
|
| |||||||
Telecommunications 6.9% | ||||||||
Crown Castle International Corp. | ||||||||
5.25%, due 1/15/23 | 48,655,000 | 49,993,012 | ||||||
7.125%, due 11/1/19 | 21,153,000 | 22,580,827 | ||||||
DigitalGlobe, Inc. | 12,507,000 | 12,194,325 | ||||||
GCI, Inc. | 16,511,000 | 17,646,131 | ||||||
Hughes Satellite Systems Corp. | ||||||||
6.50%, due 6/15/19 | 18,430,000 | 20,273,000 | ||||||
7.625%, due 6/15/21 | 15,755,000 | 17,763,763 | ||||||
Inmarsat Finance PLC | 948,000 | 985,920 |
Principal Amount | Value | |||||||
Telecommunications (continued) | ||||||||
Intelsat Jackson Holdings S.A. | ||||||||
5.50%, due 8/1/23 (a) | $ | 2,100,000 | $ | 2,055,375 | ||||
7.25%, due 4/1/19 | 15,530,000 | 16,636,513 | ||||||
7.25%, due 10/15/20 | 21,420,000 | 23,133,600 | ||||||
7.50%, due 4/1/21 | 13,600,000 | 14,909,000 | ||||||
Sable International Finance, Ltd. | 12,750,000 | 14,280,000 | ||||||
Satelites Mexicanos S.A. de C.V. | 32,049,000 | 33,651,450 | ||||||
SBA Telecommunications, Inc. | ||||||||
5.75%, due 7/15/20 | 27,640,000 | 29,022,000 | ||||||
8.25%, due 8/15/19 | 9,721,000 | 10,265,376 | ||||||
Sprint Capital Corp. | ||||||||
6.875%, due 11/15/28 | 30,564,000 | 30,181,950 | ||||||
6.90%, due 5/1/19 | 5,646,000 | 6,196,485 | ||||||
Sprint Communications, Inc. | ||||||||
7.00%, due 8/15/20 | 15,035,000 | 16,350,563 | ||||||
9.125%, due 3/1/17 | 3,747,000 | 4,435,511 | ||||||
9.25%, due 4/15/22 | 13,690,000 | 16,599,125 | ||||||
Sprint Corp. | ||||||||
7.125%, due 6/15/24 (a) | 16,000,000 | 16,800,000 | ||||||
7.875%, due 9/15/23 (a) | 19,820,000 | 21,851,550 | ||||||
¨T-Mobile USA, Inc. | ||||||||
6.125%, due 1/15/22 | 10,515,000 | 11,053,894 | ||||||
6.25%, due 4/1/21 | 20,085,000 | 21,390,525 | ||||||
6.50%, due 1/15/24 | 25,460,000 | 26,701,175 | ||||||
6.625%, due 4/1/23 | 45,925,000 | 49,139,750 | ||||||
6.731%, due 4/28/22 | 53,075,000 | 57,254,656 | ||||||
tw telecom holdings, Inc. | 23,135,000 | 23,482,025 | ||||||
Virgin Media Secured Finance PLC | ||||||||
5.25%, due 1/15/21 | 33,507,000 | 34,428,442 | ||||||
5.375%, due 4/15/21 (a) | 4,965,000 | 5,089,125 | ||||||
|
| |||||||
626,345,068 | ||||||||
|
| |||||||
Transportation 0.7% | ||||||||
Florida East Coast Holdings Corp. | ||||||||
6.75%, due 5/1/19 (a) | 43,289,000 | 44,479,447 | ||||||
9.75%, due 5/1/20 (a) | 22,325,000 | 22,994,750 | ||||||
|
| |||||||
67,474,197 | ||||||||
|
| |||||||
Trucking & Leasing 0.5% | ||||||||
Flexi-Van Leasing, Inc. | 15,865,000 | 17,292,850 | ||||||
TRAC Intermodal LLC / TRAC Intermodal Corp. | 25,970,000 | 29,703,188 | ||||||
|
| |||||||
46,996,038 | ||||||||
|
|
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 0.6% | ||||||||
Alphabet Holding Co., Inc. | $ | 54,129,000 | $ | 56,023,515 | ||||
|
| |||||||
Total Corporate Bonds | 8,231,126,655 | |||||||
|
| |||||||
Loan Assignments 3.1% (h) | ||||||||
Aerospace & Defense 0.2% | ||||||||
DAE Aviation Holdings, Inc. | 20,590,000 | 20,795,900 | ||||||
|
| |||||||
Auto Manufacturers 0.2% | ||||||||
Chrysler Group LLC | 23,026,448 | 22,976,090 | ||||||
|
| |||||||
Auto Parts & Equipment 0.8% | ||||||||
Exide Technologies, Inc. | 71,055,750 | 72,476,865 | ||||||
|
| |||||||
Chemicals 0.1% | ||||||||
Phibro Animal Health Corp. | 13,500,000 | 13,457,813 | ||||||
|
| |||||||
Distribution & Wholesale 0.3% | ||||||||
American Tire Distributors Holdings, Inc. | 17,150,000 | 17,171,438 | ||||||
Performance Food Group Co. | 9,428,750 | 9,487,680 | ||||||
|
| |||||||
26,659,118 | ||||||||
|
| |||||||
Diversified Financial Services 0.1% |
| |||||||
Ocwen Financial Corp. | 5,915,250 | 5,931,890 | ||||||
|
| |||||||
Finance—Other Services 0.2% | ||||||||
BATS Global Markets, Inc. | 14,450,000 | 14,016,500 | ||||||
|
|
Principal Amount | Value | |||||||
Leisure Time 0.1% | ||||||||
Bauer Performance Sports Ltd. | $ | 7,000,000 | $ | 6,991,250 | ||||
|
| |||||||
Lodging 0.4% | ||||||||
Cannery Casino Resorts LLC | ||||||||
New Term Loan B | 10,134,940 | 9,919,573 | ||||||
New 2nd Lien Term Loan | 19,215,000 | 17,725,837 | ||||||
Four Seasons Holdings, Inc. | ||||||||
New 1st Lien Term Loan | 5,970,000 | 5,925,225 | ||||||
2nd Lien Term Loan | 3,500,000 | 3,543,750 | ||||||
|
| |||||||
37,114,385 | ||||||||
|
| |||||||
Metal Fabricate & Hardware 0.2% |
| |||||||
Neenah Foundry Co. | 16,820,206 | 16,694,054 | ||||||
|
| |||||||
Miscellaneous—Manufacturing 0.4% |
| |||||||
FGI Operating Co. LLC | 33,757,747 | 34,095,325 | ||||||
|
| |||||||
Retail 0.1% |
| |||||||
Dunkin’ Brands, Inc. | 5,869,152 | 5,866,006 | ||||||
|
| |||||||
Total Loan Assignments | 277,075,196 | |||||||
|
| |||||||
Yankee Bonds 0.8% (i) | ||||||||
Forest Products & Paper 0.5% | ||||||||
Smurfit Kappa Treasury Funding Ltd. | 38,630,000 | 43,845,050 | ||||||
|
| |||||||
Insurance 0.2% | ||||||||
Fairfax Financial Holdings, Ltd. | ||||||||
7.375%, due 4/15/18 | 9,497,000 | 10,768,259 | ||||||
8.30%, due 4/15/26 | 5,395,000 | 6,392,309 | ||||||
|
| |||||||
17,160,568 | ||||||||
|
|
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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Yankee Bonds (continued) | ||||||||
Pharmaceuticals 0.1% | ||||||||
Catamaran Corp. | $ | 5,925,000 | $ | 5,969,438 | ||||
|
| |||||||
Total Yankee Bonds | 66,975,056 | |||||||
|
| |||||||
Total Long-Term Bonds | 8,581,859,914 | |||||||
|
| |||||||
Shares | ||||||||
Common Stocks 0.2% | ||||||||
Coal 0.0%‡ | ||||||||
Upstate NY Power | 51,473 | 977,987 | ||||||
|
| |||||||
Entertainment 0.0%‡ | ||||||||
Affinity Gaming LLC (c)(e)(g) | 275,000 | 2,543,750 | ||||||
|
| |||||||
Lodging 0.0%‡ | ||||||||
Majestic Star Casino LLC Membership Units (c)(d)(e)(g) | 446,020 | 356,816 | ||||||
|
| |||||||
Media 0.0%‡ | ||||||||
ION Media Networks, Inc. (c)(d)(e)(g) | 2,267 | 857,561 | ||||||
|
| |||||||
Metal Fabricate & Hardware 0.1% | ||||||||
Neenah Enterprises, Inc. (c)(d)(e)(g) | 717,799 | 9,195,005 | ||||||
|
| |||||||
Mining 0.1% | ||||||||
Goldcorp, Inc. | 215,810 | 5,334,823 | ||||||
|
| |||||||
Total Common Stocks | 19,265,942 | |||||||
|
| |||||||
Preferred Stock 0.1% | ||||||||
Savings & Loans 0.1% | ||||||||
GMAC Capital Trust I | 414,600 | 11,397,354 | ||||||
|
| |||||||
Total Preferred Stock | 11,397,354 | |||||||
|
|
Number of Warrants | Value | |||||||
Warrants 0.0%‡ | ||||||||
Food 0.0%‡ | ||||||||
ASG Corp. | 12,510 | $ | 1,563,750 | |||||
|
| |||||||
Total Warrants | 1,563,750 | |||||||
|
| |||||||
Principal Amount | ||||||||
Short-Term Investment 4.3% | ||||||||
Repurchase Agreement 4.3% | ||||||||
State Street Bank and Trust Co. 0.00%, dated 4/30/14 | $ | 388,700,744 | 388,700,744 | |||||
|
| |||||||
Total Short-Term Investment | 388,700,744 | |||||||
|
| |||||||
Total Investments | 99.5 | % | 9,002,787,704 | |||||
Other Assets, Less Liabilities | 0.5 | 49,570,887 | ||||||
Net Assets | 100.0 | % | $ | 9,052,358,591 |
‡ | 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 April 30, 2014, was $83,803,910, which represented 0.9% of the Fund’s net assets. |
(d) | Fair valued security—Represents fair value as measured in good faith under procedures approved by the Board of Trustees. As of April 30, 2014, the total market value of fair valued securities was $55,093,606, which represented 0.6% 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 April 30, 2014. |
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. |
(i) | Yankee Bond—Dollar-denominated bond issued in the United States by a foreign bank or corporation. |
(j) | As of April 30, 2014, cost was $8,616,860,532 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 430,576,710 | ||
Gross unrealized depreciation | (44,649,538 | ) | ||
|
| |||
Net unrealized appreciation | $ | 385,927,172 | ||
|
|
The following is a summary of the fair valuations according to the inputs used as of April 30, 2014, for valuing the Fund’s assets.
Asset Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Long-Term Bonds | ||||||||||||||||
Convertible Bond (b) | $ | — | $ | — | $ | 6,683,007 | $ | 6,683,007 | ||||||||
Corporate Bonds (c) | — | 8,194,103,425 | 37,023,230 | 8,231,126,655 | ||||||||||||
Loan Assignments (d) | — | 163,087,243 | 113,987,953 | 277,075,196 | ||||||||||||
Yankee Bonds | — | 66,975,056 | — | 66,975,056 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Long-Term Bonds | — | 8,424,165,724 | 157,694,190 | 8,581,859,914 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Common Stocks (e) | 7,878,573 | — | 11,387,369 | 19,265,942 | ||||||||||||
Preferred Stock | 11,397,354 | — | — | 11,397,354 | ||||||||||||
Warrants | 1,563,750 | — | — | 1,563,750 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 388,700,744 | — | 388,700,744 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | 20,839,677 | $ | 8,812,866,468 | $ | 169,081,559 | $ | 9,002,787,704 | ||||||||
|
|
|
|
|
|
|
|
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The Level 3 security valued at $6,683,007 is held in Electric within the Convertible Bond section of the Portfolio of Investments. |
(c) | The Level 3 securities valued at $389,256 and $36,633,974 are held in Commercial Services and Entertainment, respectively, within the Corporate Bonds section of the Portfolio of Investments. |
(d) | The Level 3 securities valued at $20,795,900, $72,476,865, $17,171,438 and $3,543,750 are held in Aerospace & Defense, Auto Parts & Equipment, Distribution & Wholesale and Lodging, respectively, within Loan Assignments whose values were 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, $356,816, $857,561 and $9,195,005 are held in Coal, Lodging, Media and Metal Fabricate & Hardware, respectively, within the Common Stocks section of the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the period ended April 30, 2014, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
As of April 30, 2014, a security with a market value of $71,943,947 transferred from Level 2 to Level 3. The transfer occurred as a result of the value for certain Loan Assignments obtained from an independent pricing service utilizing a single broker quote with significant unobservable inputs. The fair value obtained for these securities from an independent pricing service as of October 31, 2013, utilized the average of multiple bid quotations.
During the period ended April 30, 2014, a security with a value of $42,982,056 transferred from Level 3 to Level 2. The transfer occurred as a result of the value of this security being obtained from an independent pricing source using observable inputs as of April 30, 2014. As of October 31, 2013, the valuation of this security was obtained using fair valued prices due to market quotations not being readily available.
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 April 30, 2014 (Unaudited) (continued)
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, 2013 | Accrued Discounts (Premiums) | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Purchases | Sales | Transfers Level 3 | Transfers out of Level 3 | Balance as of April 30, 2014 | Change in Unrealized Appreciation (Depreciation) from Investments Still Held as of April 30, 2014 (a) | ||||||||||||||||||||||||||||||
Long-Term Bonds | ||||||||||||||||||||||||||||||||||||||||
Convertible Bonds |
| |||||||||||||||||||||||||||||||||||||||
Electric | $ | 6,075,462 | $ | — | $ | — | $ | 194,248 | $ | 413,297 | (b) | $ | — | $ | — | $ | — | $ | 6,683,007 | $ | 194,248 | |||||||||||||||||||
Internet | 6,154 | — | (0 | )(c)(d) | (6,154 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Corporate Bonds | ||||||||||||||||||||||||||||||||||||||||
Commercial Services | 389,256 | — | — | — | — | — | — | — | 389,256 | — | ||||||||||||||||||||||||||||||
Engineering & Construction | 42,982,056 | — | — | — | — | — | — | (42,982,056 | ) | — | — | |||||||||||||||||||||||||||||
Entertainment | 36,731,754 | 10,407 | 9,572 | 21,926 | — | (139,685 | ) | — | — | 36,633,974 | (10,407 | ) | ||||||||||||||||||||||||||||
Loan Assignments |
| |||||||||||||||||||||||||||||||||||||||
Aerospace & Defense | — | 7,129 | — | 379,471 | 20,409,300 | — | — | — | 20,795,900 | 379,471 | ||||||||||||||||||||||||||||||
Auto Parts & Equipment | — | 490,531 | — | 42,387 | — | — | 71,943,947 | — | 72,476,865 | 42,387 | ||||||||||||||||||||||||||||||
Distribution and Wholesale | — | 265 | — | 6,860 | 17,164,313 | — | — | — | 17,171,438 | 6,860 | ||||||||||||||||||||||||||||||
Finance—Other Services | 14,522,250 | 37,748 | 714,120 | (824,118 | ) | — | (14,450,000 | )(e) | — | — | — | — | ||||||||||||||||||||||||||||
Lodging | 9,640,000 | 3,113 | 41 | (112,962 | ) | — | (5,986,442 | )(e) | — | — | 3,543,750 | (46,083 | ) | |||||||||||||||||||||||||||
Pharmaceuticals | 14,344,234 | 25,402 | 340,039 | (577,425 | ) | — | (14,132,250 | )(e) | — | — | — | — | ||||||||||||||||||||||||||||
Common Stocks | ||||||||||||||||||||||||||||||||||||||||
Coal | 977,987 | — | — | — | — | — | — | — | 977,987 | — | ||||||||||||||||||||||||||||||
Lodging | 579,826 | — | — | (223,010 | ) | — | — | — | — | 356,816 | (223,010 | ) | ||||||||||||||||||||||||||||
Media | — | — | — | 854,126 | 3,435 | — | — | — | 857,561 | 854,126 | ||||||||||||||||||||||||||||||
Metal, Fabricate & Hardware | 9,195,005 | — | — | — | — | — | — | — | 9,195,005 | — | ||||||||||||||||||||||||||||||
Warrants | ||||||||||||||||||||||||||||||||||||||||
Media | 23 | — | — | 3,412 | — | (3,435 | ) | — | — | — | — | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total | $ | 135,444,007 | $ | 574,595 | $ | 1,063,772 | $ | (241,239 | ) | $ | 37,990,345 | $ | (34,711,812 | ) | $ | 71,943,947 | $ | (42,982,056 | ) | $ | 169,081,559 | $ | 1,197,592 | |||||||||||||||||
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
(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) | At Home Corp. was written off on March 3, 2014. |
(d) | Less than one dollar. |
(e) | 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 April 30, 2014 (Unaudited)
Assets | ||||
Investment in securities, at value (identified cost $8,620,826,828) | $ | 9,002,787,704 | ||
Receivables: | ||||
Dividends and interest | 156,252,866 | |||
Investment securities sold | 36,739,617 | |||
Fund shares sold | 15,615,463 | |||
Other assets | 179,726 | |||
|
| |||
Total assets | 9,211,575,376 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 124,672,673 | |||
Fund shares redeemed | 19,986,274 | |||
Manager (See Note 3) | 4,062,362 | |||
Transfer agent (See Note 3) | 2,494,572 | |||
NYLIFE Distributors (See Note 3) | 1,734,786 | |||
Shareholder communication | 267,936 | |||
Professional fees | 140,204 | |||
Trustees | 17,115 | |||
Accrued expenses | 52,768 | |||
Dividend payable | 5,788,095 | |||
|
| |||
Total liabilities | 159,216,785 | |||
|
| |||
Net assets | $ | 9,052,358,591 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 14,804,721 | ||
Additional paid-in capital | 8,767,036,224 | |||
|
| |||
8,781,840,945 | ||||
Distributions in excess of net investment income | (50,611,623 | ) | ||
Accumulated net realized gain (loss) on investments | (60,831,607 | ) | ||
Net unrealized appreciation (depreciation) on investments | 381,960,876 | |||
|
| |||
Net assets | $ | 9,052,358,591 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 305,178,273 | ||
|
| |||
Shares of beneficial interest outstanding | 49,448,143 | |||
|
| |||
Net asset value per share outstanding | $ | 6.17 | ||
Maximum sales charge (4.50% of offering price) | 0.29 | |||
|
| |||
Maximum offering price per share outstanding | $ | 6.46 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 4,064,819,130 | ||
|
| |||
Shares of beneficial interest outstanding | 664,829,365 | |||
|
| |||
Net asset value per share outstanding | $ | 6.11 | ||
Maximum sales charge (4.50% of offering price) | 0.29 | |||
|
| |||
Maximum offering price per share outstanding | $ | 6.40 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 187,947,795 | ||
|
| |||
Shares of beneficial interest outstanding | 30,893,232 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 6.08 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 826,003,482 | ||
|
| |||
Shares of beneficial interest outstanding | 135,729,769 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 6.09 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 3,652,598,297 | ||
|
| |||
Shares of beneficial interest outstanding | 596,986,414 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 6.12 | ||
|
| |||
Class R1 | ||||
Net assets applicable to outstanding shares | $ | 29,343 | ||
|
| |||
Shares of beneficial interest outstanding | 4,800 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 6.11 | ||
|
| |||
Class R2 | ||||
Net assets applicable to outstanding shares | $ | 13,337,410 | ||
|
| |||
Shares of beneficial interest outstanding | 2,180,996 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 6.12 | ||
|
| |||
Class R6 | ||||
Net assets applicable to outstanding shares | $ | 2,444,861 | ||
|
| |||
Shares of beneficial interest outstanding | 399,406 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 6.12 | ||
|
|
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 six months ended April 30, 2014 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 294,095,781 | ||
Dividends (a) | 999,779 | |||
|
| |||
Total income | 295,095,560 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 24,135,625 | |||
Distribution/Service—Investor Class (See Note 3) | 377,765 | |||
Distribution/Service—Class A (See Note 3) | 5,031,034 | |||
Distribution/Service—Class B (See Note 3) | 953,962 | |||
Distribution/Service—Class C (See Note 3) | 4,043,710 | |||
Distribution/Service—Class R2 (See Note 3) | 18,345 | |||
Transfer agent (See Note 3) | 7,477,338 | |||
Shareholder communication | 772,397 | |||
Professional fees | 204,485 | |||
Registration | 139,377 | |||
Trustees | 80,985 | |||
Custodian | 38,652 | |||
Shareholder service (See Note 3) | 7,352 | |||
Miscellaneous | 115,155 | |||
|
| |||
Total expenses | 43,396,182 | |||
|
| |||
Net investment income (loss) | 251,699,378 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments | 77,480,732 | |||
Net change in unrealized appreciation (depreciation) on investments | 16,369,891 | |||
|
| |||
Net realized and unrealized gain (loss) on investments | 93,850,623 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 345,550,001 | ||
|
|
(a) | Dividends recorded net of foreign withholding taxes in the amount of $19,337. |
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 six months ended April 30, 2014 (Unaudited) and the year ended October 31, 2013
2014 | 2013 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 251,699,378 | $ | 513,166,416 | ||||
Net realized gain (loss) on investments | 77,480,732 | 173,772,699 | ||||||
Net change in unrealized appreciation (depreciation) on investments | 16,369,891 | (94,237,946 | ) | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 345,550,001 | 592,701,169 | ||||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (10,004,306 | ) | (20,852,106 | ) | ||||
Class A | (133,852,687 | ) | (281,250,098 | ) | ||||
Class B | (5,614,097 | ) | (13,085,525 | ) | ||||
Class C | (23,882,522 | ) | (51,239,807 | ) | ||||
Class I | (120,869,134 | ) | (233,684,269 | ) | ||||
Class R1 | (971 | ) | (1,924 | ) | ||||
Class R2 | (479,788 | ) | (1,056,452 | ) | ||||
Class R6 | (50,519 | ) | (771 | ) | ||||
|
| |||||||
Total dividends to shareholders | (294,754,024 | ) | (601,170,952 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 1,053,395,185 | 2,899,836,530 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 258,452,973 | 504,021,939 | ||||||
Cost of shares redeemed | (1,093,817,054 | ) | (3,037,427,701 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | 218,031,104 | 366,430,768 | ||||||
|
| |||||||
Net increase (decrease) in net assets | 268,827,081 | 357,960,985 | ||||||
Net Assets | ||||||||
Beginning of period | 8,783,531,510 | 8,425,570,525 | ||||||
|
| |||||||
End of period | $ | 9,052,358,591 | $ | 8,783,531,510 | ||||
|
| |||||||
Distributions in excess of net investment income at end of period | $ | (50,611,623 | ) | $ | (7,556,977 | ) | ||
|
|
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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Investor Class | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 6.14 | $ | 6.13 | $ | 5.88 | $ | 5.97 | $ | 5.60 | $ | 4.63 | ||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.17 | 0.36 | 0.39 | 0.41 | 0.41 | 0.40 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.06 | 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 | 0.23 | 0.43 | 0.67 | 0.33 | 0.79 | 1.41 | ||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.20 | ) | (0.42 | ) | (0.42 | ) | (0.42 | ) | (0.41 | ) | (0.41 | ) | ||||||||||||||
Return of capital | — | — | — | — | (0.01 | ) | (0.03 | ) | ||||||||||||||||||
|
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|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.20 | ) | (0.42 | ) | (0.42 | ) | (0.42 | ) | (0.42 | ) | (0.44 | ) | ||||||||||||||
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| |||||||||||||||
Redemption fee (b) | — | — | — | — | 0.00 | ‡ | 0.00 | ‡ | ||||||||||||||||||
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|
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|
|
| |||||||||||||||
Net asset value at end of period | $ | 6.17 | $ | 6.14 | $ | 6.13 | $ | 5.88 | $ | 5.97 | $ | 5.60 | ||||||||||||||
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| |||||||||||||||
Total investment return (c) | 3.84 | %(d) | 7.24 | % | 11.82 | % | 5.69 | % | 14.73 | % | 32.60 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 5.67 | %†† | 5.88 | % | 6.53 | % | 6.80 | % | 7.03 | % | 8.18 | % | ||||||||||||||
Net expenses | 1.01 | %†† | 1.02 | % | 1.03 | % | 1.05 | % | 1.08 | % | 1.15 | % | ||||||||||||||
Portfolio turnover rate | 17 | % | 40 | % | 29 | % | 45 | % | 41 | % | 41 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 305,178 | $ | 307,643 | $ | 301,074 | $ | 285,656 | $ | 282,489 | $ | 265,507 |
* | Unaudited. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the period. |
(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. |
(d) | Total investment return is not annualized. |
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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class A | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 6.08 | $ | 6.08 | $ | 5.84 | $ | 5.92 | $ | 5.56 | $ | 4.60 | ||||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.17 | 0.36 | 0.39 | 0.41 | 0.40 | 0.40 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.06 | 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 | 0.23 | 0.42 | 0.66 | 0.34 | 0.79 | 1.40 | ||||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.20 | ) | (0.42 | ) | (0.42 | ) | (0.42 | ) | (0.42 | ) | (0.41 | ) | ||||||||||||||
Return of capital | — | — | — | — | (0.01 | ) | (0.03 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.20 | ) | (0.42 | ) | (0.42 | ) | (0.42 | ) | (0.43 | ) | (0.44 | ) | ||||||||||||||
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|
|
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|
| |||||||||||||||
Redemption fee (b) | — | — | — | — | 0.00 | ‡ | 0.00 | ‡ | ||||||||||||||||||
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|
| |||||||||||||||
Net asset value at end of period | $ | 6.11 | $ | 6.08 | $ | 6.08 | $ | 5.84 | $ | 5.92 | $ | 5.56 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (c) | 3.87 | %(d) | 7.15 | % | 11.76 | % | 5.94 | % | 14.69 | % | 32.74 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 5.69 | %†† | 5.89 | % | 6.56 | % | 6.86 | % | 7.07 | % | 8.19 | % | ||||||||||||||
Net expenses | 0.99 | %†† | 1.01 | % | 1.00 | % | 0.99 | % | 1.03 | % | 1.08 | % | ||||||||||||||
Portfolio turnover rate | 17 | % | 40 | % | 29 | % | 45 | % | 41 | % | 41 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 4,064,819 | $ | 4,055,185 | $ | 4,086,134 | $ | 3,355,007 | $ | 3,409,419 | $ | 3,169,962 |
* | Unaudited. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the period. |
(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. |
(d) | 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 | 29 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class B | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 6.05 | $ | 6.05 | $ | 5.81 | $ | 5.90 | $ | 5.54 | $ | 4.57 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.15 | 0.31 | 0.34 | 0.36 | 0.36 | 0.36 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.06 | 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 | 0.21 | 0.37 | 0.61 | 0.28 | 0.74 | 1.36 | ||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.18 | ) | (0.37 | ) | (0.37 | ) | (0.37 | ) | (0.37 | ) | (0.36 | ) | ||||||||||||||
Return of capital | — | — | — | — | (0.01 | ) | (0.03 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.18 | ) | (0.37 | ) | (0.37 | ) | (0.37 | ) | (0.38 | ) | (0.39 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Redemption fee (b) | — | — | — | — | 0.00 | ‡ | 0.00 | ‡ | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 6.08 | $ | 6.05 | $ | 6.05 | $ | 5.81 | $ | 5.90 | $ | 5.54 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (c) | 3.48 | %(d) | 6.36 | % | 10.94 | % | 4.95 | % | 13.81 | % | 31.57 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 4.92 | %†† | 5.13 | % | 5.78 | % | 6.05 | % | 6.27 | % | 7.49 | % | ||||||||||||||
Net expenses | 1.76 | %†† | 1.77 | % | 1.78 | % | 1.80 | % | 1.83 | % | 1.91 | % | ||||||||||||||
Portfolio turnover rate | 17 | % | 40 | % | 29 | % | 45 | % | 41 | % | 41 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 187,948 | $ | 197,273 | $ | 221,723 | $ | 267,752 | $ | 375,368 | $ | 453,918 |
* | Unaudited. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the period. |
(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. |
(d) | 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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class C | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 6.05 | $ | 6.05 | $ | 5.81 | $ | 5.90 | $ | 5.54 | $ | 4.57 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.15 | 0.31 | 0.34 | 0.36 | 0.36 | 0.36 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.07 | 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 | 0.22 | 0.37 | 0.61 | 0.28 | 0.74 | 1.36 | ||||||||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.18 | ) | (0.37 | ) | (0.37 | ) | (0.37 | ) | (0.37 | ) | (0.36 | ) | ||||||||||||||
Return of capital | — | — | — | — | (0.01 | ) | (0.03 | ) | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.18 | ) | (0.37 | ) | (0.37 | ) | (0.37 | ) | (0.38 | ) | (0.39 | ) | ||||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Redemption fee (b) | — | — | — | — | 0.00 | ‡ | 0.00 | ‡ | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 6.09 | $ | 6.05 | $ | 6.05 | $ | 5.81 | $ | 5.90 | $ | 5.54 | ||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (c) | 3.65 | %(d) | 6.36 | % | 10.93 | % | 4.95 | % | 13.81 | % | 31.57 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 4.92 | %†† | 5.13 | % | 5.78 | % | 6.05 | % | 6.28 | % | 7.29 | % | ||||||||||||||
Net expenses | 1.76 | %†† | 1.77 | % | 1.78 | % | 1.80 | % | 1.83 | % | 1.90 | % | ||||||||||||||
Portfolio turnover rate | 17 | % | 40 | % | 29 | % | 45 | % | 41 | % | 41 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 826,003 | $ | 814,589 | $ | 819,807 | $ | 654,224 | $ | 698,491 | $ | 651,209 |
* | Unaudited. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the period. |
(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. |
(d) | 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 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class I | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 6.08 | $ | 6.08 | $ | 5.84 | $ | 5.92 | $ | 5.56 | $ | 4.60 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.18 | 0.37 | 0.40 | 0.42 | 0.42 | 0.41 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.07 | 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 | 0.25 | 0.44 | 0.68 | 0.36 | 0.80 | 1.41 | ||||||||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.21 | ) | (0.44 | ) | (0.44 | ) | (0.44 | ) | (0.43 | ) | (0.42 | ) | ||||||||||||||
Return of capital | — | — | — | — | (0.01 | ) | (0.03 | ) | ||||||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.21 | ) | (0.44 | ) | (0.44 | ) | (0.44 | ) | (0.44 | ) | (0.45 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Redemption fee (b) | — | — | — | — | 0.00 | ‡ | 0.00 | ‡ | ||||||||||||||||||
|
|
|
|
|
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|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 6.12 | $ | 6.08 | $ | 6.08 | $ | 5.84 | $ | 5.92 | $ | 5.56 | ||||||||||||||
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|
|
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|
|
|
|
|
|
| |||||||||||||||
Total investment return (c) | 4.16 | %(d) | 7.40 | % | 12.02 | % | 6.19 | % | 14.98 | % | 32.84 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 5.94 | %†† | 6.13 | % | 6.81 | % | 7.11 | % | 7.34 | % | 8.38 | % | ||||||||||||||
Net expenses | 0.74 | %†† | 0.76 | % | 0.75 | % | 0.74 | % | 0.78 | % | 0.83 | % | ||||||||||||||
Portfolio turnover rate | 17 | % | 40 | % | 29 | % | 45 | % | 41 | % | 41 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 3,652,598 | $ | 3,393,780 | $ | 2,982,526 | $ | 1,775,230 | $ | 1,736,365 | $ | 1,141,889 |
* | Unaudited. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the period. |
(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. |
(d) | Total investment return is not annualized. |
32 | 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
Class R1 | Six months ended April 30, 2014* | Year ended October 31, 2013 | June 29, 2012** through October 31, 2012 | |||||||||
Net asset value at beginning of period | $ | 6.08 | $ | 6.08 | $ | 5.92 | ||||||
|
|
|
|
|
| |||||||
Net investment income (loss) (a) | 0.18 | 0.37 | 0.14 | |||||||||
Net realized and unrealized gain (loss) on investments | 0.06 | 0.06 | 0.16 | |||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | — | — | 0.00 | ‡ | ||||||||
|
|
|
|
|
| |||||||
Total from investment operations | 0.24 | 0.43 | 0.30 | |||||||||
|
|
|
|
|
| |||||||
Less dividends: | ||||||||||||
From net investment income | (0.21 | ) | (0.43 | ) | (0.14 | ) | ||||||
|
|
|
|
|
| |||||||
Net asset value at end of period | $ | 6.11 | $ | 6.08 | $ | 6.08 | ||||||
|
|
|
|
|
| |||||||
Total investment return (b) | 3.95 | %(c) | 7.32 | % | 5.17 | %(c) | ||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||
Net investment income (loss) | 5.84 | %†† | 6.03 | % | 6.49 | %†† | ||||||
Net expenses | 0.84 | %†† | 0.86 | % | 0.87 | %†† | ||||||
Portfolio turnover rate | 17 | % | 40 | % | 29 | % | ||||||
Net assets at end of period (in 000’s) | $ | 29 | $ | 28 | $ | 26 |
* | Unaudited. |
** | 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. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 33 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class R2 | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 6.08 | $ | 6.08 | $ | 5.84 | $ | 5.93 | $ | 5.56 | $ | 4.60 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.17 | 0.35 | 0.38 | 0.40 | 0.40 | 0.39 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.07 | 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 | 0.24 | 0.42 | 0.66 | 0.33 | 0.79 | 1.40 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.20 | ) | (0.42 | ) | (0.42 | ) | (0.42 | ) | (0.41 | ) | (0.41 | ) | ||||||||||||||
Return of capital | — | — | — | — | (0.01 | ) | (0.03 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.20 | ) | (0.42 | ) | (0.42 | ) | (0.42 | ) | (0.42 | ) | (0.44 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Redemption fee (b) | — | — | — | — | 0.00 | ‡ | 0.00 | ‡ | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 6.12 | $ | 6.08 | $ | 6.08 | $ | 5.84 | $ | 5.93 | $ | 5.56 | ||||||||||||||
|
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|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (c) | 3.99 | %(d) | 7.06 | % | 11.66 | % | 5.67 | % | 14.78 | % | 32.31 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 5.59 | %†† | 5.79 | % | 6.46 | % | 6.76 | % | 6.99 | % | 7.59 | % | ||||||||||||||
Net expenses | 1.09 | %†† | 1.11 | % | 1.10 | % | 1.09 | % | 1.13 | % | 1.18 | % | ||||||||||||||
Portfolio turnover rate | 17 | % | 40 | % | 29 | % | 45 | % | 41 | % | 41 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 13,337 | $ | 15,008 | $ | 14,280 | $ | 9,927 | $ | 9,120 | $ | 6,240 |
* | Unaudited. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the period. |
(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. |
(d) | Total investment return is not annualized. |
34 | 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
Class R6 | Six months ended April 30, 2014* | June 17, 2013** through October 31, 2013 | ||||||
Net asset value at beginning of period | $ | 6.09 | $ | 6.11 | ||||
|
|
|
| |||||
Net investment income (loss) (a) | 0.19 | 0.14 | ||||||
Net realized and unrealized gain (loss) on investments | 0.05 | 0.03 | ||||||
|
|
|
| |||||
Total from investment operations | 0.24 | 0.17 | ||||||
|
|
|
| |||||
Less dividends: | ||||||||
From net investment income | (0.21 | ) | (0.19 | ) | ||||
|
|
|
| |||||
Net asset value at end of period | $ | 6.12 | $ | 6.09 | ||||
|
|
|
| |||||
Total investment return (b)(c) | 4.09 | % | 2.79 | % | ||||
Ratios (to average net assets)/Supplemental Data: | ||||||||
Net investment income (loss) | 6.12 | %†† | 6.24 | %†† | ||||
Net expenses | 0.58 | %†† | 0.59 | %†† | ||||
Portfolio turnover rate | 17 | % | 40 | % | ||||
Net assets at end of period (in 000’s) | $ | 2,445 | $ | 26 |
* | Unaudited. |
** | 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 | 35 |
Notes to Financial Statements (Unaudited)
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 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”) adopted procedures for the valuation of the Fund’s securities and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board 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 Sub-Committee deals in the first instance with such valuation and 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. Any action taken by the Sub-Committee with respect to the valuation of a portfolio security is submitted by the Valuation Committee to the Board for its review at its next regularly scheduled meeting immediately after such action.
“Fair value” is defined as the price that the Fund would receive upon selling an asset or liability in an orderly transaction to an independent buyer in the principal or most advantageous market for the asset or liability. Fair value measurements are determined within a framework that 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” refer 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 based on the information available. 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 below.
• | Level 1—quoted prices in active markets for an identical asset or liability |
36 | MainStay High Yield Corporate Bond Fund |
• | Level 2—other significant observable inputs (including quoted prices for a similar asset or liability in active markets, interest rates and yield curves, prepayment speeds, credit risk etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring fair value of an asset or liability) |
The aggregate value by input level, as of April 30, 2014, for the Fund’s assets or liabilities is included at the end of the Fund’s Portfolio of Investments.
The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs among others:
• 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 |
An asset or liability for which market values cannot be measured using the methodologies described above are valued by methods deemed reasonable and in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund generally 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 asset or liability are discounted to calculate fair value. Discounts may also be applied due to the nature and/or duration of any restrictions on the disposition of the asset or liability. Due to the inherent valuation uncertainty of such assets or liabilities, fair values may differ significantly from values that would have been used had an active market existed. For the six-month period ended April 30, 2014, there have been no material 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 readily available from a third party pricing source or, if so provided, does not, in the opinion of the Manager or Subadvisor reflect the security’s market value; (vi) a security subject to trading collars for which no or limited trading takes place; and (vii) 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 April 30, 2014, the Fund held securities with a value of $55,093,606 that were fair valued in such a manner.
Equity securities and Exchange-Traded Funds are valued at the last 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 last quoted bid and ask prices. Prices are normally taken from the principal market in which each security trades. Investments in other mutual funds are valued at their respective NAV(s) 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 Manager in consultation with the Subadvisor. Those prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Manager, in consultation with the Subadvisor to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities purchased on a 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 at the time of purchase (“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.
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 engaged independant 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 April 30, 2014, the Fund held securities with a value of $113,987,953 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 table 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 | 37 |
Notes to Financial Statements (Unaudited) (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 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 from net investment income, if any, at least monthly and distributions from 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, net of any foreign tax withheld at the source, 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. The straight-line method approximates the effective interest method for short-term investments. 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 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 if 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.
38 | MainStay High Yield Corporate Bond 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 may invest 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, if any, are mark-to-market and any unrealized gains and losses are recorded in the Statement of Assets and Liabilities. As of April 30, 2014, 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 instru-
ments 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 April 30, 2014, 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 April 30, 2014.
(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. 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.
mainstayinvestments.com | 39 |
Notes to Financial Statements (Unaudited) (continued)
These risks include those resulting from currency fluctuations, future adverse political or 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 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. These securities pay investors a higher interest rate because of the increased risk of loss. Although certain loans are collateralized, there is no guarantee that the value of the collateral will be sufficient to repay the loan. In a recession or serious credit event, the value of these securities could decline significantly.
(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.
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 compensation 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 the 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 six-month period ended April 30, 2014, inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets.
For the six-month period ended April 30, 2014, New York Life Investments earned fees from the Fund in the amount of $24,135,625.
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 Plans 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 is 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 six-month period ended April 30, 2014, were as follows:
Class R1 | $ | 14 | ||
Class R2 | 7,338 |
40 | MainStay High Yield Corporate Bond Fund |
(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 $58,300 and $425,940, respectively, for the six-month period ended April 30, 2014. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $1, $33,322, $112,558 and $39,921, respectively, for the six-month period ended April 30, 2014.
(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 six-month period ended April 30, 2014, were as follows:
Investor Class | $ | 280,629 | ||
Class A | 3,353,435 | |||
Class B | 177,245 | |||
Class C | 750,794 | |||
Class I | 2,902,982 | |||
Class R1 | 24 | |||
Class R2 | 12,229 |
(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 April 30, 2014, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class I | $ | 5,687,192 | 0.2 | % | ||||
Class R1 | 29,343 | 100.0 | ||||||
Class R6 | 26,596 | 1.1 |
Note 4–Federal Income Tax
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 tax character of distributions paid during the year ended October 31, 2013, shown in the Statements of Changes in Net Assets was as follows:
2013 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 601,170,952 |
mainstayinvestments.com | 41 |
Notes to Financial Statements (Unaudited) (continued)
Note 5–Restricted Securities
As of April 30, 2014, the Fund held the following restricted securities:
Security | Date(s) of Acquisition | Principal Amount/ Number of Warrants/ Shares | Cost | 4/30/14 Value | Percent of Net Assets | |||||||||||||||
Affinity Gaming LLC | 5/4/12 | 275,000 | $ | 3,093,750 | $ | 2,543,750 | 0.0 | %‡ | ||||||||||||
ASG Corp. | 4/30/10 | 12,510 | — | 1,563,750 | 0.0 | ‡ | ||||||||||||||
ION Media Networks, Inc. | 3/11/14 | 2,267 | 3,435 | 857,561 | 0.0 | ‡ | ||||||||||||||
Majestic Star Casino LLC | 12/1/11 | 446,020 | 892,040 | 356,816 | 0.0 | ‡ | ||||||||||||||
Neenah Enterprises, Inc. | 7/29/10 | 717,799 | 6,079,757 | 9,195,005 | 0.1 | |||||||||||||||
Neenah Foundry Co. Term Loan | 5/10/13 | $ | 16,820,206 | 16,249,516 | 16,694,054 | 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) | 6/29/12-12/15/13 | $ | 4,546,264 | 4,573,021 | 6,683,007 | 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 | $ | 66,766,561 | $ | 75,573,686 | 0.8 | % |
‡ | Less than one-tenth of a percent. |
Note 6–Custodian
State Street is the custodian of cash and securities held by the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities held by 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, who serves as the agent 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. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the six-month period ended April 30, 2014.
Note 8–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2014, purchases and sales of securities, other than short-term securities, were $1,645,597 and $1,479,156, respectively.
42 | MainStay High Yield Corporate Bond Fund |
Note 9–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2014: |
| |||||||
Shares sold | 3,303,475 | $ | 20,350,461 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,493,449 | 9,172,902 | ||||||
Shares redeemed | (3,495,064 | ) | (21,507,235 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 1,301,860 | 8,016,128 | ||||||
Shares converted into Investor Class (See Note 1) | 780,630 | 4,801,903 | ||||||
Shares converted from Investor Class (See Note 1) | (2,770,976 | ) | (17,023,980 | ) | ||||
|
| |||||||
Net increase (decrease) | (688,486 | ) | $ | (4,205,949 | ) | |||
|
| |||||||
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 | |||||
|
| |||||||
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2014: |
| |||||||
Shares sold | 55,824,459 | $ | 340,316,829 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 18,925,427 | 115,106,132 | ||||||
Shares redeemed | (80,533,072 | ) | (490,771,798 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (5,783,186 | ) | (35,348,837 | ) | ||||
Shares converted into Class A (See Note 1) | 3,579,588 | 21,792,141 | ||||||
|
| |||||||
Net increase (decrease) | (2,203,598 | ) | $ | (13,556,696 | ) | |||
|
| |||||||
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 | ) | |||
|
| |||||||
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2014: |
| |||||||
Shares sold | 1,933,552 | $ | 11,731,787 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 822,101 | 4,975,036 | ||||||
Shares redeemed | (2,891,929 | ) | (17,535,596 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (136,276 | ) | (828,773 | ) | ||||
Shares converted from Class B (See Note 1) | (1,579,530 | ) | (9,570,064 | ) | ||||
|
| |||||||
Net increase (decrease) | (1,715,806 | ) | $ | (10,398,837 | ) | |||
|
| |||||||
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 | ) | |||
|
| |||||||
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2014: |
| |||||||
Shares sold | 10,347,323 | $ | 62,794,660 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 3,129,660 | 18,951,948 | ||||||
Shares redeemed | (12,357,907 | ) | (74,923,001 | ) | ||||
|
| |||||||
Net increase (decrease) | 1,119,076 | $ | 6,823,607 | |||||
|
| |||||||
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 | ) | |||
|
| |||||||
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2014: |
| |||||||
Shares sold | 100,648,056 | $ | 613,426,383 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 18,043,449 | 109,853,059 | ||||||
Shares redeemed | (79,563,705 | ) | (484,561,169 | ) | ||||
|
| |||||||
Net increase (decrease) | 39,127,800 | $ | 238,718,273 | |||||
|
| |||||||
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 | |||||
|
|
mainstayinvestments.com | 43 |
Notes to Financial Statements (Unaudited) (continued)
Class R1 | Shares | Amount | ||||||
Six-month period ended April 30, 2014: |
| |||||||
Shares issued to shareholders in reinvestment of dividends and distributions | 159 | $ | 971 | |||||
|
| |||||||
Net increase (decrease) | 159 | $ | 971 | |||||
|
| |||||||
Year ended October 31, 2013: | ||||||||
Shares issued to shareholders in reinvestment of dividends and distributions | 317 | $ | 1,924 | |||||
|
| |||||||
Net increase (decrease) | 317 | $ | 1,924 | |||||
|
| |||||||
Class R2 | Shares | Amount | ||||||
Six-month period ended April 30, 2014: |
| |||||||
Shares sold | 393,978 | $ | 2,397,911 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 56,289 | 342,406 | ||||||
Shares redeemed | (737,367 | ) | (4,496,086 | ) | ||||
|
| |||||||
Net increase (decrease) | (287,100 | ) | $ | (1,755,769 | ) | |||
|
| |||||||
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 | |||||
|
| |||||||
Class R6 | Shares | Amount | ||||||
Six-month period ended April 30, 2014: |
| |||||||
Shares sold | 390,535 | $ | 2,377,154 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 8,264 | 50,519 | ||||||
Shares redeemed | (3,613 | ) | (22,169 | ) | ||||
|
| |||||||
Net increase (decrease) | 395,186 | $ | 2,405,504 | |||||
|
| |||||||
Period ended October 31, 2013 (a): |
| |||||||
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 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 six-month period ended April 30, 2014, events and transactions subsequent to April 30, 2014, 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.
44 | MainStay High Yield Corporate Bond Fund |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”) requires that each mutual fund’s board of trustees, including a majority of the independent trustees, annually review and approve the fund’s investment advisory agreements. At its December 10-11, 2013 meeting, the Board of Trustees of the MainStay Group of Funds (“Board”) unanimously approved the Management Agreement with respect to the MainStay High Yield Corporate Bond Fund (“Fund”) and New York Life Investment Management LLC (“New York Life Investments”) and the Subadvisory Agreement between New York Life Investments and MacKay Shields LLC (“MacKay Shields”) with respect to the Fund.
In reaching its decision to approve the Agreements, the Board considered information furnished by New York Life Investments and MacKay Shields in connection with a contract review process that took place at various meetings of the Board and its Contracts Committee between September 2013 and December 2013 as well as other relevant information furnished to the Board throughout the year by New York Life Investments and MacKay Shields. Information requested by and furnished to the Board in connection with the contract review process included, among other items, reports on the Fund and “peer funds” prepared by Strategic Insight Mutual Fund Research and Consulting, LLC (“Strategic Insight”), an independent third-party service provider engaged by the Board to report objectively on the Fund’s investment performance, management and subadvisory fees and ordinary operating expenses. The Board also considered information provided by New York Life Investments and MacKay Shields on the fees charged to other investment advisory clients (including institutional separate accounts) that follow investment strategies similar to the Fund and the rationale for any differences in the Fund’s management and subadvisory fees and the fees charged to those other investment advisory clients. In addition, the Board requested and received information on the profitability of the Fund to New York Life Investments and its affiliates, including MacKay Shields as subadvisor to the Fund, and responses from New York Life Investments and MacKay Shields to a series of questions encompassing a variety of topics prepared on behalf of the Board by independent legal counsel to the Board and its independent trustees (the “Independent Trustees”). Information provided to the Board at its meetings throughout the year included, among other items, detailed investment performance reports on the Fund prepared by the Investment Consulting Group at New York Life Investments. The structure and format for this regular reporting were developed in consultation with the Board. The Board also received from New York Life Investments throughout the year, among other items, periodic reports on legal and compliance matters, portfolio turnover, and sales and marketing activity.
In considering the Agreements, the members of the Board reviewed and evaluated all of the information and factors they believed to be relevant and appropriate in light of legal advice furnished to them by independent legal counsel and through the exercise of their own business judgment. The broad factors considered by the Board are discussed in greater detail below and included, among other items: (i) the nature, scope and quality of the services provided to the Fund by New York Life Investments and MacKay Shields; (ii) the investment performance of the Fund, New York Life Investments and MacKay Shields; (iii) the costs of the services provided, and profits realized, by New York Life Investments and MacKay Shields from their relationships with the
Fund; (iv) the extent to which economies of scale may be realized as the Fund grows and the extent to which economies of scale may benefit Fund investors; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to similar funds and accounts managed by New York Life Investments and MacKay Shields and peer funds identified by Strategic Insight.
While individual members of the Board may have weighed certain factors differently, the Board’s decision to approve the Agreements was based on a consideration of all the information provided to the Board, including information provided to the Board throughout the year and specifically in connection with the contract review process. The Board’s conclusions with respect to the Agreements also were based, in part, on the Board’s consideration of the Agreements in prior years. In addition to considering the above-referenced factors, the Board observed that in the marketplace there are a range of investment options available to shareholders of the Fund and that the Fund’s shareholders, having had the opportunity to consider other investment options, have chosen to invest in the Fund. A more detailed discussion of the factors that figured prominently in the Board’s decisions to approve the Agreements is provided below.
Nature, Scope and Quality of Services to Be Provided by New York Life Investments and MacKay Shields
The Board examined the nature, scope and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience in serving as manager of the Fund, noting that New York Life Investments manages other mutual funds, serves a variety of other investment advisory clients, including other pooled investment vehicles, and has experience with overseeing mutual fund service providers, including subadvisors. The Board considered the experience of senior personnel at New York Life Investments providing management and administrative services to the Fund as well as New York Life Investments’ reputation and financial condition. The Board also considered the full range of non-advisory services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and oversight services provided by New York Life Investments’ Fund Accounting and Administration Group; (ii) investment oversight and analytical services provided by New York Life Investments’ Investment Consulting Group; (iii) compliance services provided by the Fund’s Chief Compliance Officer as well as New York Life Investments’ compliance department, including oversight and implementation of the Fund’s compliance program; and (iv) legal services provided by New York Life Investments’ Office of the General Counsel. Additional information about the non-advisory services provided by New York Life Investments is set forth in the Fund’s Management Agreement. The Board also considered New York Life Investments’ willingness to invest in personnel and infrastructure that benefit the Fund and noted that New York Life Investments is responsible for compensating the Fund’s officers. The Board also considered benefits to shareholders of being part of the MainStay Group of Funds, including the privilege of exchanging investments between the same class of shares without the imposition of a sales charge, as described more fully in the Fund’s prospectus.
mainstayinvestments.com | 45 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
The Board also examined the nature, scope and quality of the advisory services that MacKay Shields provides to the Fund. The Board evaluated MacKay Shields’ experience in serving as subadvisor to the Fund and managing other portfolios. It examined MacKay Shields’ track record and experience in providing investment advisory services, the experience of investment advisory, senior management and administrative personnel at MacKay Shields, and MacKay Shields’ overall legal and compliance environment. The Board also reviewed MacKay Shields’ willingness to invest in personnel that benefit the Fund. In this regard, the Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers and the method for compensating portfolio managers.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund should continue to benefit from the nature, scope and quality of these services as a result of New York Life Investments’ and MacKay Shields’ experience, personnel, operations and resources.
Investment Performance
In evaluating the Fund’s investment performance, the Board considered investment performance results in light of the Fund’s investment objective, strategies and risks, as disclosed in the Fund’s prospectus. The Board particularly considered detailed investment reports on the Fund’s performance provided to the Board throughout the year by the Investment Consulting Group of New York Life Investments. These reports include, among other items, information on the Fund’s gross and net returns, the Fund’s investment performance relative to relevant investment categories and Fund benchmarks, the Fund’s risk-adjusted investment performance, and the Fund’s investment performance as compared to peer funds, as appropriate. The Board also considered information provided by Strategic Insight showing the investment performance of the Fund as compared to peer funds.
In considering the Fund’s investment performance, the Board focused principally on the Fund’s long-term performance track record. The Board also gave weight to its ongoing discussions with senior management at New York Life Investments concerning the Fund’s investment performance as well as discussions between the Fund’s portfolio managers and the Board that generally occur on an annual basis. In addition, the Board considered any specific actions that New York Life Investments or MacKay Shields had taken, or had agreed with the Board to take, to enhance Fund investment performance, and the results of those actions.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the long-term investment performance of the Fund, along with ongoing efforts by New York Life Investments and MacKay Shields to enhance investment returns, supported a determination to approve the Agreements. The Fund discloses more information about investment performance in the Portfolio Management Discussion and Analysis, Investment and Performance Comparison and Financial Highlights sections of this Semiannual Report and in the Fund’s prospectus.
Costs of the Services Provided, and Profits Realized, by New York Life Investments and MacKay Shields
The Board considered the costs of the services provided by New York Life Investments and MacKay Shields under the Agreements, and the profits realized by New York Life Investments and its affiliates, including MacKay Shields, due to their relationships with the Fund. Because MacKay Shields is an affiliate of New York Life Investments whose subadvisory fees are paid directly by New York Life Investments, the Board considered cost and profitability information for New York Life Investments and MacKay Shields in the aggregate.
In evaluating the costs and profits of New York Life Investments and its affiliates , including MacKay Shields, the Board considered, among other factors, each party’s investments in personnel, systems, equipment and other resources necessary to manage the Fund, and that New York Life Investments is responsible for paying the subadvisory fees for the Fund. The Board acknowledged that New York Life Investments and MacKay Shields must be in a position to pay and retain experienced professional personnel to provide services to the Fund and that the ability to maintain a strong financial position is important in order for New York Life Investments and MacKay Shields to continue to provide high-quality services to the Fund. The Board also noted that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds.
In addition, the Board noted the difficulty in obtaining reliable comparative data about mutual fund managers’ profitability, since such information generally is not publicly available and may be impacted by numerous factors, including the structure of a fund manager’s organization, the types of funds it manages, the methodology used to allocate certain fixed costs to specific funds, and the manager’s capital structure and costs of capital. While recognizing the difficulty in evaluating a manager’s profitability with respect to the Fund and noting that other profitability methodologies may also be reasonable, the Board concluded that the profitability methodology presented by New York Life Investments to the Board, which was developed by New York Life Investments in consultation with an independent consultant, was reasonable in all material respects.
In considering the costs and profitability of the Fund, the Board also considered certain fall-out benefits that may be realized by New York Life Investments and its affiliates due to their relationships with the Fund.
The Board further considered that, in addition to fees earned by New York Life Investments for managing the Fund, New York Life Investments’ affiliates also earn revenues from serving the Fund in various other capacities, including as the Fund’s transfer agent and distributor. The Board observed that information about these other revenues, and their impact on the profitability of the Fund to New York Life Investments and its affiliates, was furnished to the Board as part of the 15(c) process. The Board noted that, although it assessed the overall profitability of the Fund to New York Life Investments and its affiliates as part of the contract review process, when considering the reasonableness of the fees to be paid to New York Life Investments and its affiliates under the Agreements, the Board considered the profitability of New York Life Investments’ relationship with the Fund on a pre-tax basis and without regard to distribution expenses.
46 | MainStay High Yield Corporate Bond Fund |
After evaluating the information presented to the Board, the Board concluded, within the context of its overall determinations regarding the Agreements, that any profits realized by New York Life Investments and its affiliates, including MacKay Shields, due to their relationships with the Fund supported the Board’s decision to approve the Agreements.
Extent to Which Economies of Scale May Be Realized as the Fund Grows
The Board considered whether the Fund’s expense structure permits economies of scale to be shared with Fund investors. The Board also considered a report from New York Life Investments, prepared at the request of the Board, that addressed economies of scale in the mutual fund business generally, the changing economics of the mutual fund business and the various ways in which the benefits of economies of scale may be shared with the MainStay Group of Funds. The Board reviewed information from New York Life Investments showing how the Fund’s management fee schedule compared to fee schedules of other funds and accounts managed by New York Life Investments. The Board also reviewed information from Strategic Insight showing how the Fund’s management fee schedule hypothetically would compare with fees paid for similar services by peer funds at varying asset levels. While recognizing the difficulty of determining economies of scale with precision, the Board acknowledged that economies of scale may be shared with the Fund in a number of ways, including, for example, through the imposition of management fee breakpoints and by initially setting relatively low management fees.
Based on this information, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund’s expense structure appropriately reflects economies of scale for the benefit of Fund investors. The Board noted, however, that it would continue to evaluate the reasonableness of the Fund’s expense structure as the Fund grows over time.
Management and Subadvisory Fees and Total Ordinary Operating Expenses
The Board evaluated the reasonableness of the fees to be paid under the Agreements and the Fund’s expected total ordinary operating expenses. The Board primarily considered the reasonableness of the management fee paid by the Fund to New York Life Investments, since the fees paid to MacKay Shields are paid by New York Life Investments, not the Fund.
In assessing the reasonableness of the Fund’s fees and expenses, the Board primarily considered comparative data provided by Strategic Insight on the fees and expenses charged by similar mutual funds managed by other investment advisers. In addition, the Board considered information provided by New York Life Investments and MacKay Shields on fees charged to other investment advisory clients, including institutional separate accounts and other funds with similar investment objectives as the Fund. The Board particularly considered differences in the contractual management fee schedules of the retail MainStay Funds and similarly-managed MainStay VP Portfolios, taking into account New York Life Investments’ rationale for any differences in fee schedules. The Board also took into account explanations provided by New York Life Investments about the different scope of services provided to
mutual funds as compared with other investment advisory clients. Additionally, the Board considered the impact of any contractual breakpoints, voluntary waivers and expense limitation arrangements on the Fund’s net management fee and expenses.
The Board noted that, outside of the Fund’s management fee and the fees charged under a share class’s Rule 12b-1 and/or shareholder services plans, a share class’s most significant “other expenses” are transfer agent fees. Transfer agent fees are charged to the Fund based on the number of shareholder accounts (a “per-account” fee) as compared with certain other fees (e.g., management fees), which are charged based on the Fund’s average net assets. The Board took into account information from New York Life Investments showing that the Fund’s transfer agent fee schedule is reasonable, including industry data showing that the per-account fees that NYLIM Service Company LLC, the Fund’s transfer agent, charges the Fund are within the range of per-account fees charged by transfer agents to other mutual funds. In addition, the Board considered NYLIM Service Company LLC’s profitability in connection with the transfer agent services it provides to the Fund.
The Board considered that, because the Fund’s transfer agent fees are billed on a per-account basis, the impact of transfer agent fees on a share class’s expense ratio may be more significant in cases where the share class has a high number of accounts with limited assets (i.e., small accounts). The Board observed that transfer agent fees are a significant portion of total expenses of many Funds in the MainStay Group of Funds. The impact of transfer agent fees on the expense ratios of these MainStay Funds tend to be greater than for other open-end retail funds, because the MainStay Group of Funds generally has a significant number of small accounts relative to competitor funds. The Board acknowledged the role that the MainStay Group of Funds historically has played in serving the investment needs of New York Life Insurance Company (“New York Life”) policyholders, who often maintain smaller account balances than other fund investors. The Board also acknowledged measures that it and New York Life Investments have taken in recent years to mitigate the effect of small accounts on the expense ratios of Fund share classes, including: (i) encouraging New York Life agents to consolidate multiple small accounts held by the same investor into one MainStay Asset Allocation Fund account; (ii) increasing investment minimums from $500 to $1,000 in 2003; (iii) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iv) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (v) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (vi) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vii) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. In addition, the Board acknowledged New York Life Investments’ efforts to encourage intermediaries to consolidate small accounts in multiple Funds held by the same investor into a single Asset Allocation Fund account, if appropriate under the circumstances, in an effort to mitigate the effect of small accounts on the Funds in the MainStay Group of Funds.
mainstayinvestments.com | 47 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
After considering all of the factors outlined above, the Board concluded that the Fund’s management and subadvisory fees and total ordinary operating expenses were within a range that is competitive and, within the context of the Board’s overall conclusions regarding the Agreements, support a conclusion that these fees and expenses are reasonable.
Conclusion
On the basis of the information provided to it and its evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the Agreements.
48 | MainStay High Yield Corporate Bond Fund |
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 | 49 |
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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 Fund
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 Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund1
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund2
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 LLC3
New York, New York
Cornerstone Capital Management LLC3
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC3
Chicago, Illinois
MacKay Shields LLC3
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC3
New York, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP4
PricewaterhouseCoopers LLP5
1. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
2. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
3. An affiliate of New York Life Investment Management LLC.
4. For all Funds listed above except MainStay Marketfield Fund.
5. For MainStay Marketfield Fund only.
Not part of the Semiannual 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.
©2014 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-34260 MS164-14 | MSHY10-06/14 NL008 |
MainStay Money Market Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2014
This page intentionally left blank
Message from the President
Stocks and bonds generally advanced during the six months ended April 30, 2014, but results varied across different markets, asset classes and regions.
According to Russell data, mid-capitalization stocks tended to provide the strongest returns, outperforming large-cap stocks overall. As a group, small-cap stocks tended to underperform their larger-capitalization counterparts. Value outperformed growth at all capitalization levels as the 2013 market rally ended and investors moved from rapid-growth stocks toward utilities, real estate investment trusts (REITs) and other stocks that tend to be more defensive.
The reporting period opened with investors still reacting to the government shutdown and asking questions about the debt ceiling and the so-called fiscal cliff. Even so, U.S. stocks climbed relatively steadily through the end of 2013. After reaching a high point in January, the U.S. stock market tumbled to its low point for the reporting period in early February, hurt by weaker economic data and severe weather in the Northeast. From that point, domestic stocks generally recovered, advancing to new highs before the end of the reporting period.
International stocks benefited from the European Central Bank’s accommodative policies and an improving European economy, despite high levels of debt and unemployment. In Japan, a weaker currency and accommodative central bank policies had fueled a stock rally in 2013, but Japanese stocks began to decline in mid-January on concerns about the Prime Minister’s economic policies, including a substantial increase in the nation’s sales tax. International stocks also felt the effects of tensions in Ukraine and slowing growth in China.
Throughout the reporting period, the Federal Reserve held the federal funds target rate in a range close to zero. On December 18, 2013, the Federal Open Market Committee announced plans to begin tapering its direct security purchases (widely known as quantitative easing) in January of 2014. The announcement led investors to anticipate rising interest rates.
According to U.S. Department of the Treasury data, yields did rise through the early part of 2014. After peaking early in the year, however, U.S. Treasury yields generally trended downward. As of April 30, 2014, yields at the short and long ends of the U.S. Treasury yield curve1 were slightly lower than at the beginning of the reporting period, while yields on 1- to 10-year U.S. Treasury securities had moved slightly higher.
In harmony with these trends, extensive tax-loss harvesting in the municipal market tended to push municipal yields higher in November and December. Redemptions slowed as the new year progressed, and a scarcity of municipal supply pushed municipal bond prices higher—and yields lower—during the last four months of the reporting period.
Throughout the reporting period, our portfolio managers pursued the investment objectives of their respective Funds within the investment strategies outlined in the Prospectus. Using time-tested security-selection, portfolio-monitoring and risk-management techniques, they sought to maximize exposure to potential opportunities while seeking to minimize exposure to unnecessary risks.
The report that follows provides additional information about the decisions, securities and market forces that affected your MainStay Fund during the six months ended April 30, 2014. We encourage you to read this information carefully. It can help you evaluate your diversification and assess your asset allocation as you pursue your long-range financial goals.
We thank you for choosing MainStay Funds, and we look forward to a lasting and productive relationship.
Sincerely,
Stephen P. Fisher
1. | 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 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. Past performance is no guarantee of future results.
Not part of the Semiannual 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 Period Ended April 30, 2014
Class | Sales Charge | Six Months | One Year | Five Years | Ten Years | Gross Expense Ratio2 | ||||||||||||||||
Investor Class Shares3,4 | No Sales Charge | 0.00 | % | 0.01 | % | 0.01 | % | 1.40 | % | 0.90 | % | |||||||||||
Class A Shares3 | No Sales Charge | 0.00 | 0.01 | 0.01 | 1.41 | 0.65 | ||||||||||||||||
Class B Shares3 | No Sales Charge | 0.00 | 0.01 | 0.01 | 1.40 | 0.90 | ||||||||||||||||
Class C Shares3 | No Sales Charge | 0.00 | 0.01 | 0.01 | 1.40 | 0.90 | ||||||||||||||||
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 April 30, 2014, 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 –0.78%, –0.55%, –0.78%, and –0.78%, for Investor Class, Class A, B and C shares, respectively, and the 7-day current yield would have been –0.78%, –0.55%, –0.78%, and –0.78%, 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 | Six Months | One Year | Five Years | Ten Years | ||||||||||||
Average Lipper Money Market Fund5 | 0.01 | % | 0.01 | % | 0.02 | % | 1.40 | % |
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 November 1, 2013, to April 30, 2014, 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 November 1, 2013, to April 30, 2014.
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 April 30, 2014. 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 11/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/14 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/14 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,000.00 | $ | 0.55 | $ | 1,024.20 | $ | 0.55 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,000.00 | $ | 0.55 | $ | 1,024.20 | $ | 0.55 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,000.00 | $ | 0.55 | $ | 1,024.20 | $ | 0.55 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,000.00 | $ | 0.55 | $ | 1,024.20 | $ | 0.55 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (0.11% 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 181 (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 April 30, 2014 (Unaudited)
See Portfolio of Investments beginning on page 11 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 NYL Investors LLC, the Fund’s Subadvisor.
How did MainStay Money Market Fund perform relative to its benchmark and peers during the six months ended April 30, 2014?
As of April 30, 2014, 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 six months ended April 30, 2014, all share classes returned 0.00%. All share classes underperformed the 0.01% return of the average Lipper1 money market fund for the six months ended April 30, 2014. Performance figures for the Fund reflect certain fee waivers and/or expense limitations without which total returns would have been lower.
Were there any changes to the Fund during the reporting period?
As of May 1, 2014, the Fund’s portfolio managers transitioned from an unincorporated division within New York Life Investments2 to a newly organized direct, wholly owned subsidiary of New York Life Insurance Company named NYL Investors LLC. For more information, please see the Supplement dated April 7, 2014, to the Summary Prospectus and Prospectus dated February 28, 2014.
What factors affected the Fund’s performance during the reporting period?
During the reporting period, short-term interest rates remained at historically low levels, and Federal Reserve policy remained accommodative—a scenario that has remained unchanged for some time. There were, however, a few factors that remained in the shadows, having a smaller impact on the money markets during the reporting period. Among these were a flattening U.S. Treasury-bill yield curve,3 shrinking U.S. Treasury bill and repurchase agreement supply and the impact of the new Federal Reserve reverse repurchase agreement facility. The shrinking U.S. Treasury bill supply, along with the continuing regulatory pressure on dealers to reduce their balance sheets—which in turn pressured repurchase agreement rates—caused spreads4 to tighten across all asset sectors. The downward pressure on rates was reduced somewhat by the rates on the Federal Reserve reverse repurchase agreement facility.
What was the Fund’s duration5 strategy during the reporting period?
We kept the Fund’s duration target between 45 and 55 days. This strategy enabled the Fund to participate in the primary asset-backed securities market, where the final maturities are generally longer than their weighted average maturities. Our duration strategy also allowed for the Fund to continue to participate in the 13-month maturity U.S. Treasury coupon market, which we used to round out the required liquidity bucket at premium yields to repurchase agreements, shorter-maturity commercial paper and U.S. Treasury bills. Overall, our duration strategy contributed positively, albeit modestly, to the Fund’s performance. (Contributions take weightings and total returns into account.) At the end of the reporting period, the duration of the Fund stood at 49 days, compared to 48 days at the end of the prior reporting period.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
The flattening of the U.S. Treasury yield curve during the reporting period slowed the Fund’s investment in the 13-month U.S. Treasury coupon sector, which was offset by the Fund’s investments in the 60-day-and-shorter agency discount note sector. Diminished supply in the short corporate floating-rate sector was offset by the Fund’s increased investment in floating-rate certificates of deposit. As spreads tightened in the asset-backed securities sector, we reduced the Fund’s participation in asset-backed securities
During the reporting period, which market segments were the strongest positive contributors to the Fund’s performance and which market segments were particularly weak?
The strongest contributing sector during the reporting period was floating-rate corporate bonds, as this sector tightened less than other sectors within the Fund’s investment universe. The industrial sector of the commercial paper market (a staple for the Fund) rallied along with the U.S. Treasury bill market and detracted from the Fund’s performance.
1. | See footnote on page 6 for more information on Lipper Inc. |
2. | “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. |
3. | 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. |
4. | 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. |
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 to be a more accurate sensitivity gauge than average maturity. |
mainstayinvestments.com | 9 |
Did the Fund make any significant purchases or sales during the reporting period?
Significant purchases included Wells Fargo floating-rates notes due 6/16/14; Bank of Montreal floating-rate notes due 8/4/14; and Toronto Dominion floating-rate notes due 2/3/15. Other significant purchases included a Ford Credit Auto Owner Trust 2014-A Class A1 ABS note; a Volvo Financial Equipment LLC 2014-1A Class A1 ABS note; and a USAA Auto Owner Trust 2014-1 Class A1 ABS note. 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 certificates of deposit, commercial paper and agency securities. During the reporting period, we decreased the Fund’s weightings in U.S. Treasury bills, corporate bonds and asset-backed securities.
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 Money Market Fund |
Portfolio of Investments April 30, 2014 (Unaudited)
Principal Amount | Amortized Cost | |||||||
Short-Term Investments 100.1%† | ||||||||
Certificates of Deposit 8.0% |
| |||||||
Bank of Montreal | $ | 5,720,000 | $ | 5,720,000 | ||||
Toronto-Dominion Bank (The) | 3,980,000 | 3,980,000 | ||||||
0.211%, due 2/3/15 (a) | 3,815,000 | 3,815,000 | ||||||
0.212%, due 11/18/14 (a) | 3,815,000 | 3,815,000 | ||||||
Wells Fargo Bank NA | 3,790,000 | 3,790,000 | ||||||
0.228%, due 4/2/15 (a) | 3,875,000 | 3,875,000 | ||||||
0.234%, due 3/6/15 (a) | 3,815,000 | 3,815,000 | ||||||
|
| |||||||
28,810,000 | ||||||||
|
| |||||||
Financial Company Commercial Paper 23.8% |
| |||||||
Bank of Nova Scotia | 5,710,000 | 5,709,001 | ||||||
Caterpillar Financial Services Corp. | 4,000,000 | 3,998,827 | ||||||
CPPIB Capital, Inc. | 5,860,000 | 5,859,691 | ||||||
GlaxoSmithKline Finance PLC | 6,000,000 | 5,999,138 | ||||||
John Deere Bank SA | 4,000,000 | 3,999,867 | ||||||
0.09%, due 5/14/14 (b)(c) | 3,860,000 | 3,859,874 | ||||||
0.09%, due 5/20/14 (b)(c) | 4,000,000 | 3,999,810 | ||||||
Massachusetts Mutual Life Insurance Co. | 5,000,000 | 4,999,900 | ||||||
National Rural Utilities Cooperative Finance Corp. | 1,935,000 | 1,934,995 | ||||||
0.10%, due 5/7/14 (b) | 6,000,000 | 5,999,900 | ||||||
Nationwide Life Insurance Co. | 4,300,000 | 4,299,828 | ||||||
0.15%, due 5/22/14 (b)(c) | 6,000,000 | 5,999,475 | ||||||
PACCAR Financial Corp. | 2,000,000 | 1,999,918 | ||||||
PNC BANK NA | 5,720,000 | 5,714,340 | ||||||
Siemens Capital Co., LLC | 11,625,000 | 11,624,361 | ||||||
U.S. Bank NA | 5,850,000 | 5,850,000 | ||||||
0.13%, due 6/9/14 (b) | 3,900,000 | 3,900,000 | ||||||
|
| |||||||
85,748,925 | ||||||||
|
|
Principal Amount | Amortized Cost | |||||||
Government Agency Debt 2.6% |
| |||||||
Farmer Mac | $ | 4,500,000 | $ | 4,499,927 | ||||
0.13%, due 6/6/14 | 5,000,000 | 4,999,350 | ||||||
|
| |||||||
9,499,277 | ||||||||
|
| |||||||
Other Commercial Paper 37.8% |
| |||||||
3M Co. | 4,000,000 | 3,999,973 | ||||||
Air Products & Chemicals, Inc. | 6,000,000 | 5,999,700 | ||||||
Army and Air Force Exchange Service | 3,890,000 | 3,889,905 | ||||||
0.09%, due 6/17/14 (b)(c) | 3,905,000 | 3,904,541 | ||||||
ConocoPhillips Qatar Funding Ltd. | 5,750,000 | 5,749,987 | ||||||
Henkel of America, Inc. | 2,000,000 | 1,999,820 | ||||||
0.14%, due 5/28/14 (b)(c) | 4,000,000 | 3,999,580 | ||||||
0.15%, due 6/24/14 (b)(c) | 4,000,000 | 3,999,100 | ||||||
Honeywell International, Inc. | 1,600,000 | 1,599,696 | ||||||
International Business Machines Corp. | 4,000,000 | 4,000,000 | ||||||
L’Oreal U.S.A., Inc. | 3,890,000 | 3,889,883 | ||||||
McDonald’s Corp. | 3,875,000 | 3,874,408 | ||||||
Merck & Co., Inc. | 5,860,000 | 5,859,909 | ||||||
NSTAR Electric Co. | 5,000,000 | 4,999,983 | ||||||
PepsiCo, Inc. | 5,830,000 | 5,829,858 | ||||||
Procter & Gamble Co. (The) | 5,830,000 | 5,829,142 | ||||||
Province of Ontario Canada | 4,475,000 | 4,474,787 | ||||||
Schlumberger Investment SA | 3,890,000 | 3,889,719 | ||||||
Southern California Edison Co. | 7,400,000 | 7,399,969 | ||||||
0.15%, due 5/7/14 (b)(c) | 4,690,000 | 4,689,883 | ||||||
Southern Co. (The) | 6,150,000 | 6,149,880 | ||||||
Southern Co. Funding Corp. | 6,000,000 | 5,999,450 | ||||||
St. Jude Medical, Inc. | 3,910,000 | 3,909,619 | ||||||
0.15%, due 5/8/14 (b)(c) | 3,890,000 | 3,889,887 | ||||||
0.20%, due 7/21/14 (b)(c) | 2,925,000 | 2,923,684 |
† | 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 | 11 |
Portfolio of Investments April 30, 2014 (Unaudited) (continued)
Principal Amount | Amortized Cost | |||||||
Short-Term Investments (continued) | ||||||||
Other Commercial Paper (continued) |
| |||||||
United Parcel Service, Inc. | $ | 5,860,000 | $ | 5,859,878 | ||||
United Technologies Corp. | 6,800,000 | 6,799,082 | ||||||
WGL Holdings, Inc. | 3,000,000 | 3,000,000 | ||||||
0.14%, due 5/8/14 (b)(c) | 4,000,000 | 3,999,891 | ||||||
0.14%, due 5/16/14 (b)(c) | 4,000,000 | 3,999,767 | ||||||
|
| |||||||
136,410,981 | ||||||||
|
| |||||||
Other Notes 4.8% |
| |||||||
American Honda Finance Corp. | 3,815,000 | 3,815,000 | ||||||
CarMax Auto Owner Trust | 328,083 | 328,083 | ||||||
Chrysler Capital Auto Receivables Trust | 1,233,751 | 1,233,751 | ||||||
Enterprise Fleet Financing LLC | 1,403,775 | 1,403,775 | ||||||
Series 2013-2, Class A1 | 311,854 | 311,854 | ||||||
Ford Credit Auto Owner Trust | 369,846 | 369,846 | ||||||
Series 2013-D, Class A1 | 103,510 | 103,510 | ||||||
GreatAmerica Leasing Receivables | 909,935 | 909,935 | ||||||
Honda Auto Receivables Owner Trust | 880,069 | 880,069 | ||||||
Series 2013-4, Class A1 | 395,921 | 395,921 | ||||||
M&T Bank Auto Receivables Trust | 184,767 | 184,767 | ||||||
Mercedes-Benz Auto Lease Trust | 354,660 | 354,660 | ||||||
MMAF Equipment Finance LLC | 232,155 | 232,155 | ||||||
National Rural Utilities Cooperative Finance Corp. | 3,890,000 | 3,890,000 |
Principal Amount | Amortized Cost | |||||||
Other Notes (continued) |
| |||||||
USAA Auto Owner Trust | $ | 1,360,695 | $ | 1,360,695 | ||||
Volkswagen Auto Lease Trust | 536,870 | 536,870 | ||||||
Volvo Financial Equipment LLC | 1,109,012 | 1,109,012 | ||||||
|
| |||||||
17,419,903 | ||||||||
|
| |||||||
Treasury Debt 12.3% |
| |||||||
United States Treasury Bill | 2,000,000 | 1,999,984 | ||||||
United States Treasury Notes | 4,000,000 | 3,999,792 | ||||||
0.125%, due 12/31/14 | 3,795,000 | 3,794,153 | ||||||
0.25%, due 5/31/14 | 3,835,000 | 3,835,295 | ||||||
0.25%, due 8/31/14 | 3,775,000 | 3,776,124 | ||||||
0.25%, due 9/30/14 | 3,845,000 | 3,846,727 | ||||||
0.25%, due 10/31/14 | 3,895,000 | 3,897,373 | ||||||
0.25%, due 11/30/14 | 3,830,000 | 3,832,388 | ||||||
0.25%, due 1/31/15 | 3,815,000 | 3,818,129 | ||||||
0.25%, due 2/28/15 | 3,840,000 | 3,843,114 | ||||||
0.25%, due 3/31/15 | 3,870,000 | 3,873,751 | ||||||
2.625%, due 6/30/14 | 4,000,000 | 4,016,324 | ||||||
|
| |||||||
44,533,154 | ||||||||
|
| |||||||
Treasury Repurchase Agreements 10.8% |
| |||||||
Bank of America N.A. | 15,000,000 | 15,000,000 | ||||||
Deutsche Bank Securities, Inc. | 13,966,000 | 13,966,000 |
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. |
Principal Amount | Amortized Cost | |||||||
Short-Term Investments (continued) | ||||||||
Treasury Repurchase Agreements (continued) |
| |||||||
TD Securities (U.S.A.) LLC | $ | 10,000,000 | $ | 10,000,000 | ||||
|
| |||||||
38,966,000 | ||||||||
|
| |||||||
Total Short-Term Investments | 100.1 | % | 361,388,240 | |||||
Other Assets, Less Liabilities | (0.1 | ) | (232,484 | ) | ||||
Net Assets | 100.0 | % | $ | 361,155,756 |
(a) | Floating rate—Rate shown was the rate in effect as of April 30, 2014. |
(b) | Interest rate shown represents 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 April 30, 2014, 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 | $ | — | $ | 28,810,000 | $ | — | $ | 28,810,000 | ||||||||
Financial Company Commercial Paper | — | 85,748,925 | — | 85,748,925 | ||||||||||||
Government Agency Debt | — | 9,499,277 | — | 9,499,277 | ||||||||||||
Other Commercial Paper | — | 136,410,981 | — | 136,410,981 | ||||||||||||
Other Notes | — | 17,419,903 | — | 17,419,903 | ||||||||||||
Treasury Debt | — | 44,533,154 | — | 44,533,154 | ||||||||||||
Treasury Repurchase Agreements | — | 38,966,000 | — | 38,966,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | — | $ | 361,388,240 | $ | — | $ | 361,388,240 | ||||||||
|
|
|
|
|
|
|
|
(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 period ended April 30, 2014, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
As of April 30, 2014, 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 |
Portfolio of Investments April 30, 2014 (Unaudited) (continued)
The table below sets forth the diversification of MainStay Money Market Fund investments by industry.
Industry Diversification (Unaudited)
Amortized Cost | Percent † | |||||||
Aerospace & Defense | $ | 6,799,082 | 1.9 | % | ||||
Automobile ABS | 7,463,801 | 2.1 | ||||||
Banks | 49,983,341 | 13.9 | ||||||
Beverages | 5,829,858 | 1.6 | ||||||
Chemicals | 15,998,200 | 4.4 | ||||||
Computers | 4,000,000 | 1.1 | ||||||
Cosmetics & Personal Care | 5,829,142 | 1.6 | ||||||
Electric | 29,239,165 | 8.1 | ||||||
Electronics | 1,599,696 | 0.5 | ||||||
Finance—Auto Loans | 5,814,918 | 1.6 | ||||||
Finance—Investment Banker/Broker | 5,859,691 | 1.6 | ||||||
Finance—Other Services | 17,824,033 | 4.9 | ||||||
Gas | 10,999,658 | 3.1 | ||||||
Health Care—Products | 10,723,190 | 3.0 | ||||||
Insurance | 15,299,203 | 4.2 | ||||||
Machinery—Construction & Mining | 3,998,827 | 1.1 | ||||||
Machinery—Diversified | 11,859,551 | 3.3 | ||||||
Miscellaneous—Manufacturing | 15,624,334 | 4.3 | ||||||
Oil & Gas | 5,749,987 | 1.6 | ||||||
Oil & Gas Services | 3,889,719 | 1.1 | ||||||
Other ABS | 2,251,102 | 0.6 | ||||||
Pharmaceuticals | 5,859,909 | 1.6 | ||||||
Regional (State & Province) | 4,474,787 | 1.2 | ||||||
Repurchase Agreements | 38,966,000 | 10.8 | ||||||
Retail | 15,558,737 | 4.3 | ||||||
Sovereign | 54,032,431 | 15.0 | ||||||
Transportation | 5,859,878 | 1.6 | ||||||
|
|
|
| |||||
361,388,240 | 100.1 | |||||||
Other Assets, Less Liabilities | (232,484 | ) | (0.1 | ) | ||||
|
|
|
| |||||
Net Assets | $ | 361,155,756 | 100.0 | % | ||||
|
|
|
|
† | Percentages indicated are based on Fund net assets. |
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 Assets and Liabilities as of April 30, 2014 (Unaudited)
Assets | ||||
Investment in securities, at value | $ | 322,422,240 | ||
Repurchase agreements, at value | 38,966,000 | |||
Cash | 1,044 | |||
Receivables: | ||||
Fund shares sold | 730,008 | |||
Interest | 60,194 | |||
Manager (See Note 3) | 58,314 | |||
Other assets | 66,744 | |||
|
| |||
Total assets | 362,304,544 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Fund shares redeemed | 913,737 | |||
Transfer agent (See Note 3) | 161,249 | |||
Shareholder communication | 40,910 | |||
Professional fees | 29,575 | |||
Trustees | 898 | |||
Custodian | 45 | |||
Accrued expenses | 2,249 | |||
Dividend payable | 125 | |||
|
| |||
Total liabilities | 1,148,788 | |||
|
| |||
Net assets | $ | 361,155,756 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 3,612,027 | ||
Additional paid-in capital | 357,541,417 | |||
|
| |||
361,153,444 | ||||
Undistributed net investment income | 2,498 | |||
Accumulated net realized gain (loss) on investments | (186 | ) | ||
|
| |||
Net assets | $ | 361,155,756 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 57,810,928 | ||
|
| |||
Shares of beneficial interest outstanding | 57,820,599 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 1.00 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 202,978,371 | ||
|
| |||
Shares of beneficial interest outstanding | 203,006,002 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 1.00 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 68,182,988 | ||
|
| |||
Shares of beneficial interest outstanding | 68,190,199 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 1.00 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 32,183,469 | ||
|
| |||
Shares of beneficial interest outstanding | 32,185,904 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 1.00 | ||
|
|
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 six months ended April 30, 2014 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 257,218 | ||
|
| |||
Expenses | ||||
Manager (See Note 3) | 1,028,949 | |||
Transfer agent (See Note 3) | 442,486 | |||
Registration | 53,547 | |||
Shareholder communication | 30,472 | |||
Professional fees | 30,091 | |||
Custodian | 12,876 | |||
Trustees | 4,146 | |||
Miscellaneous | 7,758 | |||
|
| |||
Total expenses before waiver/reimbursement | 1,610,325 | |||
Expense waiver/reimbursement from Manager (See Note 3) | (1,372,905 | ) | ||
|
| |||
Net expenses | 237,420 | |||
|
| |||
Net investment income (loss) | 19,798 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments | (206 | ) | ||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 19,592 | ||
|
|
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. |
Statements of Changes in Net Assets
for the six months ended April 30, 2014 (Unaudited) and the year ended October 31, 2013
2014 | 2013 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 19,798 | $ | 38,344 | ||||
Net realized gain (loss) on investments | (206 | ) | 20 | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 19,592 | 38,364 | ||||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (1,924 | ) | (3,866 | ) | ||||
Class A | (13,727 | ) | (25,645 | ) | ||||
Class B | (2,720 | ) | (6,101 | ) | ||||
Class C | (1,427 | ) | (2,729 | ) | ||||
|
| |||||||
Total dividends to shareholders | (19,798 | ) | (38,341 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 241,154,114 | 630,608,506 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 18,939 | 37,152 | ||||||
Cost of shares redeemed | (335,876,226 | ) | (606,229,520 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | (94,703,173 | ) | 24,416,138 | |||||
|
| |||||||
Net increase (decrease) in net assets | (94,703,379 | ) | 24,416,161 | |||||
Net Assets | ||||||||
Beginning of period | 455,859,135 | 431,442,974 | ||||||
|
| |||||||
End of period | $ | 361,155,756 | $ | 455,859,135 | ||||
|
| |||||||
Undistributed net investment income at end of period | $ | 2,498 | $ | 2,498 | ||||
|
|
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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Investor Class | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) | 0.00 | ‡ | 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 | ‡ | 0.00 | ‡ | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.00 | ‡ | 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 | )‡ | (0.00 | )‡ | ||||||||||||||
Return of capital | — | — | — | — | (0.00 | )‡ | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return | 0.00 | %(a)(b) | 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 | % | 0.00 | %‡ | 0.01 | % | 0.01 | % | 0.13 | % | ||||||||||||||
Net expenses | 0.11 | %†† | 0.16 | % | 0.18 | % | 0.18 | % | 0.25 | % | 0.50 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 0.90 | %†† | 0.90 | % | 0.91 | % | 0.91 | % | 0.94 | % | 0.95 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 57,811 | $ | 58,774 | $ | 59,129 | $ | 63,169 | $ | 64,360 | $ | 67,220 |
* | Unaudited. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Total investment return is not annualized. |
(b) | Less than one-tenth percent. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class A | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) | 0.00 | ‡ | 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 | ‡ | 0.00 | ‡ | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.00 | ‡ | 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 | )‡ | (0.00 | )‡ | ||||||||||||||
Return of capital | — | — | — | — | (0.00 | )‡ | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return | 0.00 | %(a)(b) | 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 | % | 0.01 | % | 0.18 | % | ||||||||||||||
Net expenses | 0.11 | %†† | 0.15 | % | 0.17 | % | 0.17 | % | 0.25 | % | 0.47 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 0.63 | %†† | 0.65 | % | 0.69 | % | 0.71 | % | 0.72 | % | 0.73 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 202,978 | $ | 290,028 | $ | 259,119 | $ | 373,790 | $ | 301,795 | $ | 279,766 |
* | Unaudited. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Total investment return is not annualized. |
(b) | Less than one-tenth percent. |
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. |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class B | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) | 0.00 | ‡ | 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 | ‡ | 0.00 | ‡ | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.00 | ‡ | 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 | )‡ | (0.00 | )‡ | ||||||||||||||
Return of capital | — | — | — | — | (0.00 | )‡ | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return | 0.00 | %(a)(b) | 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 | % | 0.01 | % | 0.14 | % | ||||||||||||||
Net expenses | 0.11 | %†† | 0.16 | % | 0.18 | % | 0.18 | % | 0.25 | % | 0.51 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 0.90 | %†† | 0.90 | % | 0.91 | % | 0.91 | % | 0.94 | % | 0.95 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 68,183 | $ | 73,803 | $ | 84,982 | $ | 102,908 | $ | 118,529 | $ | 144,464 |
* | Unaudited. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Total investment return is not annualized. |
(b) | Less than one-tenth percent. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class C | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) | 0.00 | ‡ | 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 | ‡ | 0.00 | ‡ | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.00 | ‡ | 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 | )‡ | (0.00 | )‡ | ||||||||||||||
Return of capital | — | — | — | — | (0.00 | )‡ | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return | 0.00 | %(a)(b) | 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 | % | 0.01 | % | 0.15 | % | ||||||||||||||
Net expenses | 0.11 | %†† | 0.15 | % | 0.18 | % | 0.18 | % | 0.25 | % | 0.52 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 0.90 | %†† | 0.90 | % | 0.91 | % | 0.91 | % | 0.94 | % | 0.95 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 32,183 | $ | 33,254 | $ | 28,212 | $ | 33,898 | $ | 27,307 | $ | 33,194 |
* | Unaudited. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Total investment return is not annualized. |
(b) | Less than one-tenth percent. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 19 |
Notes to Financial Statements (Unaudited)
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 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”) adopted procedures for the valuation of the Fund’s securities and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board 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 Sub-Committee deals in the first instance with such valuation and 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. Any action taken by the Sub-Committee with respect to the valuation of a portfolio security is submitted by the Valuation Committee to the Board for its review at its next regularly scheduled meeting immediately after such action.
“Fair value” is defined as the price that the Fund would receive upon selling an asset or liability in an orderly transaction to an independent buyer in the principal or most advantageous market for the asset or liability. Fair value measurements are determined 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. 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 below.
• | Level 1—quoted prices in active markets for an identical asset or liability |
• | Level 2—other significant observable inputs (including quoted prices for a similar asset or liability in active markets, interest rates and yield curves, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring fair value of an asset or liability) |
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 April 30, 2014, for the Fund’s assets or liabilities is included at the end of the Fund’s Portfolio of Investments.
20 | MainStay Money Market Fund |
The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs among others:
• 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 |
An asset or liability for which market values cannot be measured using the methodologies described above are valued by methods deemed reasonable and in good faith by the Valuation Committee, following the procedures established by the board, to represent fair value. Under these procedures, the Fund may utilize some of the following fair value techniques: multi-dimensional relational pricing models and option adjusted spread pricing. For the six-month period ended April 30, 2014, there have been no material 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 from net investment income, if any, at least daily and intends to pay them at least monthly and declares and pays distributions from 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 daily and discounts and premiums
on securities purchased for the Fund are accreted and amortized, respectively, on the straight-line method. The straight-line method approximates the effective interest method for short-term investments. 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) 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 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 if 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
mainstayinvestments.com | 21 |
Notes to Financial Statements (Unaudited) (continued)
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.
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 compensation 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.
As of May 1, 2014, the portfolio managers from New York Life Investment who manage the Fund will transition from an unincorporated division within New York Life Investments to a newly-organized direct, wholly-owned subsidiary of New York Life named NYL Investors LLC (“NYL Investors”). The Board approved the appointment of NYL Investors as subadvisor to the Fund at meetings held April 1–3, 2014. The Board also approved a new Subadvisory Agreement between New York Life Investments and NYL Investors.
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 six-month period ended April 30, 2014, 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, 2015, 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 six-month period ended April 30, 2014, New York Life Investments earned fees from the Fund in the amount of $1,028,949 and waived its fees and/or reimbursed expenses in the amount of $79,672. Additionally, New York Life Investments reimbursed fees in the amount of $1,293,233, 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) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Class A shares were $114 for the six-month period ended April 30, 2014. 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 Class A, Class B and Class C of $15,449, $50,075 and $13,668, respectively for the six-month period ended April 30, 2014.
(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
22 | MainStay Money Market Fund |
expenses incurred by the Fund for the six-month period ended April 30, 2014, were as follows:
Investor Class | $ | 106,187 | ||
Class A | 145,760 | |||
Class B | 130,050 | |||
Class C | 60,489 |
(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.
Note 4–Federal Income Tax
The tax character of distributions paid during the year ended October 31, 2013, shown in the Statements of Changes in Net Assets was as follows:
2013 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 38,341 |
Note 5–Custodian
State Street is the custodian of cash and securities held by the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities held by 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 | |||
Six-month period ended April 30, 2014: | ||||
Shares sold | 25,567,756 | |||
Shares issued to shareholders in reinvestment of dividends | 1,864 | |||
Shares redeemed | (21,385,058 | ) | ||
|
| |||
Net increase (decrease) in shares outstanding before conversion | 4,184,562 | |||
Shares converted into Investor Class (See Note 1) | 30,041 | |||
Shares converted from Investor Class (See Note 1) | (5,177,829 | ) | ||
|
| |||
Net increase (decrease) | (963,226 | ) | ||
|
| |||
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 | ) | ||
|
| |||
Class A (at $1 per share) | Shares | |||
Six-month period ended April 30, 2014: | ||||
Shares sold | 182,440,386 | |||
Shares issued to shareholders in reinvestment of dividends | 13,063 | |||
Shares redeemed | (274,696,948 | ) | ||
|
| |||
Net increase (decrease) in shares outstanding before conversion | (92,243,499 | ) | ||
Shares converted into Class A (See Note 1) | 5,193,910 | |||
|
| |||
Net increase (decrease) | (87,049,589 | ) | ||
|
| |||
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 | |||
|
| |||
Class B (at $1 per share) | Shares | |||
Six-month period ended April 30, 2014: | ||||
Shares sold | 6,658,964 | |||
Shares issued to shareholders in reinvestment of dividends | 2,671 | |||
Shares redeemed | (12,235,815 | ) | ||
|
| |||
Net increase (decrease) in shares outstanding before conversion | (5,574,180 | ) | ||
Shares converted from Class B (See Note 1) | (46,122 | ) | ||
|
| |||
Net increase (decrease) | (5,620,302 | ) | ||
|
| |||
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 | ) | ||
|
| |||
Class C (at $1 per share) | Shares | |||
Six-month period ended April 30, 2014: | ||||
Shares sold | 26,487,007 | |||
Shares issued to shareholders in reinvestment of dividends | 1,341 | |||
Shares redeemed | (27,558,403 | ) | ||
|
| |||
Net increase (decrease) | (1,070,055 | ) | ||
|
| |||
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 | |||
|
|
Note 7–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the six-month period ended April 30, 2014, events and transactions subsequent to April 30, 2014, 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 |
Board Consideration and Approval of Management Agreement (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”) requires that each mutual fund’s board of trustees, including a majority of the independent trustees, annually review and approve the fund’s investment advisory agreements. At its December 10-11, 2013 meeting, the Board of Trustees of the MainStay Group of Funds (“Board”) unanimously approved the Management Agreement with respect to the MainStay Money Market Fund (“Fund”) and New York Life Investment Management LLC (“New York Life Investments”).
In reaching its decision to approve the Agreement, the Board considered information furnished by New York Life Investments in connection with a contract review process that took place at various meetings of the Board and its Contracts Committee between September 2013 and December 2013 as well as other relevant information furnished to the Board throughout the year by New York Life Investments. Information requested by and furnished to the Board in connection with the contract review process included, among other items, reports on the Fund and “peer funds” prepared by Strategic Insight Mutual Fund Research and Consulting, LLC (“Strategic Insight”), an independent third-party service provider engaged by the Board to report objectively on the Fund’s investment performance, management fees and ordinary operating expenses. The Board also considered information provided by New York Life Investments on the fees charged to other investment advisory clients (including institutional separate accounts) that follow investment strategies similar to the Fund and the rationale for any differences in the Fund’s management fee and the fees charged to those other investment advisory clients. In addition, the Board requested and received information on the profitability of the Fund to New York Life Investments and its affiliates and responses from New York Life Investments to a series of questions encompassing a variety of topics prepared on behalf of the Board by independent legal counsel to the Board and its independent trustees (the “Independent Trustees”). Information provided to the Board at its meetings throughout the year included, among other items, detailed investment performance reports on the Fund prepared by the Investment Consulting Group at New York Life Investments. The structure and format for this regular reporting were developed in consultation with the Board. The Board also received from New York Life Investments throughout the year, among other items, periodic reports on legal and compliance matters, portfolio turnover, and sales and marketing activity.
In considering the Agreement, the members of the Board reviewed and evaluated all of the information and factors they believed to be relevant and appropriate in light of legal advice furnished to them by independent legal counsel and through the exercise of their own business judgment. The broad factors considered by the Board are discussed in greater detail below and included, among other items: (i) the nature, scope and quality of the services provided to the Fund by New York Life Investments; (ii) the investment performance of the Fund and New York Life Investments; (iii) the costs of the services provided, and profits realized, by New York Life Investments from its relationship with the Fund; (iv) the extent to which economies of scale may be realized as the Fund grows and the extent to which economies of scale may benefit Fund investors; and (v) the reasonableness of the Fund’s management fee and overall total ordinary operating expenses, particularly as compared to similar funds and accounts managed by New York Life Investments and peer funds identified by Strategic Insight.
While individual members of the Board may have weighed certain factors differently, the Board’s decision to approve the Agreement was based on a consideration of all the information provided to the Board, including information provided to the Board throughout the year and specifically in connection with the contract review process. The Board’s conclusions with respect to the Agreement also were based, in part, on the Board’s consideration of the Agreement in prior years. In addition to considering the above-referenced factors, the Board observed that in the marketplace there are a range of investment options available to shareholders of the Fund and that the Fund’s shareholders, having had the opportunity to consider other investment options, have chosen to invest in the Fund. A more detailed discussion of the factors that figured prominently in the Board’s decisions to approve the Agreement is provided below.
Nature, Scope and Quality of Services to Be Provided by New York Life Investments
The Board examined the nature, scope and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience in serving as manager of the Fund, noting that New York Life Investments manages other mutual funds, serves a variety of other investment advisory clients, including other pooled investment vehicles, and has experience with overseeing mutual fund service providers. The Board considered the experience of senior personnel at New York Life Investments providing management and administrative services to the Fund as well as New York Life Investments’ reputation and financial condition. The Board also considered the full range of non-advisory services that New York Life Investments supplies to the Fund under the terms of the Agreement, including: (i) fund accounting and oversight services provided by New York Life Investments’ Fund Accounting and Administration Group; (ii) investment oversight and analytical services provided by New York Life Investments’ Investment Consulting Group; (iii) compliance services provided by the Fund’s Chief Compliance Officer as well as New York Life Investments’ compliance department, including oversight and implementation of the Fund’s compliance program; and (iv) legal services provided by New York Life Investments’ Office of the General Counsel. Additional information about the non-advisory services provided by New York Life Investments is set forth in the Agreement. The Board also considered New York Life Investments’ willingness to invest in personnel and infrastructure that benefit the Fund and noted that New York Life Investments is responsible for compensating the Fund’s officers. The Board also considered benefits to shareholders of being part of the MainStay Group of Funds, including the privilege of exchanging investments between the same class of shares without the imposition of a sales charge, as described more fully in the Fund’s prospectus.
The Board also examined the nature, scope and quality of the advisory services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience in serving as investment adviser to the Fund and managing other portfolios. It examined New York Life Investments’ track record and experience in providing investment advisory services, the experience of investment advisory, senior management and administrative personnel at New York Life Investments, and New York Life Investments’ overall legal and compliance environment. The Board also reviewed New York Life
24 | MainStay Money Market Fund |
Investments’ willingness to invest in personnel that benefit the Fund. In this regard, the Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers and the method for compensating portfolio managers.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreement, that the Fund should continue to benefit from the nature, scope and quality of these services as a result of New York Life Investments’ experience, personnel, operations and resources.
Investment Performance
In evaluating the Fund’s investment performance, the Board considered investment performance results in light of the Fund’s investment objective, strategies and risks, as disclosed in the Fund’s prospectus. The Board particularly considered detailed investment reports on the Fund’s performance provided to the Board throughout the year by the Investment Consulting Group of New York Life Investments. These reports include, among other items, information on the Fund’s gross and net returns, the Fund’s investment performance relative to relevant investment categories and Fund benchmarks, the Fund’s risk-adjusted investment performance, and the Fund’s investment performance as compared to peer funds, as appropriate. The Board also considered information provided by Strategic Insight showing the investment performance of the Fund as compared to peer funds.
In considering the Fund’s investment performance, the Board focused principally on the Fund’s long-term performance track record. The Board also gave weight to its ongoing discussions with senior management at New York Life Investments concerning the Fund’s investment performance as well as discussions between the Fund’s portfolio managers and the Board that generally occur on an annual basis. In addition, the Board considered any specific actions that New York Life Investments had taken, or had agreed with the Board to take, to enhance Fund investment performance and the results of those actions.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreement, that the long-term investment performance of the Fund, along with ongoing efforts by New York Life Investments to enhance investment returns, supported a determination to approve the Agreement. The Fund discloses more information about investment performance in the Portfolio Management Discussion and Analysis, Investment and Performance Comparison and Financial Highlights sections of this Semiannual Report and in the Fund’s prospectus.
Costs of the Services Provided, and Profits Realized, by New York Life Investments
The Board considered the costs of the services provided by New York Life Investments under the Agreement and the profits realized by New York Life Investments and its affiliates due to their relationships with the Fund.
In evaluating the costs and profits of New York Life Investments and its affiliates, the Board considered, among other factors, New York Life Investments’ investments in personnel, systems, equipment and other resources necessary to manage the Fund. The Board acknowledged that New York Life Investments must be in a position to pay and retain
experienced professional personnel to provide services to the Fund and that the ability to maintain a strong financial position is important in order for New York Life Investments to continue to provide high-quality services to the Fund. The Board also noted that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds.
In addition, the Board noted the difficulty in obtaining reliable comparative data about mutual fund managers’ profitability, since such information generally is not publicly available and may be impacted by numerous factors, including the structure of a fund manager’s organization, the types of funds it manages, the methodology used to allocate certain fixed costs to specific funds, and the manager’s capital structure and costs of capital. While recognizing the difficulty in evaluating a manager’s profitability with respect to the Fund and noting that other profitability methodologies may also be reasonable, the Board concluded that the profitability methodology presented by New York Life Investments to the Board, which was developed by New York Life Investments in consultation with an independent consultant, was reasonable in all material respects.
In considering the costs and profitability of the Fund, the Board also considered certain fall-out benefits that may be realized by New York Life Investments and its affiliates due to their relationships with the Fund.
The Board further considered that, in addition to fees earned by New York Life Investments for managing the Fund, New York Life Investments’ affiliates also earn revenues from serving the Fund in various other capacities, including as the Fund’s transfer agent and distributor. The Board observed that information about these other revenues, and their impact on the profitability of the Fund to New York Life Investments and its affiliates, was furnished to the Board as part of the 15(c) process. The Board noted that, although it assessed the overall profitability of the Fund to New York Life Investments and its affiliates as part of the contract review process, when considering the reasonableness of the fees to be paid to New York Life Investments and its affiliates under the Agreement, the Board considered the profitability of New York Life Investments’ relationship with the Fund on a pre-tax basis and without regard to distribution expenses.
After evaluating the information presented to the Board, the Board concluded, within the context of its overall determinations regarding the Agreement, that any profits realized by New York Life Investments and its affiliates due to their relationships with the Fund supported the Board’s decision to approve the Agreement.
Extent to Which Economies of Scale May Be Realized as the Fund Grows
The Board considered whether the Fund’s expense structure permits economies of scale to be shared with Fund investors. The Board also considered a report from New York Life Investments, prepared at the request of the Board, that addressed economies of scale in the mutual fund business generally, the changing economics of the mutual fund business and the various ways in which the benefits of economies of scale may be shared with the MainStay Group of Funds. The Board reviewed information from New York Life Investments showing how the Fund’s management fee schedule compared to fee schedules of other funds and accounts managed by New York Life Investments. The Board
mainstayinvestments.com | 25 |
Board Consideration and Approval of Management Agreement (Unaudited) (continued)
also reviewed information from Strategic Insight showing how the Fund’s management fee schedule hypothetically would compare with fees paid for similar services by peer funds at varying asset levels. While recognizing the difficulty of determining economies of scale with precision, the Board acknowledged that economies of scale may be shared with the Fund in a number of ways, including, for example, through the imposition of management fee breakpoints and by initially setting relatively low management fees.
Based on this information, the Board concluded, within the context of its overall determinations regarding the Agreement, that the Fund’s expense structure appropriately reflects economies of scale for the benefit of Fund investors. The Board noted, however, that it would continue to evaluate the reasonableness of the Fund’s expense structure as the Fund grows over time.
Management Fees and Total Ordinary Operating Expenses
The Board evaluated the reasonableness of the fees to be paid under the Agreement and the Fund’s expected total ordinary operating expenses.
In assessing the reasonableness of the Fund’s fees and expenses, the Board primarily considered comparative data provided by Strategic Insight on the fees and expenses charged by similar mutual funds managed by other investment advisers. In addition, the Board considered information provided by New York Life Investments on fees charged to other investment advisory clients, including institutional separate accounts and other funds with similar investment objectives as the Fund. The Board particularly considered differences in the contractual management fee schedules of the retail MainStay Funds and similarly-managed MainStay VP Portfolios, taking into account New York Life Investments’ rationale for any differences in fee schedules. The Board also took into account explanations provided by New York Life Investments about the different scope of services provided to mutual funds as compared with other investment advisory clients. Additionally, the Board considered the impact of any contractual breakpoints, voluntary waivers and expense limitation arrangements on the Fund’s net management fee and expenses. The Board noted that New York Life Investments continues to provide support to the Fund in the form of voluntary waivers and/or reimbursements of fees and expenses in order to maintain a positive yield, as disclosed in the Fund’s prospectus.
The Board noted that, outside of the Fund’s management fee and the fees charged under a share class’s Rule 12b-1 and/or shareholder services plans, a share class’s most significant “other expenses” are transfer agent fees. Transfer agent fees are charged to the Fund based on the number of shareholder accounts (a “per-account” fee) as compared with certain other fees (e.g., management fees), which are charged based on the Fund’s average net assets. The Board took into account information from New York Life Investments showing that the Fund’s transfer agent fee schedule is reasonable, including industry data showing that the per-account fees that NYLIM Service Company LLC, the Fund’s transfer agent, charges the Fund are within the range of per-account fees charged by transfer agents to other mutual funds. In addition, the Board considered NYLIM Service Company LLC’s profitability in connection with the transfer agent services it provides to the Fund.
The Board considered that, because the Fund’s transfer agent fees are billed on a per-account basis, the impact of transfer agent fees on a share class’s expense ratio may be more significant in cases where the share class has a high number of accounts with limited assets (i.e., small accounts). The Board observed that transfer agent fees are a significant portion of total expenses of many Funds in the MainStay Group of Funds. The impact of transfer agent fees on the expense ratios of these MainStay Funds tend to be greater than for other open-end retail funds, because the MainStay Group of Funds generally has a significant number of small accounts relative to competitor funds. The Board acknowledged the role that the MainStay Group of Funds historically has played in serving the investment needs of New York Life Insurance Company (“New York Life”) policyholders, who often maintain smaller account balances than other fund investors. The Board also acknowledged measures that it and New York Life Investments have taken in recent years to mitigate the effect of small accounts on the expense ratios of Fund share classes, including: (i) encouraging New York Life agents to consolidate multiple small accounts held by the same investor into one MainStay Asset Allocation Fund account; (ii) increasing investment minimums from $500 to $1,000 in 2003; (iii) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iv) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (v) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (vi) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vii) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. In addition, the Board acknowledged New York Life Investments’ efforts to encourage intermediaries to consolidate small accounts in multiple Funds held by the same investor into a single Asset Allocation Fund account, if appropriate under the circumstances, in an effort to mitigate the effect of small accounts on the Funds in the MainStay Group of Funds.
After considering all of the factors outlined above, the Board concluded that the Fund’s management fees and total ordinary operating expenses were within a range that is competitive and, within the context of the Board’s overall conclusions regarding the Agreement, support a conclusion that these fees and expenses are reasonable.
Conclusion
On the basis of the information provided to it and its evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the Agreement.
* * *
At its meeting on April 3, 2014, the Board unanimously approved a new subadvisory agreement (the “Subadvisory Agreement”) between New York Life Investments and New York Life Investors LLC (“New York Life Investors”) with respect to the Fund. New York Life Investors is a new affiliate of New York Life Investments formed to accommodate a lift-out of New York Life Investments’ Fixed Income Investors Group (“FIIG”), a division of New York Life Investments that historically has provided investment advisory services to the Fund, effective May 1, 2014 (the
26 | MainStay Money Market Fund |
“Reorganization””). Under the Subadvisory Agreement, New York Life Investors would become subadvisor to the Fund and assume all responsibilities for the day-to-day management of the Fund; New York Life Investments would remain investment adviser to the Fund. In considering the approval of the Subadvisory Agreement, the Board was provided with information from New York Life Investments confirming that, in connection with the Reorganization: (i) no material change in the nature or the level of the services provided to the Fund would occur; (ii) no increase in the investment advisory fees payable by the Fund would be implemented; (iii) no material changes were expected in the personnel responsible for management of the Fund; and (iv) existing shareholders would be notified of the Reorganization.
In reaching its decision to approve the Subadvisory Agreement, the Board considered a variety of information furnished to the Board from New York Life Investments. The Board also requested and received responses from New York Life Investments to a comprehensive list of questions encompassing a variety of topics prepared on behalf of the Board by independent legal counsel to the Board. The Board considered its historical experience with FIIG’s capabilities and resources, and its evaluation of FIIG in connection with previous contract review processes, including contract review processes that culminated with approval of the Management Agreement between the Fund and New York Life Investments in December 2013. In determining to approve the new Subadvisory Agreement, the members of the Board reviewed and evaluated all of this information and factors they believed to be relevant and appropriate in light of legal advice furnished to them by independent legal counsel and through the exercise of their own business judgment, and their considerations were in line with their considerations with respect to the Management Agreement detailed above.
mainstayinvestments.com | 27 |
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).
28 | MainStay Money Market 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 Fund
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 Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund1
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund2
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 LLC3
New York, New York
Cornerstone Capital Management LLC3
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC3
Chicago, Illinois
MacKay Shields LLC3
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC3
New York, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP4
PricewaterhouseCoopers LLP5
1. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
2. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
3. An affiliate of New York Life Investment Management LLC.
4. For all Funds listed above except MainStay Marketfield Fund.
5. For MainStay Marketfield Fund only.
Not part of the Semiannual 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.
©2014 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-34051 MS164-14 | MSMM10-06/14 NL012 |
MainStay Tax Free Bond Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2014
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Message from the President
Stocks and bonds generally advanced during the six months ended April 30, 2014, but results varied across different markets, asset classes and regions.
According to Russell data, mid-capitalization stocks tended to provide the strongest returns, outperforming large-cap stocks overall. As a group, small-cap stocks tended to underperform their larger-capitalization counterparts. Value outperformed growth at all capitalization levels as the 2013 market rally ended and investors moved from rapid-growth stocks toward utilities, real estate investment trusts (REITs) and other stocks that tend to be more defensive.
The reporting period opened with investors still reacting to the government shutdown and asking questions about the debt ceiling and the so-called fiscal cliff. Even so, U.S. stocks climbed relatively steadily through the end of 2013. After reaching a high point in January, the U.S. stock market tumbled to its low point for the reporting period in early February, hurt by weaker economic data and severe weather in the Northeast. From that point, domestic stocks generally recovered, advancing to new highs before the end of the reporting period.
International stocks benefited from the European Central Bank’s accommodative policies and an improving European economy, despite high levels of debt and unemployment. In Japan, a weaker currency and accommodative central bank policies had fueled a stock rally in 2013, but Japanese stocks began to decline in mid-January on concerns about the Prime Minister’s economic policies, including a substantial increase in the nation’s sales tax. International stocks also felt the effects of tensions in Ukraine and slowing growth in China.
Throughout the reporting period, the Federal Reserve held the federal funds target rate in a range close to zero. On December 18, 2013, the Federal Open Market Committee announced plans to begin tapering its direct security purchases (widely known as quantitative easing) in January of 2014. The announcement led investors to anticipate rising interest rates.
According to U.S. Department of the Treasury data, yields did rise through the early part of 2014. After peaking early in the year, however, U.S. Treasury yields generally trended downward. As of April 30, 2014, yields at the short and long ends of the U.S. Treasury yield curve1 were slightly lower than at the beginning of the reporting period, while yields on 1- to 10-year U.S. Treasury securities had moved slightly higher.
In harmony with these trends, extensive tax-loss harvesting in the municipal market tended to push municipal yields higher in November and December. Redemptions slowed as the new year progressed, and a scarcity of municipal supply pushed municipal bond prices higher—and yields lower—during the last four months of the reporting period.
Throughout the reporting period, our portfolio managers pursued the investment objectives of their respective Funds within the investment strategies outlined in the Prospectus. Using time-tested security-selection, portfolio-monitoring and risk-management techniques, they sought to maximize exposure to potential opportunities while seeking to minimize exposure to unnecessary risks.
The report that follows provides additional information about the decisions, securities and market forces that affected your MainStay Fund during the six months ended April 30, 2014. We encourage you to read this information carefully. It can help you evaluate your diversification and assess your asset allocation as you pursue your long-range financial goals.
We thank you for choosing MainStay Funds, and we look forward to a lasting and productive relationship.
Sincerely,
Stephen P. Fisher
1. | 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 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. Past performance is no guarantee of future results.
Not part of the Semiannual 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 Period Ended April 30, 2014
Class | Sales Charge | Six Months | One Year | Five Years | Ten Years | Gross Expense Ratio2 | ||||||||||||||||||
Investor Class Shares3 | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges |
| 1.28 6.06 | %
|
| –4.81 –0.33 | %
|
| 5.55 6.52 | %
|
| 3.73 4.20 | %
|
| 0.89 0.89 | %
| |||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges |
| 1.44 6.22 |
| | –4.68 –0.19 | | | 5.65 6.63 | | | 3.78 4.26 | | | 0.83 0.83 | | |||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges |
| 1.06 6.06 |
| | –5.29 –0.50 | | | 5.96 6.28 | | | 3.94 3.94 | | | 1.14 1.14 | | |||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges |
| 4.94 5.94 |
| | –1.45 –0.49 | | | 6.25 6.25 | | | 3.94 3.94 | | | 1.14 1.14 | | |||||||
Class I Shares4 | No Sales Charge | 6.24 | 0.06 | 6.88 | 4.50 | 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 | Six Months | One Year | Five Years | Ten Years | ||||||||||||
Barclays Municipal Bond Index5 | 4.08 | % | 0.50 | % | 5.54 | % | 4.83 | % | ||||||||
Average Lipper General & Insured Municipal Debt Fund6 | 4.61 | –0.57 | 6.10 | 4.08 |
5. | The Barclays Municipal Bond Index is 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 November 1, 2013, to April 30, 2014, 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 November 1, 2013, to April 30, 2014.
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 April 30, 2014. 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 11/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/14 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/14 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,060.60 | $ | 4.34 | $ | 1,020.60 | $ | 4.26 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,062.20 | $ | 4.04 | $ | 1,020.90 | $ | 3.96 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,060.60 | $ | 5.62 | $ | 1,019.30 | $ | 5.51 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,059.40 | $ | 5.62 | $ | 1,019.30 | $ | 5.51 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,062.40 | $ | 2.76 | $ | 1,022.10 | $ | 2.71 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (0.85% for Investor Class, 0.79% for Class A, 1.10% for Class B, 1.10% for Class C and 0.54% for Class I) multiplied by the average account value over the period, divided by 365 and multiplied by 181 (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 April 30, 2014 (Unaudited)
California | 21.7 | % | ||
Texas | 9.4 | |||
Illinois | 8.3 | |||
Michigan | 7.8 | |||
Puerto Rico | 5.3 | |||
Florida | 5.3 | |||
New Jersey | 5.1 | |||
New York | 4.0 | |||
U.S. Virgin Islands | 3.2 | |||
Pennsylvania | 3.0 | |||
Tennessee | 2.7 | |||
Louisiana | 2.5 | |||
Nebraska | 2.4 | |||
Guam | 2.3 | |||
District of Columbia | 2.1 | |||
Massachusetts | 2.0 | |||
South Carolina | 1.7 | |||
Indiana | 1.3 | |||
Maryland | 1.0 | |||
Georgia | 0.8 |
Wisconsin | 0.8 | % | ||
Ohio | 0.7 | |||
Washington | 0.7 | |||
Colorado | 0.6 | |||
Hawaii | 0.6 | |||
Alaska | 0.5 | |||
Connecticut | 0.5 | |||
Minnesota | 0.5 | |||
North Carolina | 0.4 | |||
North Dakota | 0.4 | |||
Alabama | 0.3 | |||
New Mexico | 0.3 | |||
New Hampshire | 0.2 | |||
Rhode Island | 0.2 | |||
Kentucky | 0.1 | |||
Utah | 0.1 | |||
Wyoming | 0.1 | |||
Other Assets, Less Liabilities | 1.1 | |||
|
| |||
100.0 | % | |||
|
|
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
Top Ten Issuers Held as of April 30, 2014 (excluding short-term investment) (Unaudited)
1. | Puerto Rico Highways & Transportation Authority, Revenue Bonds, 5.00%–5.25%, due 7/1/24–7/1/36 |
2. | Texas Municipal Gas Acquisition & Supply Corp. III, Revenue Bonds, 5.00%, due 12/15/30 |
3. | Chicago, Illinois O’ Hare International Airport, Revenue Bonds, 5.00%–5.625%, due 1/1/29–1/1/35 |
4. | Central Plains Energy, Project No. 3, Revenue Bonds, 5.00%–5.25%, due 9/1/37–9/1/42 |
5. | Texas Private Activity Bond Surface Transportation Corp., LBJ Infrastructure, Revenue Bonds, 7.00%–7.50%, due 6/30/32–6/30/40 |
6. | Anaheim Public Financing Authority, Public Improvement Project, Revenue Bonds, 4.75%, due 9/1/33 |
7. | Virgin Islands Public Finance Authority, Revenue Bonds, 5.00%, due 10/1/32 |
8. | City of Orlando, Tourist Development Tax Revenue, 3rd Lien, 6th Cent Contract, Revenue Bonds, 5.50%, due 11/1/38 |
9. | Hillsborough County Industrial Development Authority, Tampa General Hospital Project, Revenue Bonds, 5.00%, due 10/1/31 |
10. | Chicago Board of Education, Unlimited 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, Michael Petty, David Dowden, Scott Sprauer and Frances Lewis of MacKay Shields LLC, the Fund’s Subadvisor.
How did MainStay Tax Free Bond Fund perform relative to its benchmark and peers during the six months ended April 30, 2014?
Excluding all sales charges, MainStay Tax Free Bond Fund returned 6.06% for Investor Class shares, 6.22% for Class A shares, 6.06% for Class B shares and 5.94% for Class C shares for the six months ended April 30, 2014. Over the same period, Class I shares returned 6.24%. All share classes outperformed the 4.08% return of the Barclays Municipal Bond Index,1 which is the Fund’s broad-based securities-market index, and the 4.61% return of the average Lipper2 general & insured municipal debt fund for the six months ended April 30, 2014. See page 5 for Fund returns with applicable sales charges.
Were there any changes to the Fund during the reporting period?
Effective February 28, 2014, David Dowden, Scott Sprauer and Frances Lewis of MacKay Shields were added as portfolio managers of the Fund. Also effective February 28, 2014, the Fund’s principal investment strategies were adjusted to expand the Fund’s ability to invest in derivatives, such as futures, options and swap agreements.
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 reporting period, as credit spreads3 narrowed and the municipal yield curve4 flattened. In addition, we were able to invest some of the Funds’ liquidity reserves at the end of 2013 to purchase new issues that underwriters were forced to bring to market and that we believed were very attractive. These securities performed exceptionally well in the first four months of 2014.
What was the Fund’s duration5 strategy during the reporting period?
The Fund’s duration for most of the reporting period was longer than that of the Barclays Municipal Bond Index. This was a result of the significant buying opportunity available to investors
during the technical dislocation that occurred during the second half of 2013. We have since moved the Fund’s duration to be shorter than that of the Index, after the strong returns realized during the first four months of 2014. As of April 30, 2014, the Fund’s modified duration to worst6 was approximately 4.4 years.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
At the beginning of the reporting period, it was important to maintain liquidity in the Fund, in light of the potential for higher redemptions going into the end of 2013. As year-end approached and redemptions slowed, we began reducing the Fund’s liquidity reserves by investing in new issues that we viewed as attractive. The Fund also took advantage of lower municipal bond prices by executing tax-loss swaps. The Fund also took advantage of the pressure the market had exerted on Puerto Rico–backed bonds. The Fund was able to purchase attractively priced bonds wrapped by Assured Guaranty, National Public Finance Guarantee and Ambac.
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 contributions to the Fund’s performance were overweight positions among longer maturities and more credit-sensitive securities. (Contributions take weightings and total returns into account.) In addition, an overweight position in bonds wrapped by insurers added to performance, as these securities outperformed the Index. Hospitals, charter schools and local general obligation bonds also contributed to the Fund’s performance relative to the Barclays Municipal Bond Index. The most significant detractors from the Fund’s relative performance were our currently callable securities. While these securities continued to provide superior yield, their short duration structure kept their prices more muted than the Barclays Municipal Bond Index.
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. The term “credit spread” typically refers to the difference in yield between corporate bonds (or a specific category of corporate bonds) and comparable U.S. Treasury issues. |
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. |
6. | Modified duration is inversely related to the approximate percentage change in price for a given change in yield. Duration to worst is the duration of a bond computed using the bond’s nearest call date or maturity, whichever comes first. This measure ignores future cash flow fluctuations due to embedded optionality. |
mainstayinvestments.com | 9 |
Did the Fund make any significant purchases or sales during the reporting period?
The Fund remains focused on diversification and liquidity, and no individual purchase or sale was 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 sector. From a state perspective, we decreased the Fund’s
overweight position relative to the Barclays Municipal Bond Index in California in light of the continued strength of those securities.
How was the Fund positioned at the end of the reporting period?
As of April 30, 2014, the Fund was overweight relative to the Barclays Municipal Bond Index in the local general obligation, special tax and hospital sectors. From a quality perspective, we still favored credits rated A and BBB7 as of April 30, 2014. As of the same date, the Fund’s duration was slightly shorter than that of the Index.
7. | 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 April 30, 2014 (Unaudited)
Principal Amount | Value | |||||||
Municipal Bonds 98.9%† | ||||||||
Alabama 0.3% |
| |||||||
Jefferson County, Alabama, Revenue Bonds Insured: AGM | $ | 2,380,000 | $ | 2,382,594 | ||||
|
| |||||||
Alaska 0.5% | ||||||||
Alaska Industrial Development & Export Authority, FairBanks Community Hospital, Revenue Bonds | 3,550,000 | 3,775,638 | ||||||
|
| |||||||
California 21.7% | ||||||||
Alum Rock Union Elementary School District, Election of 2008, Unlimited General Obligation | 3,040,000 | 3,402,398 | ||||||
¨Anaheim Public Financing Authority, Public Improvement Project, Revenue Bonds | 15,675,000 | 16,564,556 | ||||||
Anaheim, California, School District, Unlimited General Obligation | 4,700,000 | 5,462,434 | ||||||
California Communities, Installment Sale, Certificates of Participation | 2,500,000 | 2,637,075 | ||||||
California Educational Facilities Authority, Revenue Bonds | 1,525,000 | 1,815,818 | ||||||
California Health Facilities Financing Authority, Catholic Healthcare, Revenue Bonds | 3,000,000 | 3,388,740 | ||||||
California State Public Works Board, Capital Project, Revenue Bonds | 1,490,000 | 1,497,331 | ||||||
California State Public Works Board, University Project, Revenue Bonds | 7,455,000 | 8,354,520 | ||||||
California State Public Works Revenue, Various Capital Project, Revenue Bonds | 1,400,000 | 1,609,720 |
Principal Amount | Value | |||||||
California (continued) | ||||||||
California State, Unlimited General Obligation | $ | 2,500,000 | $ | 2,996,275 | ||||
6.25%, due 11/1/34 | 4,000,000 | 4,861,880 | ||||||
California Statewide Communities Development Authority, Aspire Public Schools, Revenue Bonds | 1,990,000 | 2,013,701 | ||||||
California Statewide Communities Development Authority, Revenue Bonds | 1,475,000 | 1,591,909 | ||||||
Ceres Unified School District, Unlimited General Obligation | 4,150,000 | 940,390 | ||||||
Series A | 8,000,000 | 917,360 | ||||||
Series A | 9,000,000 | 815,220 | ||||||
Fontana Unified School District, Unlimited General Obligation | 14,800,000 | 4,803,784 | ||||||
Series C | 15,500,000 | 4,662,245 | ||||||
Foothill-Eastern Transportation Corridor Agency, Revenue Bonds | 10,000,000 | 10,800,800 | ||||||
Fresno, California Unified School District Education, Unlimited General Obligation | 6,000,000 | 2,010,540 | ||||||
Series G | 10,000,000 | 3,083,600 | ||||||
Series G | 23,485,000 | 4,053,041 | ||||||
Hayward Unified School District, Unlimited General Obligation | 12,500,000 | 3,042,750 | ||||||
Series A, Insured: AGM | 7,000,000 | 1,575,630 | ||||||
Imperial Community College District, Unlimited General Obligation | 2,865,000 | 3,163,017 |
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest issuers held, as of April 30, 2014, 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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
California (continued) | ||||||||
Merced Union High School District, Cabs-Election, Unlimited General Obligation | $ | 53,000,000 | $ | 6,569,880 | ||||
Morongo, California Unified School District Election, Unlimited General Obligation | 2,880,000 | 3,100,147 | ||||||
National City Community Development Commission, National City Redevelopment Project, Tax Allocation | 3,500,000 | 4,227,335 | ||||||
Oceanside, California Unified School District, Capital Appreciation Election, Unlimited General Obligation | 11,555,000 | 1,198,254 | ||||||
Palomar Pomerado Health Election, Unlimited General Obligation | 8,910,000 | 9,053,896 | ||||||
Paramount Unified School District, Unlimited General Obligation | 25,000,000 | 3,945,000 | ||||||
Peralta Community College District, Unlimited General Obligation | 4,655,000 | 5,004,497 | ||||||
Pomona Unified School District, Election 2008, Unlimited | 3,285,000 | 3,580,059 | ||||||
Riverside County Transportation Commission, Revenue Bonds | 3,000,000 | 3,539,820 | ||||||
Sacramento Unified School District, | 3,955,000 | 4,336,341 | ||||||
Salinas Valley Solid Waste Authority, Revenue Bonds | 1,750,000 | 1,938,598 | ||||||
San Bernardino City Unified School District, Election, Unlimited General Obligation | 1,000,000 | 1,094,860 | ||||||
San Buenaventura Public Facilities Financing Authority, Revenue Bonds | 3,000,000 | 3,260,520 |
Principal Amount | Value | |||||||
California (continued) | ||||||||
San Joaquin Hills Transportation Corridor Agency, Revenue Bonds | $ | 10,000,000 | $ | 2,704,800 | ||||
San Lorenzo, California Unified School District, Unlimited General Obligation | 4,535,000 | 5,178,970 | ||||||
San Ysidro School District, Unlimited General Obligation | 25,705,000 | 2,427,837 | ||||||
Stockton, California Unified School District, Election 2005, Unlimited General Obligation | 11,995,000 | 12,119,748 | ||||||
Val Verde Unified School District, Election 2012, Unlimited General Obligation | 7,500,000 | 8,035,875 | ||||||
West Contra Costa California Healthcare District, Certificates of Participation | 3,500,000 | 3,907,855 | ||||||
Westminster School District, CABS, Election 2008, Unlimited General Obligation | 13,900,000 | 1,516,490 | ||||||
|
| |||||||
182,805,516 | ||||||||
|
| |||||||
Colorado 0.6% | ||||||||
E-470 Public Highway Authority Colorado, Revenue Bonds | 3,000,000 | 3,150,900 | ||||||
Park Creek Metropolitan District, Revenue Bonds | 1,600,000 | 1,772,144 | ||||||
|
| |||||||
4,923,044 | ||||||||
|
| |||||||
Connecticut 0.5% | ||||||||
Hartford, CT, Unlimited General Obligation | 2,500,000 | 2,749,175 | ||||||
Series A | 1,250,000 | 1,410,161 | ||||||
Series A, Insured: AGM | 275,000 | 307,401 | ||||||
|
| |||||||
4,466,737 | ||||||||
|
|
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) | ||||||||
District of Columbia 2.1% | ||||||||
District of Columbia, Friendship Public Charter School, Inc., Revenue Bonds | $ | 1,125,000 | $ | 1,101,364 | ||||
5.00%, due 6/1/42 | 5,500,000 | 5,191,120 | ||||||
District of Columbia, KIPP Charter School, Revenue Bonds | 1,000,000 | 1,111,020 | ||||||
6.00%, due 7/1/48 | 1,575,000 | 1,737,398 | ||||||
District of Columbia, Tax Allocation | 525,000 | 566,113 | ||||||
5.00%, due 6/1/28 | 1,445,000 | 1,551,323 | ||||||
Metropolitan Washington Airports Authority, Revenue Bonds | 6,500,000 | 6,778,005 | ||||||
|
| |||||||
18,036,343 | ||||||||
|
| |||||||
Florida 5.3% | ||||||||
Citizens Property Insurance Corp., Revenue Bonds | 3,500,000 | 3,953,565 | ||||||
¨City of Orlando, Tourist Development Tax Revenue, 3rd Lien, 6th Cent Contract, Revenue Bonds | 15,000,000 | 15,424,800 | ||||||
¨Hillsborough County Industrial Development Authority, Tampa General Hospital Project, Revenue Bonds | 13,900,000 | 14,992,957 | ||||||
Miami-Dade County Florida Aviation, Miami International Airport, Revenue Bonds | 7,500,000 | 7,868,325 | ||||||
Miami-Dade County Florida Solid Waste System, Revenue Bonds | 1,735,000 | 1,846,509 | ||||||
Miami-Dade County Florida, Revenue Bonds | 245,000 | 69,124 | ||||||
|
| |||||||
44,155,280 | ||||||||
|
| |||||||
Georgia 0.8% | ||||||||
Atlanta, Georgia Water & Wastewater, Revenue Bonds | 4,125,000 | 4,823,899 |
Principal Amount | Value | |||||||
Georgia (continued) | ||||||||
Fulton County Georgia Development Authority, Piedmont Healthcare, Inc., Revenue Bonds | $ | 1,700,000 | $ | 1,829,404 | ||||
|
| |||||||
6,653,303 | ||||||||
|
| |||||||
Guam 2.3% | ||||||||
Antonio B Won Pat International Airport Authority, Guam Airport, Revenue Bonds | 7,300,000 | 8,040,293 | ||||||
Guam International Airport Authority, Revenue Bonds | 5,500,000 | 5,989,830 | ||||||
Guam Power Authority, Revenue Bonds | 4,935,000 | 5,415,916 | ||||||
|
| |||||||
19,446,039 | ||||||||
|
| |||||||
Hawaii 0.6% | ||||||||
Hawaii State Department of Budget and Finance, Hawaiian Electric Co., Revenue Bonds | 1,450,000 | 1,463,355 | ||||||
6.50%, due 7/1/39 | 3,000,000 | 3,336,570 | ||||||
|
| |||||||
4,799,925 | ||||||||
|
| |||||||
Illinois 8.3% | ||||||||
¨Chicago Board of Education, Unlimited General Obligation | 12,750,000 | 13,381,507 | ||||||
¨Chicago, Illinois O’ Hare International Airport, Revenue Bonds | 2,905,000 | 2,971,118 | ||||||
Series A, Insured: AGM | 7,000,000 | 7,218,260 | ||||||
Series D | 7,555,000 | 8,371,998 | ||||||
Series A | 2,000,000 | 2,179,320 | ||||||
Illinois Finance Authority, Ingalls Health System, Revenue Bonds | 1,120,000 | 1,193,382 | ||||||
5.00%, due 5/15/26 | 1,175,000 | 1,242,586 | ||||||
Illinois Finance Authority, Rehab Institute of Chicago, Revenue Bonds | 9,600,000 | 10,520,256 |
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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Illinois (continued) | ||||||||
Kendall Kane & Will Counties, Community Unit School District No. 308, Unlimited General Obligation | $ | 7,000,000 | $ | 7,575,890 | ||||
Knox & Warren Counties, Illinois Community Unit School District No. 205 Galesburg, Unlimited General Obligation | 240,000 | 264,010 | ||||||
Series A | 205,000 | 234,551 | ||||||
Metropolitan Pier & Exposition Authority, McCormick Place Expansion, Revenue Bonds | 9,230,000 | 9,691,131 | ||||||
Metropolitan Water Reclamation District of Greater Chicago, Unlimited General Obligation | 4,750,000 | 5,266,040 | ||||||
|
| |||||||
70,110,049 | ||||||||
|
| |||||||
Indiana 1.3% | ||||||||
Indiana State Finance Authority, Butler University, Revenue Bonds | 2,100,000 | 2,341,290 | ||||||
Series A | 4,425,000 | 4,877,500 | ||||||
Series B | 2,320,000 | 2,536,108 | ||||||
Indianapolis, Indiana Public Improvement Bond Bank, Revenue Bonds | 1,100,000 | 1,184,381 | ||||||
|
| |||||||
10,939,279 | ||||||||
|
| |||||||
Kentucky 0.1% | ||||||||
Kentucky Economic Development Finance Authority, Baptist Healthcare System, Revenue Bonds | 1,100,000 | 1,100,000 | ||||||
|
| |||||||
Louisiana 2.5% | ||||||||
Jefferson Parish, Louisiana Hospital Service District No. 1, West Jefferson Medical Center, Revenue Bonds | 3,500,000 | 3,841,600 |
Principal Amount | Value | |||||||
Louisiana (continued) | ||||||||
Louisiana Public Facilities Authority, Dynamic Fuels LLC, Revenue Bonds | $ | 3,300,000 | $ | 3,300,000 | ||||
Louisiana Public Facilities Authority, Franciscan Missionaries, Revenue Bonds | 3,000,000 | 3,378,630 | ||||||
Louisiana Public Facilities Authority, Ochsner Clinic, Revenue Bonds | 5,690,000 | 6,368,817 | ||||||
Louisiana State Citizens Property Insurance Corp., Revenue Bonds | 2,340,000 | 2,513,651 | ||||||
Series C-3, Insured: GTY | 1,000,000 | 1,164,310 | ||||||
|
| |||||||
20,567,008 | ||||||||
|
| |||||||
Maryland 1.0% | ||||||||
Maryland Health & Higher Educational Facilities Authority, Medstar Health, Revenue Bonds | 8,000,000 | 8,437,280 | ||||||
|
| |||||||
Massachusetts 2.0% | ||||||||
Massachusetts Educational Financing Authority, Revenue Bonds | 2,005,000 | 2,101,100 | ||||||
Series I | 2,700,000 | 2,883,357 | ||||||
Massachusetts State Health & Educational Facilities Authority, Suffolk University, Revenue Bonds | 2,000,000 | 2,328,300 | ||||||
Series A | 6,400,000 | 7,450,624 | ||||||
Metropolitan Boston Transit Parking Corp., Revenue Bonds | 2,000,000 | 2,199,500 | ||||||
|
| |||||||
16,962,881 | ||||||||
|
| |||||||
Michigan 7.8% | ||||||||
Detroit, Michigan City School District, Unlimited General Obligation | 7,500,000 | 8,022,675 | ||||||
Series A, Insured: Q-SBLF | 4,535,000 | 4,693,680 |
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) | ||||||||
Michigan (continued) | ||||||||
Detroit, Michigan Distribution State Aid, General Obligation Limited | $ | 5,150,000 | $ | 5,302,749 | ||||
Detroit, Michigan Sewerage Disposal System, Revenue Bonds | 2,000,000 | 2,009,920 | ||||||
Detroit, Michigan Water and Sewerage Department, Senior Lien, Revenue Bonds Series A | 4,150,000 | 4,050,607 | ||||||
Series C-1, Insured: AGM | 8,380,000 | 9,084,842 | ||||||
Detroit, Michigan Water Supply System, Revenue Bonds | 1,535,000 | 1,431,096 | ||||||
Series A, Insured: AGM | 1,600,000 | 1,552,800 | ||||||
Senior Lien - Series A | 3,015,000 | 2,940,228 | ||||||
Series A | 5,550,000 | 5,512,260 | ||||||
Detroit, Michigan, City School District, Improvement School Building and Site, Unlimited General Obligation | 750,000 | 805,462 | ||||||
Series A, Insured: Q-SBLF | 3,620,000 | 3,823,915 | ||||||
Michigan Finance Authority Revenue, Local Government Loan Program, Revenue Bonds | 7,290,000 | 7,667,112 | ||||||
Michigan Finance Authority, Revenue Bonds | 175,000 | 193,048 | ||||||
5.00%, due 6/1/19 | 1,300,000 | 1,446,510 | ||||||
5.00%, due 6/1/20 | 950,000 | 1,052,258 | ||||||
5.50%, due 6/1/21 | 5,000,000 | 5,694,400 | ||||||
Michigan Tobacco Settlement Finance Authority, Revenue Bonds | 250,000 | 207,727 | ||||||
|
| |||||||
65,491,289 | ||||||||
|
| |||||||
Minnesota 0.5% | ||||||||
Minneapolis, MN, St. Paul Housing & Redevelopment Authority, Allina Health Systems, Revenue Bonds | 4,470,000 | 4,470,000 | ||||||
|
|
Principal Amount | Value | |||||||
Nebraska 2.4% | ||||||||
¨ Central Plains Energy, Project No. 3, Revenue Bonds | $ | 9,000,000 | $ | 9,315,720 | ||||
5.25%, due 9/1/37 | 10,000,000 | 10,594,400 | ||||||
|
| |||||||
19,910,120 | ||||||||
|
| |||||||
New Hampshire 0.2% | ||||||||
Manchester, NH General Airport, Revenue Bonds | 1,800,000 | 1,966,860 | ||||||
|
| |||||||
New Jersey 5.1% | ||||||||
Camden County Improvement Authority, Heath Care Redevelopment, Revenue Bonds | 3,500,000 | 3,526,390 | ||||||
New Jersey Economic Development Authority, MSU Student Housing Project, Provident Group-Montclair LLC, Revenue Bonds | 4,500,000 | 4,888,755 | ||||||
New Jersey Economic Development Authority, Revenue Bonds | ||||||||
5.00%, due 1/1/28 (a) | 1,000,000 | 1,083,660 | ||||||
Insured: AGM | 3,000,000 | 3,216,060 | ||||||
Insured: AGM | 1,000,000 | 1,065,460 | ||||||
5.50%, due 1/1/26 (a) | 1,000,000 | 1,149,530 | ||||||
5.50%, due 1/1/27 (a) | 500,000 | 566,055 | ||||||
New Jersey Health Care Facilities Financing Authority, Revenue Bonds | ||||||||
Series A | 3,710,000 | 4,070,278 | ||||||
Insured: GTY | 2,760,000 | 3,037,187 | ||||||
New Jersey Higher Education Student Assistance Authority, Revenue Bonds | 4,130,000 | 4,526,769 | ||||||
New Jersey State Higher Education Student Assistance Authority, Student Loan, Revenue Bonds | 3,870,000 | 4,117,757 | ||||||
New Jersey State Turnpike Authority, Revenue Bonds | 5,000,000 | 5,365,050 |
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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
New Jersey (continued) | ||||||||
Newark, New Jersey Housing Authority, South Ward Police Facility, Revenue Bonds | ||||||||
Insured: GTY | $ | 1,135,000 | $ | 1,267,489 | ||||
Insured: GTY | 4,000,000 | 4,665,320 | ||||||
|
| |||||||
42,545,760 | ||||||||
|
| |||||||
New Mexico 0.3% | ||||||||
Farmington Pollution Control, Revenue Bonds | 2,000,000 | 2,149,740 | ||||||
|
| |||||||
New York 4.0% | ||||||||
Build NYC Resource Corp., Parking Facility, Revenue Bonds | ||||||||
Insured: AGM | 880,000 | 988,434 | ||||||
Insured: AGM | 930,000 | 1,054,862 | ||||||
Insured: AGM | 975,000 | 1,123,375 | ||||||
Insured: AGM | 1,025,000 | 1,182,184 | ||||||
Insured: AGM | 1,075,000 | 1,233,541 | ||||||
Insured: AGM | 740,000 | 847,085 | ||||||
City of New York, Unlimited General Obligation | ||||||||
Series A-7 | 4,500,000 | 4,500,000 | ||||||
Series H-5 | 5,005,000 | 5,005,000 | ||||||
New York City Transitional Finance Authority, Future Tax Secured, Revenue Bonds | 3,900,000 | 3,900,000 | ||||||
New York Liberty Development Corp., Bank of America, Revenue Bonds Class 3 | 5,000,000 | 5,451,150 | ||||||
New York Liberty Development Corp., Goldman Sachs Headquarters, Revenue Bonds | 6,590,000 | 7,733,629 | ||||||
New York State Dormitory Authority, Revenue Bonds | 465,000 | 503,432 | ||||||
|
| |||||||
33,522,692 | ||||||||
|
|
Principal Amount | Value | |||||||
North Carolina 0.4% | ||||||||
North Carolina Turnpike Authority, Revenue Bonds | $ | 3,000,000 | $ | 3,287,610 | ||||
|
| |||||||
North Dakota 0.4% | ||||||||
Grand Forks Health Care, ND, Altra Health System, Revenue Bonds | 3,000,000 | 3,107,100 | ||||||
|
| |||||||
Ohio 0.7% | ||||||||
Cleveland-Cuyahoga County Port Authority, Revenue Bonds | 1,980,000 | 2,277,930 | ||||||
Hamilton County Ohio Health Care Facility, Christ Hospital Project, Revenue Bonds | 2,000,000 | 2,141,220 | ||||||
Toledo-Lucas County Port Authority, Revenue Bonds | 1,030,000 | 1,034,213 | ||||||
University of Cincinnati, Ohio, Revenue Bonds | 395,000 | 396,513 | ||||||
|
| |||||||
5,849,876 | ||||||||
|
| |||||||
Pennsylvania 3.0% | ||||||||
Bristol Township School District, General Obligation | 2,000,000 | 2,178,480 | ||||||
Montgomery County Industrial Development Authority, Revenue Bonds | 175,000 | 191,490 | ||||||
Pennsylvania Economic Development Financing Authority, Capitol Region Parking System, Revenue Bonds | 11,250,000 | 12,829,950 | ||||||
Pennsylvania State Turnpike Commission, Revenue Bonds | 4,000,000 | 4,473,960 | ||||||
Philadelphia, PA, Unlimited General Obligation | 5,125,000 | 5,807,548 | ||||||
|
| |||||||
25,481,428 | ||||||||
|
| |||||||
Puerto Rico 5.3% | ||||||||
Puerto Rico Electric Power Authority, Revenue Bonds | ||||||||
Series UU, Insured: AGC | 265,000 | 231,292 |
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) | ||||||||
Puerto Rico (continued) | ||||||||
Puerto Rico Electric Power Authority, Revenue Bonds (continued) | ||||||||
Series RR, Insured: NATL-RE | $ | 120,000 | $ | 118,358 | ||||
Series RR, Insured: NATL-RE | 190,000 | 185,263 | ||||||
Series SS, Insured: NATL-RE | 150,000 | 143,603 | ||||||
Series PP, Insured: NATL-RE | 240,000 | 225,485 | ||||||
Series LL, Insured: NATL-RE | 1,115,000 | 1,149,822 | ||||||
Puerto Rico Highways & Transportation Authority Puerto, Revenue Bonds | 10,000,000 | 9,877,700 | ||||||
Puerto Rico Highways & Transportation Authority, Commonwealth Highway, Revenue Bonds | 7,975,000 | 7,409,573 | ||||||
¨ Puerto Rico Highways & Transportation Authority, Revenue Bonds | ||||||||
Series D, Insured: AGM | 250,000 | 236,115 | ||||||
Series J, Insured: NATL-RE | 125,000 | 114,636 | ||||||
Series L, Insured: NATL-RE | 1,705,000 | 1,658,419 | ||||||
Series N, Insured: GTY | 21,165,000 | 19,771,285 | ||||||
Puerto Rico Municipal Finance Agency, Revenue Bonds | 100,000 | 98,460 | ||||||
Puerto Rico Public Buildings Authority, Government Facilities, Revenue Bonds | ||||||||
Series F, Insured: NATL-RE, XLCA | 170,000 | 167,198 | ||||||
Insured: NATL-RE | 3,410,000 | 3,435,882 | ||||||
|
| |||||||
44,823,091 | ||||||||
|
| |||||||
Rhode Island 0.2% | ||||||||
Rhode Island Housing & Mortgage Finance Corp., Rental Housing Program, Revenue Bonds | 2,000,000 | 2,043,280 | ||||||
|
|
Principal Amount | Value | |||||||
South Carolina 1.7% | ||||||||
Piedmont Municipal Power Agency, Revenue Bonds | $ | 5,320,000 | $ | 5,992,076 | ||||
South Carolina Jobs-Economic Development Authority, Palmetto Health, Revenue Bonds | 7,500,000 | 8,032,725 | ||||||
|
| |||||||
14,024,801 | ||||||||
|
| |||||||
Tennessee 2.7% | ||||||||
Johnson City Health & Educational Facilities Board, Mountain States Health Alliance, Revenue Bonds | 3,605,000 | 3,983,056 | ||||||
Johnson City Tennessee Health & Educational Facilities Board Hospital, Revenue Bonds | 6,500,000 | 7,365,020 | ||||||
Shelby County Health Educational & Housing Facilities Board, Revenue Bonds | 11,150,000 | 11,150,000 | ||||||
|
| |||||||
22,498,076 | ||||||||
|
| |||||||
Texas 9.4% | ||||||||
Central Texas Regional Mobility Authority, Revenue Bonds | 2,100,000 | 2,300,277 | ||||||
Harris County-Houston Sports Authority, Revenue Bonds | ||||||||
Series A, Insured: NATL-RE | 25,015,000 | 5,183,108 | ||||||
Series G, Insured: NATL-RE | 580,000 | 580,162 | ||||||
Houston Higher Education Finance Corp., Revenue Bonds | ||||||||
Series A | 1,050,000 | 1,222,914 | ||||||
Series A | 6,450,000 | 7,638,413 | ||||||
Houston, Texas Hotel Occupancy Tax & Special Revenue, Revenue Bonds | 2,000,000 | 2,059,620 | ||||||
Lower Colorado River Authority, Revenue Bonds | 3,300,000 | 3,643,068 |
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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Texas (continued) | ||||||||
North Texas Tollway Authority, Revenue Bonds | $ | 1,800,000 | $ | 1,961,226 | ||||
San Juan, Texas Higher Education Finance Authority, Idea Public Schools, Revenue Bonds | 1,275,000 | 1,464,044 | ||||||
¨ Texas Municipal Gas Acquisition & Supply Corp. III, Revenue Bonds | 20,250,000 | 20,995,403 | ||||||
¨ Texas Private Activity Bond Surface Transportation Corp., LBJ Infrastructure, Revenue Bonds | ||||||||
7.00%, due 6/30/40 | 6,835,000 | 7,945,277 | ||||||
Series Lien-LBG | 4,095,000 | 4,885,908 | ||||||
7.50%, due 6/30/33 | 5,500,000 | 6,552,315 | ||||||
Texas Private Activity Bond Surface Transportation Corp., NTE Mobility, Revenue Bonds | 8,000,000 | 9,153,120 | ||||||
Texas State Public Finance Authority, Charter School Finance Corp., Revenue Bonds | 1,000,000 | 1,098,170 | ||||||
Texas State Turnpike Authority, Central Texas System, Revenue Bonds | 10,000,000 | 2,629,600 | ||||||
|
| |||||||
79,312,625 | ||||||||
|
| |||||||
U.S. Virgin Islands 3.2% | ||||||||
Virgin Islands Public Finance Authority, Matching Fund Loan Notes, Revenue Bonds | 5,100,000 | 5,192,412 | ||||||
Virgin Islands Public Finance Authority, Matching Fund Loan, Revenue Bonds | 5,000,000 | 5,503,200 | ||||||
¨ Virgin Islands Public Finance Authority, Revenue Bonds | 15,125,000 | 15,903,937 | ||||||
|
| |||||||
26,599,549 | ||||||||
|
|
Principal Amount | Value | |||||||
Utah 0.1% | ||||||||
Herriman, Utah, Special Assessment | $ | 425,000 | $ | 457,219 | ||||
|
| |||||||
Washington 0.7% | ||||||||
King County Washington Public Hospital District No. 1, General Obligation | 6,000,000 | 6,269,580 | ||||||
|
| |||||||
Wisconsin 0.8% | ||||||||
Wisconsin Center District, Junior Dedicated, Revenue Bonds | ||||||||
Series A | 3,665,000 | 3,989,939 | ||||||
Series A | 2,850,000 | 3,098,292 | ||||||
|
| |||||||
7,088,231 | ||||||||
|
| |||||||
Wyoming 0.1% | ||||||||
West Park Hospital District, Revenue Bonds | 1,000,000 | 1,128,260 | ||||||
|
| |||||||
Total Investments | 98.9 | % | 831,588,103 | |||||
Other Assets, Less Liabilities | 1.1 | 9,475,895 | ||||||
Net Assets | 100.0 | % | $ | 841,063,998 | ||||
Contracts Short | Unrealized Appreciation (Depreciation) (c) | |||||||
Futures Contracts (0.2%) | ||||||||
United States Treasury Notes | (1,180 | ) | $ | (463,474 | ) | |||
United States Treasury Bond | (300 | ) | (1,211,583 | ) | ||||
|
| |||||||
Total Futures Contracts | $ | (1,675,057 | ) | |||||
|
|
(a) | Interest on these securities was 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 April 30, 2014. |
(c) | Represents the difference between the value of the contracts at the time they were opened and the value as of April 30, 2014. |
(d) | As of April 30, 2014, cash in the amount of $2,164,000 was on deposit with a broker for futures transactions. |
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. |
(e) | As of April 30, 2014, cost was $803,155,569 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 35,320,492 | ||
Gross unrealized depreciation | (6,887,958 | ) | ||
|
| |||
Net unrealized appreciation | $ | 28,432,534 | ||
|
|
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
XLCA—XL Capital Assurance, Inc.
The following is a summary of the fair valuations according to the inputs used as of April 30, 2014, 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 | $ | — | $ | 831,588,103 | $ | — | $ | 831,588,103 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | — | $ | 831,588,103 | $ | — | $ | 831,588,103 | ||||||||
|
|
|
|
|
|
|
|
Liability Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts Short (b) | $ | (1,675,057 | ) | $ | — | $ | — | $ | (1,675,057 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
Total Other Financial Instruments | $ | (1,675,057 | ) | $ | — | $ | — | $ | (1,675,057 | ) | ||||||
|
|
|
|
|
|
|
|
(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 period ended April 30, 2014, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
As of April 30, 2014, 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 | 19 |
Statement of Assets and Liabilities as of April 30, 2014 (Unaudited)
Assets | ||||
Investment in securities, at value | $ | 831,588,103 | ||
Cash | 4,768,308 | |||
Cash collateral on deposit at broker | 2,164,000 | |||
Receivables: | ||||
Interest | 11,862,161 | |||
Fund shares sold | 3,223,238 | |||
Other assets | 74,844 | |||
|
| |||
Total assets | 853,680,654 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 7,918,013 | |||
Fund shares redeemed | 2,457,239 | |||
Variation margin on futures contracts | 666,563 | |||
Manager (See Note 3) | 304,572 | |||
NYLIFE Distributors (See Note 3) | 152,568 | |||
Transfer agent (See Note 3) | 78,423 | |||
Professional fees | 32,740 | |||
Shareholder communication | 28,989 | |||
Trustees | 2,000 | |||
Custodian | 749 | |||
Accrued expenses | 4,765 | |||
Dividend payable | 970,035 | |||
|
| |||
Total liabilities | 12,616,656 | |||
|
| |||
Net assets | $ | 841,063,998 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 866,243 | ||
Additional paid-in capital | 845,707,624 | |||
|
| |||
846,573,867 | ||||
Distributions in excess of net investment income | (590,144 | ) | ||
Accumulated net realized gain (loss) on investments and futures transactions | (31,691,207 | ) | ||
Net unrealized appreciation (depreciation) on investments and futures contracts | 26,771,482 | |||
|
| |||
Net assets | $ | 841,063,998 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 19,180,375 | ||
|
| |||
Shares of beneficial interest outstanding | 1,966,657 | |||
|
| |||
Net asset value per share outstanding | $ | 9.75 | ||
Maximum sales charge (4.50% of offering price) | 0.46 | |||
|
| |||
Maximum offering price per share outstanding | $ | 10.21 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 415,506,632 | ||
|
| |||
Shares of beneficial interest outstanding | 42,807,328 | |||
|
| |||
Net asset value per share outstanding | $ | 9.71 | ||
Maximum sales charge (4.50% of offering price) | 0.46 | |||
|
| |||
Maximum offering price per share outstanding | $ | 10.17 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 11,843,436 | ||
|
| |||
Shares of beneficial interest outstanding | 1,220,301 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.71 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 145,590,501 | ||
|
| |||
Shares of beneficial interest outstanding | 14,992,604 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.71 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 248,943,054 | ||
|
| |||
Shares of beneficial interest outstanding | 25,637,404 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.71 | ||
|
|
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 Operations for the six months ended April 30, 2014 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 19,421,332 | ||
|
| |||
Expenses | ||||
Manager (See Note 3) | 1,988,433 | |||
Distribution/Service—Investor Class (See Note 3) | 23,352 | |||
Distribution/Service—Class A (See Note 3) | 502,516 | |||
Distribution/Service—Class B (See Note 3) | 29,484 | |||
Distribution/Service—Class C (See Note 3) | 355,832 | |||
Transfer agent (See Note 3) | 212,843 | |||
Registration | 70,934 | |||
Professional fees | 37,226 | |||
Shareholder communication | 26,594 | |||
Custodian | 8,972 | |||
Trustees | 7,678 | |||
Miscellaneous | 14,088 | |||
|
| |||
Total expenses before waiver/reimbursement | 3,277,952 | |||
Expense waiver/reimbursement from Manager (See Note 3) | (197,240 | ) | ||
|
| |||
Net expenses | 3,080,712 | |||
|
| |||
Net investment income (loss) | 16,340,620 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments and Futures Contracts | ||||
Net realized gain (loss) on: | ||||
Investment transactions | (6,860,320 | ) | ||
Futures transactions | (3,647,278 | ) | ||
|
| |||
Net realized gain (loss) on investments and futures transactions | (10,507,598 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 38,595,045 | |||
Futures contracts | 2,369,112 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on investments and futures contracts | 40,964,157 | |||
|
| |||
Net realized and unrealized gain (loss) on investments and futures transactions | 30,456,559 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 46,797,179 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 21 |
Statements of Changes in Net Assets
for the six months ended April 30, 2014 (Unaudited) and the year ended October 31, 2013
2014 | 2013 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 16,340,620 | $ | 33,231,178 | ||||
Net realized gain (loss) on investments and futures transactions | (10,507,598 | ) | (14,872,818 | ) | ||||
Net change in unrealized appreciation (depreciation) on investments and futures contracts | 40,964,157 | (58,256,634 | ) | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 46,797,179 | (39,898,274 | ) | |||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (380,825 | ) | (742,323 | ) | ||||
Class A | (8,319,470 | ) | (17,779,227 | ) | ||||
Class B | (225,923 | ) | (471,234 | ) | ||||
Class C | (2,723,388 | ) | (5,662,029 | ) | ||||
Class I | (4,691,014 | ) | (8,572,221 | ) | ||||
|
| |||||||
Total dividends to shareholders | (16,340,620 | ) | (33,227,034 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 141,489,496 | 534,980,472 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 10,420,460 | 20,388,965 | ||||||
Cost of shares redeemed | (177,613,598 | ) | (390,206,581 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | (25,703,642 | ) | 165,162,856 | |||||
|
| |||||||
Net increase (decrease) in net assets | 4,752,917 | 92,037,548 | ||||||
Net Assets | ||||||||
Beginning of period | 836,311,081 | 744,273,533 | ||||||
|
| |||||||
End of period | $ | 841,063,998 | $ | 836,311,081 | ||||
|
| |||||||
Distributions in excess of net investment income at end of period | $ | (590,144 | ) | $ | (590,144 | ) | ||
|
|
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. |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Investor Class | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 9.38 | $ | 10.08 | $ | 9.31 | $ | 9.48 | $ | 9.08 | $ | 8.48 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) | 0.20 | 0.36 | 0.38 | (a) | 0.42 | (a) | 0.39 | (a) | 0.34 | (a) | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.36 | (0.70 | ) | 0.77 | (0.16 | ) | 0.41 | 0.63 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.56 | (0.34 | ) | 1.15 | 0.26 | 0.80 | 0.97 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends: | ||||||||||||||||||||||||||
From net investment income | (0.19 | ) | (0.36 | ) | (0.38 | ) | (0.43 | ) | (0.40 | ) | (0.37 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 9.75 | $ | 9.38 | $ | 10.08 | $ | 9.31 | $ | 9.48 | $ | 9.08 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 6.06 | %(c) | (3.45 | %) | 12.58 | % | 2.93 | % | 9.08 | % | 11.67 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 4.08 | %†† | 3.67 | % | 3.92 | % | 4.67 | % | 4.24 | % | 3.93 | % | ||||||||||||||
Net expenses | 0.85 | %†† | 0.84 | % | 0.86 | % | 0.90 | % | 0.93 | % | 1.02 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 0.90 | %†† | 0.89 | % | 0.91 | % | 0.98 | % | 1.03 | % | 1.25 | % | ||||||||||||||
Portfolio turnover rate | 42 | % | 111 | % | 125 | % | 138 | % | 97 | % | 94 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 19,180 | $ | 19,094 | $ | 21,437 | $ | 21,547 | $ | 22,220 | $ | 21,683 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class A | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 9.33 | $ | 10.04 | $ | 9.26 | $ | 9.44 | $ | 9.04 | $ | 8.45 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) | 0.19 | 0.38 | 0.38 | (a) | 0.43 | (a) | 0.40 | (a) | 0.35 | (a) | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.38 | (0.72 | ) | 0.79 | (0.18 | ) | 0.42 | 0.62 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.57 | (0.34 | ) | 1.17 | 0.25 | 0.82 | 0.97 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends: | ||||||||||||||||||||||||||
From net investment income | (0.19 | ) | (0.37 | ) | (0.39 | ) | (0.43 | ) | (0.42 | ) | (0.38 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 9.71 | $ | 9.33 | $ | 10.04 | $ | 9.26 | $ | 9.44 | $ | 9.04 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 6.22 | %(c) | (3.52 | %) | 12.81 | % | 2.93 | % | 9.25 | % | 11.72 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 4.14 | %†† | 3.72 | % | 3.91 | % | 4.76 | % | 4.36 | % | 4.04 | % | ||||||||||||||
Net expenses | 0.79 | %†† | 0.78 | % | 0.79 | % | 0.81 | % | 0.82 | % | 0.90 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 0.84 | %†† | 0.83 | % | 0.84 | % | 0.89 | % | 0.92 | % | 1.08 | % | ||||||||||||||
Portfolio turnover rate | 42 | % | 111 | % | 125 | % | 138 | % | 97 | % | 94 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 415,507 | $ | 417,984 | $ | 424,757 | $ | 258,892 | $ | 242,891 | $ | 162,921 |
* | Unaudited. |
†† | 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. |
(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 | 23 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class B | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 9.33 | $ | 10.03 | $ | 9.26 | $ | 9.44 | $ | 9.04 | $ | 8.44 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) | 0.17 | 0.34 | 0.35 | (a) | 0.40 | (a) | 0.37 | (a) | 0.32 | (a) | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.39 | (0.70 | ) | 0.78 | (0.18 | ) | 0.41 | 0.63 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.56 | (0.36 | ) | 1.13 | 0.22 | 0.78 | 0.95 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends: | ||||||||||||||||||||||||||
From net investment income | (0.18 | ) | (0.34 | ) | (0.36 | ) | (0.40 | ) | (0.38 | ) | (0.35 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 9.71 | $ | 9.33 | $ | 10.03 | $ | 9.26 | $ | 9.44 | $ | 9.04 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 6.06 | %(c) | (3.73 | %) | 12.34 | % | 2.58 | % | 8.85 | % | 11.32 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 3.83 | %†† | 3.41 | % | 3.59 | % | 4.42 | % | 3.99 | % | 3.68 | % | ||||||||||||||
Net expenses | 1.10 | %†† | 1.09 | % | 1.11 | % | 1.15 | % | 1.18 | % | 1.26 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.15 | %†† | 1.14 | % | 1.16 | % | 1.23 | % | 1.28 | % | 1.50 | % | ||||||||||||||
Portfolio turnover rate | 42 | % | 111 | % | 125 | % | 138 | % | 97 | % | 94 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 11,843 | $ | 12,459 | $ | 13,230 | $ | 9,463 | $ | 13,907 | $ | 18,219 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class C | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 9.34 | $ | 10.04 | $ | 9.27 | $ | 9.44 | $ | 9.04 | $ | 8.45 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) | 0.17 | 0.35 | 0.35 | (a) | 0.40 | (a) | 0.37 | (a) | 0.32 | (a) | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.38 | (0.71 | ) | 0.78 | (0.17 | ) | 0.41 | 0.61 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.55 | (0.36 | ) | 1.13 | 0.23 | 0.78 | 0.93 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends: | ||||||||||||||||||||||||||
From net investment income | (0.18 | ) | (0.34 | ) | (0.36 | ) | (0.40 | ) | (0.38 | ) | (0.34 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 9.71 | $ | 9.34 | $ | 10.04 | $ | 9.27 | $ | 9.44 | $ | 9.04 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 5.94 | %(c) | (3.72 | %) | 12.33 | % | 2.69 | % | 8.85 | % | 11.31 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 3.83 | %†† | 3.42 | % | 3.58 | % | 4.42 | % | 3.99 | % | 3.68 | % | ||||||||||||||
Net expenses | 1.10 | %†† | 1.09 | % | 1.11 | % | 1.15 | % | 1.18 | % | 1.28 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.15 | %†† | 1.14 | % | 1.16 | % | 1.23 | % | 1.28 | % | 1.51 | % | ||||||||||||||
Portfolio turnover rate | 42 | % | 111 | % | 125 | % | 138 | % | 97 | % | 94 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 145,591 | $ | 150,244 | $ | 142,246 | $ | 81,880 | $ | 65,695 | $ | 22,544 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
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
Six months ended | Year ended October 31, | December 21, 2009** through | ||||||||||||||||||
Class I | April 30, 2014* | 2013 | 2012 | 2011 | October 31, 2010 | |||||||||||||||
Net asset value at beginning of period | $ | 9.34 | $ | 10.04 | $ | 9.27 | $ | 9.44 | $ | 9.07 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) | 0.21 | 0.40 | 0.40 | (a) | 0.45 | (a) | 0.38 | (a) | ||||||||||||
Net realized and unrealized gain (loss) on investments | 0.37 | (0.71 | ) | 0.78 | (0.16 | ) | 0.35 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 0.58 | (0.31 | ) | 1.18 | 0.29 | 0.73 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.21 | ) | (0.39 | ) | (0.41 | ) | (0.46 | ) | (0.36 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of period | $ | 9.71 | $ | 9.34 | $ | 10.04 | $ | 9.27 | $ | 9.44 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 6.24 | %(c) | (3.18 | %) | 12.97 | % | 3.29 | % | 8.25 | %(c) | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 4.38 | %†† | 4.00 | % | 4.06 | % | 4.99 | % | 4.64 | %†† | ||||||||||
Net expenses | 0.54 | %†† | 0.54 | % | 0.54 | % | 0.56 | % | 0.57 | %†† | ||||||||||
Expenses (before waiver/reimbursement) | 0.59 | %†† | 0.59 | % | 0.59 | % | 0.64 | % | 0.67 | %†† | ||||||||||
Portfolio turnover rate | 42 | % | 111 | % | 125 | % | 138 | % | 97 | % | ||||||||||
Net assets at end of period (in 000’s) | $ | 248,943 | $ | 236,531 | $ | 142,603 | $ | 33,888 | $ | 17,394 |
* | Unaudited. |
** | 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. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 25 |
Notes to Financial Statements (Unaudited)
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 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”) adopted procedures for the valuation of the Fund’s securities and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board 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 Sub-Committee deals in the first instance with such valuation and 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. Any action taken by the Sub-Committee with respect to the valuation of a portfolio security is submitted by the Valuation Committee to the Board for its review at its next regularly scheduled meeting immediately after such action.
“Fair value” is defined as the price that the Fund would receive upon selling an asset or liability in an orderly transaction to an independent buyer in the principal or most advantageous market for the asset or liability. Fair value measurements are determined within a framework that 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” refer 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 based on the information available. 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 below.
• | Level 1—quoted prices in active markets for an identical asset or liability |
• | Level 2—other significant observable inputs (including quoted prices for a similar asset or liability in active markets, interest rates and yield curves, prepayment speeds, credit risk etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring fair value of an asset or liability) |
26 | MainStay Tax Free Bond Fund |
The aggregate value by input level, as of April 30, 2014, for the Fund’s assets or liabilities is included at the end of the Fund’s Portfolio of Investments.
The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs among others:
• 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 |
An asset or liability for which market values cannot be measured using the methodologies described above are valued by methods deemed reasonable and in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund generally 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 asset or liability are discounted to calculate fair value. Discounts may also be applied due to the nature and/or duration of any restrictions on the disposition of the asset or liability. Due to the inherent valuation uncertainty of such assets or liabilities, fair values may differ significantly from values that would have been used had an active market existed. For the six-month period ended April 30, 2014, there have been no material 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 readily available from a third party pricing source or, if so provided, does not, in the opinion of the Manager or Subadvisor reflect the security’s market value; (vi) a security subject to trading collars for which no or limited trading takes place; and (vii) 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 April 30, 2014, 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 Manager, in consultation with the Subadvisor. Those prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Manager, in consultation with the Subadvisor,
to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities purchased on a 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 at the time of purchase (“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 from net investment income, if any, daily and intends to pay them at least monthly and declares and pays distributions from 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
mainstayinvestments.com | 27 |
Notes to Financial Statements (Unaudited) (continued)
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. The straight-line method approximates the effective interest method for short-term investments. 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) 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 market 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.
(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 April 30, 2014.
(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
28 | MainStay Tax Free Bond Fund |
and their effect on the Fund’s financial positions, performance and cash flows. These derivatives are not accounted for as hedging instruments. The amounts disclosed in the table represent the monthly average held during the six-month period ended April 30, 2014.
Fair value of derivatives instruments as of April 30, 2014:
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) | $ | (1,675,057 | ) | $ | (1,675,057 | ) | |||
|
| |||||||||
Total Fair Value | $ | (1,675,057 | ) | $ | (1,675,057 | ) | ||||
|
|
(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 period ended April 30, 2014:
Realized Gain (Loss)
Statement of Operations Location | Interest Rate Contracts Risk | Total | ||||||||
Futures Contracts | Net realized gain (loss) on futures transactions | $ | (3,647,278 | ) | $ | (3,647,278 | ) | |||
|
| |||||||||
Total Realized Gain (Loss) | $ | (3,647,278 | ) | $ | (3,647,278 | ) | ||||
|
|
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 | $ | 2,369,112 | $ | 2,369,112 | |||||
|
| |||||||||
Total Change in Unrealized Appreciation (Depreciation) | $ | 2,369,112 | $ | 2,369,112 | ||||||
|
|
Number of Contracts, Notional Amounts or Shares/Units
Interest Rate Contracts Risk | Total | |||||||
Futures Contracts Short (Average number of contracts) | (1,380 | ) | (1,380 | ) | ||||
|
|
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 compensation 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, 2015, 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 six-month period ended April 30, 2014, 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, 2015, 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.
mainstayinvestments.com | 29 |
Notes to Financial Statements (Unaudited) (continued)
For the six-month period ended April 30, 2014, New York Life Investments earned fees from the Fund in the amount of $1,988,433 and waived its fees and/or reimbursed expenses in the amount of $197,240.
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 $2,202 and $20,667, respectively, for the six-month period ended April 30, 2014. The Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Class B and Class C shares of $11,620, $31,245 and $11,971, respectively, for the six-month period ended April 30, 2014.
(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 six-month period ended April 30, 2014, were as follows:
Investor Class | $ | 9,591 | ||
Class A | 81,056 | |||
Class B | 6,063 | |||
Class C | 73,083 | |||
Class I | 43,050 |
(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
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 year ended October 31, 2013, shown in the Statements of Changes in Net Assets was as follows:
2013 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 96,086 | ||
Exempt Interest Dividends | 33,130,948 | |||
Total | $ | 33,227,034 |
Note 5–Custodian
State Street is the custodian of cash and securities held by the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities held by 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.
30 | MainStay Tax Free Bond Fund |
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, who serves as the agent 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. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the six-month period ended April 30, 2014.
Note 7–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2014, purchases and sales of securities, other than short-term securities, were $330,451 and $367,542, respectively.
Note 8–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 83,492 | $ | 796,549 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 35,232 | 335,464 | ||||||
Shares redeemed | (128,149 | ) | (1,213,937 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (9,425 | ) | (81,924 | ) | ||||
Shares converted into Investor Class (See Note 1) | 13,119 | 124,138 | ||||||
Shares converted from Investor Class (See Note 1) | (73,091 | ) | (691,328 | ) | ||||
|
| |||||||
Net increase (decrease) | (69,397 | ) | $ | (649,114 | ) | |||
|
| |||||||
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 | ) | |||
|
|
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 5,053,691 | $ | 47,768,455 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 612,764 | 5,808,633 | ||||||
Shares redeemed | (7,722,464 | ) | (72,473,032 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (2,056,009 | ) | (18,895,944 | ) | ||||
Shares converted into Class A (See Note 1) | 78,387 | 737,666 | ||||||
|
| |||||||
Net increase (decrease) | (1,977,622 | ) | $ | (18,158,278 | ) | |||
|
| |||||||
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 | |||||
|
| |||||||
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 43,838 | $ | 415,436 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 20,085 | 190,266 | ||||||
Shares redeemed | (160,627 | ) | (1,510,164 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (96,704 | ) | (904,462 | ) | ||||
Shares converted from Class B (See Note 1) | (18,090 | ) | (170,476 | ) | ||||
|
| |||||||
Net increase (decrease) | (114,794 | ) | $ | (1,074,938 | ) | |||
|
| |||||||
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 | |||||
|
| |||||||
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 1,554,630 | $ | 14,703,972 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 190,432 | 1,805,317 | ||||||
Shares redeemed | (2,843,112 | ) | (26,707,193 | ) | ||||
|
| |||||||
Net increase (decrease) | (1,098,050 | ) | $ | (10,197,904 | ) | |||
|
| |||||||
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 | |||||
|
|
mainstayinvestments.com | 31 |
Notes to Financial Statements (Unaudited) (continued)
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 8,165,661 | $ | 77,805,084 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 240,602 | 2,280,780 | ||||||
Shares redeemed | (8,103,739 | ) | (75,709,272 | ) | ||||
|
| |||||||
Net increase (decrease) | 302,524 | $ | 4,376,592 | |||||
|
| |||||||
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 | |||||
|
|
Note 9–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the six-month period ended April 30, 2014, events and transactions subsequent to April 30, 2014, 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.
32 | MainStay Tax Free Bond Fund |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”) requires that each mutual fund’s board of trustees, including a majority of the independent trustees, annually review and approve the fund’s investment advisory agreements. At its December 10-11, 2013 meeting, the Board of Trustees of the MainStay Group of Funds (“Board”) unanimously approved the Management Agreement with respect to the MainStay Tax Free Bond Fund (“Fund”) and New York Life Investment Management LLC (“New York Life Investments”) and the Subadvisory Agreement between New York Life Investments and MacKay Shields LLC (“MacKay Shields”) with respect to the Fund.
In reaching its decision to approve the Agreements, the Board considered information furnished by New York Life Investments and MacKay Shields in connection with a contract review process that took place at various meetings of the Board and its Contracts Committee between September 2013 and December 2013 as well as other relevant information furnished to the Board throughout the year by New York Life Investments and MacKay Shields. Information requested by and furnished to the Board in connection with the contract review process included, among other items, reports on the Fund and “peer funds” prepared by Strategic Insight Mutual Fund Research and Consulting, LLC (“Strategic Insight”), an independent third-party service provider engaged by the Board to report objectively on the Fund’s investment performance, management and subadvisory fees and ordinary operating expenses. The Board also considered information provided by New York Life Investments and MacKay Shields on the fees charged to other investment advisory clients (including institutional separate accounts) that follow investment strategies similar to the Fund and the rationale for any differences in the Fund’s management and subadvisory fees and the fees charged to those other investment advisory clients. In addition, the Board requested and received information on the profitability of the Fund to New York Life Investments and its affiliates, including MacKay Shields as subadvisor to the Fund and responses from New York Life Investments and MacKay Shields to a series of questions encompassing a variety of topics prepared on behalf of the Board by independent legal counsel to the Board and its independent trustees (the “Independent Trustees”). Information provided to the Board at its meetings throughout the year included, among other items, detailed investment performance reports on the Fund prepared by the Investment Consulting Group at New York Life Investments. The structure and format for this regular reporting were developed in consultation with the Board. The Board also received from New York Life Investments throughout the year, among other items, periodic reports on legal and compliance matters, portfolio turnover, and sales and marketing activity.
In considering the Agreements, the members of the Board reviewed and evaluated all of the information and factors they believed to be relevant and appropriate in light of legal advice furnished to them by independent legal counsel and through the exercise of their own business judgment. The broad factors considered by the Board are discussed in greater detail below and included, among other items: (i) the nature, scope and quality of the services provided to the Fund by New York Life Investments and MacKay Shields; (ii) the investment performance of the Fund, New York Life Investments and MacKay Shields; (iii) the costs of the services provided, and profits realized, by New York Life Investments and MacKay Shields from their relationships with the Fund; (iv) the extent to which economies of scale may be realized as the
Fund grows and the extent to which economies of scale may benefit Fund investors; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to similar funds and accounts managed by New York Life Investments and MacKay Shields and peer funds identified by Strategic Insight.
While individual members of the Board may have weighed certain factors differently, the Board’s decision to approve the Agreements was based on a consideration of all the information provided to the Board, including information provided to the Board throughout the year and specifically in connection with the contract review process. The Board’s conclusions with respect to the Agreements also were based, in part, on the Board’s consideration of the Agreements in prior years. In addition to considering the above-referenced factors, the Board observed that in the marketplace there are a range of investment options available to shareholders of the Fund and that the Fund’s shareholders, having had the opportunity to consider other investment options, have chosen to invest in the Fund. A more detailed discussion of the factors that figured prominently in the Board’s decisions to approve the Agreements is provided below.
Nature, Scope and Quality of Services to Be Provided by New York Life Investments and MacKay Shields
The Board examined the nature, scope and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience in serving as manager of the Fund, noting that New York Life Investments manages other mutual funds, serves a variety of other investment advisory clients, including other pooled investment vehicles, and has experience with overseeing mutual fund service providers, including subadvisors. The Board considered the experience of senior personnel at New York Life Investments providing management and administrative services to the Fund as well as New York Life Investments’ reputation and financial condition. The Board also considered the full range of non-advisory services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and oversight services provided by New York Life Investments’ Fund Accounting and Administration Group; (ii) investment oversight and analytical services provided by New York Life Investments’ Investment Consulting Group; (iii) compliance services provided by the Fund’s Chief Compliance Officer as well as New York Life Investments’ compliance department, including oversight and implementation of the Fund’s compliance program; and (iv) legal services provided by New York Life Investments’ Office of the General Counsel. Additional information about the non-advisory services provided by New York Life Investments is set forth in the Fund’s Management Agreement. The Board also considered New York Life Investments’ willingness to invest in personnel and infrastructure that benefit the Fund and noted that New York Life Investments is responsible for compensating the Fund’s officers. The Board also considered benefits to shareholders of being part of the MainStay Group of Funds, including the privilege of exchanging investments between the same class of shares without the imposition of a sales charge, as described more fully in the Fund’s prospectus.
The Board also examined the nature, scope and quality of the advisory services that MacKay Shields provides to the Fund. The Board evaluated
mainstayinvestments.com | 33 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
MacKay Shields’ experience in serving as subadvisor to the Fund and managing other portfolios. It examined MacKay Shields’ track record and experience in providing investment advisory services, the experience of investment advisory, senior management and administrative personnel at MacKay Shields, and MacKay Shields’ overall legal and compliance environment. The Board also reviewed MacKay Shields’ willingness to invest in personnel that benefit the Fund. In this regard, the Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers and the method for compensating portfolio managers.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund should continue to benefit from the nature, scope and quality of these services as a result of New York Life Investments’ and MacKay Shields’ experience, personnel, operations and resources.
Investment Performance
In evaluating the Fund’s investment performance, the Board considered investment performance results in light of the Fund’s investment objective, strategies and risks, as disclosed in the Fund’s prospectus. The Board particularly considered detailed investment reports on the Fund’s performance provided to the Board throughout the year by the Investment Consulting Group of New York Life Investments. These reports include, among other items, information on the Fund’s gross and net returns, the Fund’s investment performance relative to relevant investment categories and Fund benchmarks, the Fund’s risk-adjusted investment performance, and the Fund’s investment performance as compared to peer funds, as appropriate. The Board also considered information provided by Strategic Insight showing the investment performance of the Fund as compared to peer funds.
In considering the Fund’s investment performance, the Board focused principally on the Fund’s long-term performance track record. The Board also gave weight to its ongoing discussions with senior management at New York Life Investments concerning the Fund’s investment performance as well as discussions between the Fund’s portfolio managers and the Board that generally occur on an annual basis. In addition, the Board considered any specific actions that New York Life Investments or MacKay Shields had taken, or had agreed with the Board to take, to enhance Fund investment performance and the results of those actions.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the long-term investment performance of the Fund, along with ongoing efforts by New York Life Investments and MacKay Shields to enhance investment returns, supported a determination to approve the Agreements. The Fund discloses more information about investment performance in the Portfolio Management Discussion and Analysis, Investment and Performance Comparison and Financial Highlights sections of this Semiannual Report and in the Fund’s prospectus.
Costs of the Services Provided, and Profits Realized, by New York Life Investments and MacKay Shields
The Board considered the costs of the services provided by New York Life Investments and MacKay Shields under the Agreements and the
profits realized by New York Life Investments and its affiliates, including MacKay Shields, due to their relationships with the Fund. Because MacKay Shields is an affiliate of New York Life Investments whose subadvisory fees are paid directly by New York Life Investments, the Board considered cost and profitability information for New York Life Investments and MacKay Shields in the aggregate.
In evaluating the costs and profits of New York Life Investments and its affiliates, including MacKay Shields, the Board considered, among other factors, each party’s investments in personnel, systems, equipment and other resources necessary to manage the Fund, and that New York Life Investments is responsible for paying the subadvisory fees for the Fund. The Board acknowledged that New York Life Investments and MacKay Shields must be in a position to pay and retain experienced professional personnel to provide services to the Fund and that the ability to maintain a strong financial position is important in order for New York Life Investments and MacKay Shields to continue to provide high-quality services to the Fund. The Board also noted that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds.
In addition, the Board noted the difficulty in obtaining reliable comparative data about mutual fund managers’ profitability, since such information generally is not publicly available and may be impacted by numerous factors, including the structure of a fund manager’s organization, the types of funds it manages, the methodology used to allocate certain fixed costs to specific funds, and the manager’s capital structure and costs of capital. While recognizing the difficulty in evaluating a manager’s profitability with respect to the Fund and noting that other profitability methodologies may also be reasonable, the Board concluded that the profitability methodology presented by New York Life Investments to the Board, which was developed by New York Life Investments in consultation with an independent consultant, was reasonable in all material respects.
In considering the costs and profitability of the Fund, the Board also considered certain fall-out benefits that may be realized by New York Life Investments and its affiliates due to their relationships with the Fund.
The Board further considered that, in addition to fees earned by New York Life Investments for managing the Fund, New York Life Investments’ affiliates also earn revenues from serving the Fund in various other capacities, including as the Fund’s transfer agent and distributor. The Board observed that information about these other revenues, and their impact on the profitability of the Fund to New York Life Investments and its affiliates, was furnished to the Board as part of the 15(c) process. The Board noted that, although it assessed the overall profitability of the Fund to New York Life Investments and its affiliates as part of the contract review process, when considering the reasonableness of the fees to be paid to New York Life Investments and its affiliates under the Agreements, the Board considered the profitability of New York Life Investments’ relationship with the Fund on a pre-tax basis and without regard to distribution expenses.
After evaluating the information presented to the Board, the Board concluded, within the context of its overall determinations regarding the Agreements, that any profits realized by New York Life Investments and its affiliates, including MacKay Shields, due to their relationships with the Fund supported the Board’s decision to approve the Agreements.
34 | MainStay Tax Free Bond Fund |
Extent to Which Economies of Scale May Be Realized as the Fund Grows
The Board considered whether the Fund’s expense structure permits economies of scale to be shared with Fund investors. The Board also considered a report from New York Life Investments, prepared at the request of the Board, that addressed economies of scale in the mutual fund business generally, the changing economics of the mutual fund business and the various ways in which the benefits of economies of scale may be shared with the MainStay Group of Funds. The Board reviewed information from New York Life Investments showing how the Fund’s management fee schedule compared to fee schedules of other funds and accounts managed by New York Life Investments. The Board also reviewed information from Strategic Insight showing how the Fund’s management fee schedule hypothetically would compare with fees paid for similar services by peer funds at varying asset levels. While recognizing the difficulty of determining economies of scale with precision, the Board acknowledged that economies of scale may be shared with the Fund in a number of ways, including, for example, through the imposition of management fee breakpoints and by initially setting relatively low management fees.
Based on this information, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund’s expense structure appropriately reflects economies of scale for the benefit of Fund investors. The Board noted, however, that it would continue to evaluate the reasonableness of the Fund’s expense structure as the Fund grows over time.
Management and Subadvisory Fees and Total Ordinary Operating Expenses
The Board evaluated the reasonableness of the fees to be paid under the Agreements and the Fund’s expected total ordinary operating expenses. The Board primarily considered the reasonableness of the management fee paid by the Fund to New York Life Investments, since the fees paid to MacKay Shields are paid by New York Life Investments, not the Fund.
In assessing the reasonableness of the Fund’s fees and expenses, the Board primarily considered comparative data provided by Strategic Insight on the fees and expenses charged by similar mutual funds managed by other investment advisers. In addition, the Board considered information provided by New York Life Investments and MacKay Shields on fees charged to other investment advisory clients, including institutional separate accounts and other funds with similar investment objectives as the Fund. The Board particularly considered differences in the contractual management fee schedules of the retail MainStay Funds and similarly-managed MainStay VP Portfolios, taking into account New York Life Investments’ rationale for any differences in fee schedules. The Board also took into account explanations provided by New York Life Investments about the different scope of services provided to mutual funds as compared with other investment advisory clients. Additionally, the Board considered the impact of any contractual breakpoints, voluntary waivers and expense limitation arrangements on the Fund’s net management fee and expenses.
The Board noted that, outside of the Fund’s management fee and the fees charged under a share class’s Rule 12b-1 and/or shareholder
services plans, a share class’s most significant “other expenses” are transfer agent fees. Transfer agent fees are charged to the Fund based on the number of shareholder accounts (a “per-account” fee) as compared with certain other fees (e.g., management fees), which are charged based on the Fund’s average net assets. The Board took into account information from New York Life Investments showing that the Fund’s transfer agent fee schedule is reasonable, including industry data showing that the per-account fees that NYLIM Service Company LLC, the Fund’s transfer agent, charges the Fund are within the range of per-account fees charged by transfer agents to other mutual funds. In addition, the Board considered NYLIM Service Company LLC’s profitability in connection with the transfer agent services it provides to the Fund.
The Board considered that, because the Fund’s transfer agent fees are billed on a per-account basis, the impact of transfer agent fees on a share class’s expense ratio may be more significant in cases where the share class has a high number of accounts with limited assets (i.e., small accounts). The Board observed that transfer agent fees are a significant portion of total expenses of many Funds in the MainStay Group of Funds. The impact of transfer agent fees on the expense ratios of these MainStay Funds tend to be greater than for other open-end retail funds, because the MainStay Group of Funds generally has a significant number of small accounts relative to competitor funds. The Board acknowledged the role that the MainStay Group of Funds historically has played in serving the investment needs of New York Life Insurance Company (“New York Life”) policyholders, who often maintain smaller account balances than other fund investors. The Board also acknowledged measures that it and New York Life Investments have taken in recent years to mitigate the effect of small accounts on the expense ratios of Fund share classes, including: (i) encouraging New York Life agents to consolidate multiple small accounts held by the same investor into one MainStay Asset Allocation Fund account; (ii) increasing investment minimums from $500 to $1,000 in 2003; (iii) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iv) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (v) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (vi) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vii) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. In addition, the Board acknowledged New York Life Investments’ efforts to encourage intermediaries to consolidate small accounts in multiple Funds held by the same investor into a single Asset Allocation Fund account, if appropriate under the circumstances, in an effort to mitigate the effect of small accounts on the Funds in the MainStay Group of Funds.
After considering all of the factors outlined above, the Board concluded that the Fund’s management and subadvisory fees and total ordinary operating expenses were within a range that is competitive and, within the context of the Board’s overall conclusions regarding the Agreements, support a conclusion that these fees and expenses are reasonable.
Conclusion
On the basis of the information provided to it and its evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the Agreements.
mainstayinvestments.com | 35 |
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).
36 | MainStay Tax Free Bond 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 Fund
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 Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund1
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund2
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 LLC3
New York, New York
Cornerstone Capital Management LLC3
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC3
Chicago, Illinois
MacKay Shields LLC3
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC3
New York, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP4
PricewaterhouseCoopers LLP5
1. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
2. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
3. An affiliate of New York Life Investment Management LLC.
4. For all Funds listed above except MainStay Marketfield Fund.
5. For MainStay Marketfield Fund only.
Not part of the Semiannual 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.
©2014 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-34052 MS164-14 | MST10-06/14 NL013 |
MainStay Convertible Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2014
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Message from the President
Stocks and bonds generally advanced during the six months ended April 30, 2014, but results varied across different markets, asset classes and regions.
According to Russell data, mid-capitalization stocks tended to provide the strongest returns, outperforming large-cap stocks overall. As a group, small-cap stocks tended to underperform their larger-capitalization counterparts. Value outperformed growth at all capitalization levels as the 2013 market rally ended and investors moved from rapid-growth stocks toward utilities, real estate investment trusts (REITs) and other stocks that tend to be more defensive.
The reporting period opened with investors still reacting to the government shutdown and asking questions about the debt ceiling and the so-called fiscal cliff. Even so, U.S. stocks climbed relatively steadily through the end of 2013. After reaching a high point in January, the U.S. stock market tumbled to its low point for the reporting period in early February, hurt by weaker economic data and severe weather in the Northeast. From that point, domestic stocks generally recovered, advancing to new highs before the end of the reporting period.
International stocks benefited from the European Central Bank’s accommodative policies and an improving European economy, despite high levels of debt and unemployment. In Japan, a weaker currency and accommodative central bank policies had fueled a stock rally in 2013, but Japanese stocks began to decline in mid-January on concerns about the Prime Minister’s economic policies, including a substantial increase in the nation’s sales tax. International stocks also felt the effects of tensions in Ukraine and slowing growth in China.
Throughout the reporting period, the Federal Reserve held the federal funds target rate in a range close to zero. On December 18, 2013, the Federal Open Market Committee announced plans to begin tapering its direct security purchases (widely known as quantitative easing) in January of 2014. The announcement led investors to anticipate rising interest rates.
According to U.S. Department of the Treasury data, yields did rise through the early part of 2014. After peaking early in the year, however, U.S. Treasury yields generally trended downward. As of April 30, 2014, yields at the short and long ends of the U.S. Treasury yield curve1 were slightly lower than at the beginning of the reporting period, while yields on 1- to 10-year U.S. Treasury securities had moved slightly higher.
In harmony with these trends, extensive tax-loss harvesting in the municipal market tended to push municipal yields higher in November and December. Redemptions slowed as the new year progressed, and a scarcity of municipal supply pushed municipal bond prices higher—and yields lower—during the last four months of the reporting period.
Throughout the reporting period, our portfolio managers pursued the investment objectives of their respective Funds within the investment strategies outlined in the Prospectus. Using time-tested security-selection, portfolio-monitoring and risk-management techniques, they sought to maximize exposure to potential opportunities while seeking to minimize exposure to unnecessary risks.
The report that follows provides additional information about the decisions, securities and market forces that affected your MainStay Fund during the six months ended April 30, 2014. We encourage you to read this information carefully. It can help you evaluate your diversification and assess your asset allocation as you pursue your long-range financial goals.
We thank you for choosing MainStay Funds, and we look forward to a lasting and productive relationship.
Sincerely,
Stephen P. Fisher
1. | 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 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. Past performance is no guarantee of future results.
Not part of the Semiannual 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 Period Ended April 30, 2014
Class | Sales Charge | Six Months | One Year | Five Years | Ten Years | Gross Expense Ratio2 | ||||||||||||||||||
Investor Class Shares3 | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges |
| –0.76 5.02 | %
|
| 11.39 17.87 | %
|
| 13.40 14.69 | %
|
| 7.03 7.64 | %
|
| 1.22 1.22 | %
| |||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges |
| –0.71 5.06 |
|
| 11.55 18.05 |
|
| 13.65 14.95 |
|
| 7.17 7.78 |
|
| 0.99 0.99 |
| |||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges |
| –0.37 4.63 |
|
| 11.97 16.97 |
|
| 13.60 13.84 |
|
| 6.85 6.85 |
|
| 1.97 1.97 |
| |||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges |
| 3.57 4.57 |
|
| 15.92 16.92 |
|
| 13.84 13.84 |
|
| 6.84 6.84 |
|
| 1.97 1.97 |
| |||||||
Class I Shares4 | No Sales Charge | 5.25 | 18.38 | 15.22 | 8.05 | 0.74 |
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 | Six Months | One Year | Five Years | Ten Years | ||||||||||||
Bank of America Merrill Lynch All U.S. Convertibles Index5 | 8.23 | % | 19.04 | % | 17.07 | % | 7.39 | % | ||||||||
Average Lipper Convertible Securities Fund6 | 6.36 | 15.78 | 14.39 | 6.50 |
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 November 1, 2013, to April 30, 2014, 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 November 1, 2013, to April 30, 2014.
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 April 30, 2014. 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 11/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/14 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/14 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,050.20 | $ | 5.95 | $ | 1,019.00 | $ | 5.86 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,050.60 | $ | 4.93 | $ | 1,020.00 | $ | 4.86 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,046.30 | $ | 9.74 | $ | 1,015.30 | $ | 9.59 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,045.70 | $ | 9.74 | $ | 1,015.30 | $ | 9.59 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,052.50 | $ | 3.66 | $ | 1,021.20 | $ | 3.61 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.17% for Investor Class, 0.97% for Class A, 1.92% for Class B and Class C and 0.72% for Class I) multiplied by the average account value over the period, divided by 365 and multiplied by 181 (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 April 30, 2014 (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 April 30, 2014 (excluding short-term investment) (Unaudited)
1. | Gilead Sciences, Inc., 1.00%–1.625%, due 5/1/14–5/1/16 |
2. | JPMorgan Chase & Co. (Convertible into Schlumberger, Ltd.), (zero coupon), due 5/5/15 |
3. | Stanley Black & Decker, Inc., 4.75%–6.25% |
4. | Salix Pharmaceuticals, Ltd., 1.50%, due 3/15/19 |
5. | United Technologies Corp., 7.50% |
6. | Danaher Corp., (zero coupon), due 1/22/21 |
7. | Jarden Corp., 1.875%, due 9/15/18 |
8. | Novellus Systems, Inc., 2.625%, due 5/15/41 |
9. | priceline.com, Inc., 0.35%-1.00%, due 3/15/18–6/15/20 |
10. | Teva Pharmaceutical Finance Co. LLC, 0.25%, due 2/1/26 |
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 six months ended April 30, 2014?
Excluding all sales charges, MainStay Convertible Fund returned 5.02% for Investor Class shares, 5.06% for Class A shares, 4.63% for Class B shares and 4.57% for Class C shares for the six months ended April 30, 2014. Over the same period, Class I shares returned 5.25%. During the reporting period, all share classes underperformed the 8.23% 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 underperformed the 6.36% 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?
The strong performance of the equity market was by far the biggest influence on the Fund and the convertible bond market in general during the reporting period. Convertible bond performance has a close correlation to the performance of the underlying equities of the companies with convertible bonds outstanding.
The Fund’s relative performance was hindered by an underweight position in a certain narrow segment of the convertible market, namely solar energy companies and biotechnology, both of which performed exceedingly well. In addition, one of the Fund’s larger holdings, machinery company Chart Industries, is equity sensitive. The Fund held a large position in Chart Industries’ convertible bonds, which performed poorly after the company missed earnings estimates for three consecutive quarters.
What was the Fund’s duration3 strategy during the reporting period?
Because convertible bond prices tend to vary with changes in the price of the underlying equity security rather than with changes in interest rates, duration does not guide our investment decisions. During the reporting period, the effective duration of the Fund remained constant at 4.44 years.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
As convertible bond performance is largely determined by the performance of the underlying equity security, our decision-making process is guided by our analysis of the underlying equity and whether the convertible security is likely to
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.
During the reporting period, which market segments were the strongest positive contributors to the Fund’s absolute performance and which market segments were particularly weak?
The strongest positive contribution came from the generic drug sector. (Contributions take weightings and total returns into account.) The Fund’s sizeable holdings of equity-sensitive convertible bonds issued by Teva Pharmaceuticals and Mylan contributed positively to performance. Teva Pharmaceuticals performed well after its largest product, a novel treatment for multiple sclerosis, received an effective patent extension once the U.S. Supreme Court agreed to hear an appeal from the company. Mylan bonds performed well after the company outlined plans to increase earnings significantly through new products and acquisitions. The next-strongest market segment was the semiconductor industry. The industry benefited from growth in demand and rationalization of supply, which led to improved pricing. Fund holdings that benefitted from this trend were the convertible bonds of Micron Technology and Microchip Technology.
The two weakest market segments were software and auto manufacturers. Several convertible bonds issued by software companies, such as Cornerstone OnDemand, TIBCO Software and Medidata Solutions, performed poorly after earnings failed to meet investor expectations. The convertible bonds of Ford and the convertible preferred and common shares of General Motors performed poorly because of slight earnings and sales misses. General Motors was also hurt by an auto recall to correct ignition-switch failures on several models.
Did the Fund make any significant purchases or sales during the reporting period?
During the reporting period we initiated a position in the convertible bonds of Pacira Pharmaceuticals. We believed that the company’s post-operative, nonopioid pain-killer would see a significant increase in sales following its recent introduction. We also added to the Fund’s convertible-bond position in lodging company MGM Resorts International and initiated a position in convertible bonds of steel company U.S. Steel during the reporting period.
Several of the Fund’s holdings matured during the reporting period and are no longer in the Fund. Among these were computer company EMC Corp., which was a large Fund holding,
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. |
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. |
mainstayinvestments.com | 9 |
and auto parts & equipment manufacturer Goodyear Tire & Rubber. We also sold the Fund’s convertible-bond position in biotechnology company Medivation and specialty pharmaceutical manufacturer Akorn, as the common stocks of these companies reached their respective price targets.
How did the Fund’s sector weightings change during the reporting period?
During the reporting period, we reduced the Fund’s weightings in the energy, consumer discretionary and the financials sectors
and increased the Fund’s weightings in the information technology and materials sectors.
How was the Fund positioned at the end of the reporting period?
As of April 30, 2014, the Fund was overweight relative to the Bank of America Merrill Lynch All Convertibles Index in the energy, industrial 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 April 30, 2014 (Unaudited)
Principal Amount | Value | |||||||
Convertible Securities 88.6%† Convertible Bonds 78.1% | ||||||||
Airlines 1.5% | ||||||||
United Airlines, Inc. | $ | 6,550,000 | $ | 14,328,125 | ||||
|
| |||||||
Auto Manufacturers 2.2% | ||||||||
Ford Motor Co. | 2,564,000 | 4,849,165 | ||||||
Navistar International Corp. | 4,220,000 | 4,409,900 | ||||||
Wabash National Corp. | 8,792,000 | 11,951,625 | ||||||
|
| |||||||
21,210,690 | ||||||||
|
| |||||||
Biotechnology 6.4% | ||||||||
BioMarin Pharmaceutical, Inc. | 8,470,000 | 8,718,806 | ||||||
Cubist Pharmaceuticals, Inc. | ||||||||
1.125%, due 9/1/18 (a) | 4,885,000 | 5,578,059 | ||||||
1.875%, due 9/1/20 (a) | 6,519,000 | 7,549,817 | ||||||
¨Gilead Sciences, Inc. | ||||||||
1.00%, due 5/1/14 | 553,000 | 1,920,293 | ||||||
1.625%, due 5/1/16 | 9,417,000 | 32,512,240 | ||||||
Medicines Co. (The) | 4,252,000 | 5,038,620 | ||||||
|
| |||||||
61,317,835 | ||||||||
|
| |||||||
Chemicals 1.0% | ||||||||
RPM International, Inc. | 7,765,000 | 9,274,322 | ||||||
|
| |||||||
Commercial Services 1.1% | ||||||||
Carriage Services, Inc. | 150,000 | 152,251 | ||||||
Hertz Global Holdings, Inc. | 2,618,000 | 9,032,113 | ||||||
ServiceSource International, Inc. | 1,177,000 | 1,029,139 | ||||||
|
| |||||||
10,213,503 | ||||||||
|
| |||||||
Computers 2.6% | ||||||||
Cadence Design Systems, Inc. | 3,278,000 | 6,795,704 | ||||||
SanDisk Corp. | 5,141,000 | 5,854,314 | ||||||
Spansion LLC | 8,511,000 | 12,245,201 | ||||||
|
| |||||||
24,895,219 | ||||||||
|
|
Principal Amount | Value | |||||||
Distribution & Wholesale 0.4% | ||||||||
WESCO International, Inc. | $ | 1,353,000 | $ | 4,221,360 | ||||
|
| |||||||
Electronics 1.5% | ||||||||
Fluidigm Corp. | 3,736,000 | 3,971,835 | ||||||
InvenSense, Inc. | 8,827,000 | 10,619,984 | ||||||
|
| |||||||
14,591,819 | ||||||||
|
| |||||||
Entertainment 0.5% | ||||||||
International Game Technology | 4,406,000 | 4,406,000 | ||||||
|
| |||||||
Environmental Controls 1.2% | ||||||||
Covanta Holding Corp. | 9,561,000 | 11,204,297 | ||||||
|
| |||||||
Finance—Leasing Companies 1.3% | ||||||||
Air Lease Corp. | 8,569,000 | 12,451,828 | ||||||
|
| |||||||
Health Care—Products 3.8% | ||||||||
Hologic, Inc. | 7,990,000 | 8,244,681 | ||||||
Insulet Corp. | 4,050,000 | 5,882,625 | ||||||
Teleflex, Inc. | 8,849,000 | 15,137,321 | ||||||
Wright Medical Group, Inc. | 5,289,000 | 6,607,944 | ||||||
|
| |||||||
35,872,571 | ||||||||
|
| |||||||
Health Care—Services 1.1% | ||||||||
WellPoint, Inc. | 7,160,000 | 10,507,300 | ||||||
|
| |||||||
Home Builders 0.7% | ||||||||
Lennar Corp. | 3,785,000 | 6,581,169 | ||||||
|
| |||||||
Household Products & Wares 1.9% | ||||||||
¨Jarden Corp. | 13,430,000 | 18,264,800 | ||||||
|
|
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings or issuers held, as of April 30, 2014, 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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Convertible Bonds (continued) | ||||||||
Insurance 1.7% | ||||||||
American Equity Investment Life Holding Co. | $ | 5,248,000 | $ | 10,151,600 | ||||
Radian Group, Inc. | 4,321,000 | 6,270,851 | ||||||
|
| |||||||
16,422,451 | ||||||||
|
| |||||||
Internet 4.5% | ||||||||
BroadSoft, Inc. | 1,367,000 | 1,410,573 | ||||||
HomeAway, Inc. | 4,693,000 | 4,525,812 | ||||||
¨priceline.com, Inc. | ||||||||
0.35%, due 6/15/20 (a) | 7,782,000 | 9,270,307 | ||||||
1.00%, due 3/15/18 | 5,917,000 | 8,302,291 | ||||||
Shutterfly, Inc. | 7,266,000 | 7,184,257 | ||||||
Yahoo!, Inc. | 11,574,000 | 11,899,519 | ||||||
|
| |||||||
42,592,759 | ||||||||
|
| |||||||
Iron & Steel 1.2% | ||||||||
United States Steel Corp. | 9,178,000 | 11,592,961 | ||||||
|
| |||||||
Lodging 1.1% | ||||||||
MGM Resorts International | 7,348,000 | 10,503,047 | ||||||
|
| |||||||
Machinery—Diversified 1.4% | ||||||||
Chart Industries, Inc. | 11,153,000 | 13,773,955 | ||||||
|
| |||||||
Media 0.6% | ||||||||
Liberty Interactive LLC | 425,000 | 221,531 | ||||||
Liberty Media Corp. | 5,925,000 | 5,732,438 | ||||||
|
| |||||||
5,953,969 | ||||||||
|
| |||||||
Metal Fabricate & Hardware 1.2% | ||||||||
RTI International Metals, Inc. | 10,874,000 | 10,989,536 | ||||||
|
| |||||||
Miscellaneous—Manufacturing 1.9% | ||||||||
¨Danaher Corp. | 8,558,000 | 18,265,981 | ||||||
|
| |||||||
Oil & Gas 0.8% | ||||||||
Energy XXI Bermuda, Ltd. | 8,021,000 | 7,930,764 | ||||||
|
|
Principal Amount | Value | |||||||
Oil & Gas Services 6.6% | ||||||||
Helix Energy Solutions Group, Inc. | $ | 10,026,000 | $ | 12,908,475 | ||||
Hornbeck Offshore Services, Inc. | 3,683,000 | 4,203,224 | ||||||
¨JPMorgan Chase & Co. (Convertible into Schlumberger, Ltd.) | 15,988,000 | 28,308,353 | ||||||
Newpark Resources, Inc. | 3,673,000 | 4,873,612 | ||||||
SEACOR Holdings, Inc. | 2,507,000 | 2,914,387 | ||||||
Subsea 7 S.A. | ||||||||
1.00%, due 10/5/17 | 3,000,000 | 3,054,750 | ||||||
3.50%, due 10/13/14 | 5,100,000 | 6,523,920 | ||||||
|
| |||||||
62,786,721 | ||||||||
|
| |||||||
Pharmaceuticals 7.1% | ||||||||
Mylan, Inc. | 2,825,000 | 10,796,797 | ||||||
Omnicare, Inc. | 10,135,000 | 10,312,362 | ||||||
Pacira Pharmaceuticals, Inc. | 3,562,000 | 10,096,044 | ||||||
¨Salix Pharmaceuticals, Ltd. | 11,041,000 | 19,639,179 | ||||||
¨Teva Pharmaceutical Finance Co. LLC 0.25%, due 2/1/26 | 13,686,000 | 16,808,119 | ||||||
|
| |||||||
67,652,501 | ||||||||
|
| |||||||
Real Estate Investment Trusts 2.4% | ||||||||
Host Hotels & Resorts, L.P. | 6,278,000 | 10,370,471 | ||||||
SL Green Operating Partnership, L.P. | 9,324,000 | 12,639,848 | ||||||
|
| |||||||
23,010,319 | ||||||||
|
| |||||||
Semiconductors 8.5% | ||||||||
Intel Corp. | 9,014,000 | 12,698,518 | ||||||
Microchip Technology, Inc. | 8,326,000 | 15,418,711 | ||||||
Micron Technology, Inc. | 3,913,000 | 9,498,807 | ||||||
¨Novellus Systems, Inc. | 10,131,000 | 18,020,516 | ||||||
NVIDIA Corp. | 10,803,000 | 12,220,894 | ||||||
Rambus, Inc. | 3,292,000 | 3,973,033 | ||||||
Xilinx, Inc. | 5,887,000 | 9,757,702 | ||||||
|
| |||||||
81,588,181 | ||||||||
|
|
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 7.9% | ||||||||
Akamai Technologies, Inc. | $ | 9,074,000 | $ | 8,796,154 | ||||
Bottomline Technologies, Inc. | 8,408,000 | 10,278,780 | ||||||
Citrix Systems, Inc. | 5,382,000 | 5,382,000 | ||||||
Cornerstone OnDemand, Inc. | 8,260,000 | 8,585,237 | ||||||
Medidata Solutions, Inc. | 9,054,000 | 9,240,739 | ||||||
Nuance Communications, Inc. | 8,349,000 | 8,432,490 | ||||||
Proofpoint, Inc. | 7,146,000 | 7,190,663 | ||||||
Salesforce.com, Inc. | 12,962,000 | 14,290,605 | ||||||
ServiceNow, Inc. | 3,344,000 | 3,364,900 | ||||||
|
| |||||||
75,561,568 | ||||||||
|
| |||||||
Telecommunications 3.3% | ||||||||
Ciena Corp. | 7,285,000 | 9,707,263 | ||||||
Infinera Corp. | 1,458,000 | 1,517,231 | ||||||
Ixia | 9,949,000 | 10,477,541 | ||||||
JDS Uniphase Corp. | 9,756,000 | 10,140,142 | ||||||
|
| |||||||
31,842,177 | ||||||||
|
| |||||||
Transportation 0.7% | ||||||||
XPO Logistics, Inc. | 4,020,001 | 7,122,939 | ||||||
|
| |||||||
Total Convertible Bonds | 746,930,667 | |||||||
|
| |||||||
Shares | ||||||||
Convertible Preferred Stocks 10.5% | ||||||||
Aerospace & Defense 2.0% |
| |||||||
¨United Technologies Corp. | 283,546 | 18,753,733 | ||||||
|
| |||||||
Food 0.8% | ||||||||
Post Holdings, Inc. | ||||||||
2.50% (a) | 28,508 | 2,993,055 | ||||||
3.75% (a) | 39,161 | 4,726,733 | ||||||
|
| |||||||
7,719,788 | ||||||||
|
|
Shares | Value | |||||||
Hand & Machine Tools 2.2% | ||||||||
¨Stanley Black & Decker, Inc. | ||||||||
4.75% | 98,493 | $ | 12,800,150 | |||||
6.25% | 75,479 | 8,440,817 | ||||||
|
| |||||||
21,240,967 | ||||||||
|
| |||||||
Insurance 1.9% | ||||||||
Maiden Holdings, Ltd. | 61,807 | 2,947,576 | ||||||
MetLife, Inc. | 517,610 | 15,761,224 | ||||||
|
| |||||||
18,708,800 | ||||||||
|
| |||||||
Iron & Steel 1.2% | ||||||||
ArcelorMittal | 486,681 | 11,724,145 | ||||||
|
| |||||||
Oil & Gas 0.5% | ||||||||
Sanchez Energy Corp. | 71,500 | 5,017,348 | ||||||
|
| |||||||
Pharmaceuticals 1.0% | ||||||||
Omnicare Capital Trust II | 133,550 | 9,620,942 | ||||||
|
| |||||||
Real Estate Investment Trusts 0.3% | ||||||||
Health Care REIT, Inc. | 47,800 | 2,741,330 | ||||||
|
| |||||||
Telecommunications 0.6% | ||||||||
Crown Castle International Corp. | 56,880 | 5,678,899 | ||||||
|
| |||||||
Total Convertible Preferred Stocks | 101,205,952 | |||||||
|
| |||||||
Total Convertible Securities | 848,136,619 | |||||||
|
| |||||||
Common Stocks 4.4% | ||||||||
Aerospace & Defense 0.4% | ||||||||
Triumph Group, Inc. | 63,977 | 4,146,349 | ||||||
|
| |||||||
Auto Manufacturers 0.4% | ||||||||
General Motors Co. | 108,269 | 3,733,115 | ||||||
|
| |||||||
Banks 0.2% | ||||||||
Citigroup, Inc. | 32,989 | 1,580,503 | ||||||
|
|
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 April 30, 2014 (Unaudited) (continued)
Shares | Value | |||||||
Internet 0.2% | ||||||||
TIBCO Software, Inc. (d) | 108,466 | $ | 2,129,188 | |||||
|
| |||||||
Iron & Steel 0.1% | ||||||||
United States Steel Corp. | 29,796 | 775,292 | ||||||
|
| |||||||
Oil & Gas 0.2% | ||||||||
Ensco PLC Class A | 28,000 | 1,412,600 | ||||||
|
| |||||||
Oil & Gas Services 2.0% | ||||||||
Baker Hughes, Inc. | 124,900 | 8,730,510 | ||||||
Cameron International Corp. (d) | 46,635 | 3,029,409 | ||||||
Halliburton Co. | 113,326 | 7,147,471 | ||||||
|
| |||||||
18,907,390 | ||||||||
|
| |||||||
Semiconductors 0.2% | ||||||||
ON Semiconductor Corp. (d) | 242,999 | 2,286,621 | ||||||
|
| |||||||
Transportation 0.7% | ||||||||
Tidewater, Inc. | 136,413 | 6,947,514 | ||||||
|
| |||||||
Total Common Stocks | 41,918,572 | |||||||
|
| |||||||
Number of Warrants | ||||||||
Warrants 0.0%‡ | ||||||||
Auto Manufacturers 0.0%‡ | ||||||||
General Motors Co. | ||||||||
Strike Price $10.00 | ||||||||
Expires 7/10/16 (d) | 1,016 | 25,126 | ||||||
Strike Price $18.33 | ||||||||
Expires 7/10/19 (d) | 1,016 | 17,363 | ||||||
|
| |||||||
Total Warrants | 42,489 | |||||||
|
| |||||||
Principal Amount | Value | |||||||
Short-Term Investment 6.8% | ||||||||
Repurchase Agreement 6.8% | ||||||||
State Street Bank and Trust Co. | $ | 64,894,387 | $ | 64,894,387 | ||||
|
| |||||||
Total Short-Term Investment | 64,894,387 | |||||||
|
| |||||||
Total Investments | 99.8 | % | 954,992,067 | |||||
Other Assets, Less Liabilities | 0.2 | 1,490,301 | ||||||
Net Assets | 100.0 | % | $ | 956,482,368 |
‡ | 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 was the rate in effect as of April 30, 2014. |
(c) | Synthetic Convertible Bond—Security structured by an investment bank that provides exposure to a specific company’s stock, represents 3.0% of the Fund’s net assets. |
(d) | Non-income producing security. |
(e) | As of April 30, 2014, cost was $836,284,101 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 139,846,118 | ||
Gross unrealized depreciation | (21,138,152 | ) | ||
|
| |||
Net unrealized appreciation | $ | 118,707,966 | ||
|
|
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 April 30, 2014, 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 | $ | — | $ | 746,930,667 | $ | — | $ | 746,930,667 | ||||||||
Convertible Preferred Stocks | 101,205,952 | — | — | 101,205,952 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Convertible Securities | 101,205,952 | 746,930,667 | — | 848,136,619 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Common Stocks | 41,918,572 | — | — | 41,918,572 | ||||||||||||
Warrants | 42,489 | — | — | 42,489 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 64,894,387 | — | 64,894,387 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | 143,167,013 | $ | 811,825,054 | $ | — | $ | 954,992,067 | ||||||||
|
|
|
|
|
|
|
|
(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 April 30, 2014, a convertible preferred stock with a market value of $4,266,004 was transferred from Level 2 to Level 1 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 April 30, 2014, for this security is based on an evaluated bid price in active markets for identical investments.
As of April 30, 2014, 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, 2013 | 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 April 30, 2014 | Change in Unrealized Appreciation (Depreciation) from Investments Still Held as of April 30, 2014 | ||||||||||||||||||||||||||||||
Convertible Bonds | ||||||||||||||||||||||||||||||||||||||||
Internet | $ | 915 | �� | $ | — | $ | (674,023 | )(a) | $ | 673,108 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total | $ | 915 | $ | — | $ | (674,023 | ) | $ | 673,108 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | At Home Corp. was written off on March 3, 2014. |
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 April 30, 2014 (Unaudited)
Assets | ||||
Investment in securities, at value (identified cost $827,610,658) | $ | 954,992,067 | ||
Receivables: | ||||
Dividends and interest | 3,343,787 | |||
Fund shares sold | 2,368,694 | |||
Other assets | 59,298 | |||
|
| |||
Total assets | 960,763,846 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 2,474,787 | |||
Fund shares redeemed | 868,368 | |||
Manager (See Note 3) | 456,912 | |||
NYLIFE Distributors (See Note 3) | 199,356 | |||
Transfer agent (See Note 3) | 187,288 | |||
Shareholder communication | 50,967 | |||
Professional fees | 38,065 | |||
Trustees | 874 | |||
Accrued expenses | 4,861 | |||
|
| |||
Total liabilities | 4,281,478 | |||
|
| |||
Net assets | $ | 956,482,368 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 547,148 | ||
Additional paid-in capital | 797,705,122 | |||
|
| |||
798,252,270 | ||||
Distributions in excess of net investment income | (4,704,027 | ) | ||
Accumulated net realized gain (loss) on investments | 35,552,717 | |||
Net unrealized appreciation (depreciation) on investments | 127,381,408 | |||
|
| |||
Net assets | $ | 956,482,368 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 85,979,649 | ||
|
| |||
Shares of beneficial interest outstanding | 4,922,818 | |||
|
| |||
Net asset value per share outstanding | $ | 17.47 | ||
Maximum sales charge (5.50% of offering price) | 1.02 | |||
|
| |||
Maximum offering price per share outstanding | $ | 18.49 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 408,467,694 | ||
|
| |||
Shares of beneficial interest outstanding | 23,378,896 | |||
|
| |||
Net asset value per share outstanding | $ | 17.47 | ||
Maximum sales charge (5.50% of offering price) | 1.02 | |||
|
| |||
Maximum offering price per share outstanding | $ | 18.49 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 31,519,083 | ||
|
| |||
Shares of beneficial interest outstanding | 1,801,568 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 17.50 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 88,498,372 | ||
|
| |||
Shares of beneficial interest outstanding | 5,062,985 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 17.48 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 342,017,570 | ||
|
| |||
Shares of beneficial interest outstanding | 19,548,484 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 17.50 | ||
|
|
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 six months ended April 30, 2014 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 3,905,875 | ||
Dividends | 2,520,463 | |||
|
| |||
Total income | 6,426,338 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 2,597,344 | |||
Distribution/Service—Investor Class (See Note 3) | 107,822 | |||
Distribution/Service—Class A (See Note 3) | 481,114 | |||
Distribution/Service—Class B (See Note 3) | 160,371 | |||
Distribution/Service—Class C (See Note 3) | 416,108 | |||
Transfer agent (See Note 3) | 600,586 | |||
Shareholder communication | 47,620 | |||
Registration | 45,414 | |||
Professional fees | 41,421 | |||
Trustees | 7,478 | |||
Custodian | 6,924 | |||
Miscellaneous | 13,724 | |||
|
| |||
Total expenses | 4,525,926 | |||
|
| |||
Net investment income (loss) | 1,900,412 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments | 39,098,630 | |||
Net change in unrealized appreciation (depreciation) on investments | 1,184,177 | |||
|
| |||
Net realized and unrealized gain (loss) on investments | 40,282,807 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 42,183,219 | ||
|
|
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 six months ended April 30, 2014 (Unaudited) and the year ended October 31, 2013
2014 | 2013 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 1,900,412 | $ | 7,397,362 | ||||
Net realized gain (loss) on investments | 39,098,630 | 35,031,999 | ||||||
Net change in unrealized appreciation (depreciation) on investments | 1,184,177 | 113,193,173 | ||||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 42,183,219 | 155,622,534 | ||||||
|
| |||||||
Dividends and distributions to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (2,296,705 | ) | (1,477,771 | ) | ||||
Class A | (10,489,046 | ) | (6,357,636 | ) | ||||
Class B | (792,709 | ) | (365,178 | ) | ||||
Class C | (1,926,543 | ) | (826,807 | ) | ||||
Class I | (7,956,643 | ) | (4,265,788 | ) | ||||
|
| |||||||
(23,461,646 | ) | (13,293,180 | ) | |||||
|
| |||||||
From net realized gain on investments: | ||||||||
Investor Class | (1,129,846 | ) | (3,334,878 | ) | ||||
Class A | (4,954,749 | ) | (12,200,801 | ) | ||||
Class B | (428,858 | ) | (1,367,580 | ) | ||||
Class C | (1,042,261 | ) | (3,062,828 | ) | ||||
Class I | (3,574,274 | ) | (7,472,559 | ) | ||||
|
| |||||||
(11,129,988 | ) | (27,438,646 | ) | |||||
|
| |||||||
Total dividends and distributions to shareholders | (34,591,634 | ) | (40,731,826 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 202,481,219 | 266,727,438 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 29,737,057 | 35,446,361 | ||||||
Cost of shares redeemed | (130,082,481 | ) | (256,685,968 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | 102,135,795 | 45,487,831 | ||||||
|
| |||||||
Net increase (decrease) in net assets | 109,727,380 | 160,378,539 | ||||||
Net Assets | ||||||||
Beginning of period | 846,754,988 | 686,376,449 | ||||||
|
| |||||||
End of period | $ | 956,482,368 | $ | 846,754,988 | ||||
|
| |||||||
Distributions in excess of net investment income at end of period | $ | (4,704,027 | ) | $ | 16,857,207 | |||
|
|
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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Investor Class | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 17.32 | $ | 14.79 | $ | 15.11 | $ | 15.12 | 13.02 | $ | 10.16 | |||||||||||||||
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Net investment income (loss) (a) | 0.02 | 0.15 | 0.26 | 0.30 | 0.32 | 0.35 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.83 | 3.28 | 0.47 | (0.02 | ) | 2.10 | 2.82 | |||||||||||||||||||
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Total from investment operations | 0.85 | 3.43 | 0.73 | 0.28 | 2.42 | 3.17 | ||||||||||||||||||||
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Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.47 | ) | (0.28 | ) | (0.28 | ) | (0.29 | ) | (0.32 | ) | (0.31 | ) | ||||||||||||||
From net realized gain on investments | (0.23 | ) | (0.62 | ) | (0.77 | ) | — | — | — | |||||||||||||||||
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Total dividends and distributions | (0.70 | ) | (0.90 | ) | (1.05 | ) | (0.29 | ) | (0.32 | ) | (0.31 | ) | ||||||||||||||
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Net asset value at end of period | $ | 17.47 | $ | 17.32 | $ | 14.79 | $ | 15.11 | $ | 15.12 | $ | 13.02 | ||||||||||||||
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Total investment return (b) | 5.02 | %(c) | 24.42 | % | 5.07 | % | 1.98 | % | 18.78 | % | 31.77 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 0.29 | %†† | 0.93 | % | 1.74 | % | 1.89 | % | 2.25 | % | 3.16 | % | ||||||||||||||
Net expenses | 1.17 | %†† | 1.22 | % | 1.22 | % | 1.19 | % | 1.28 | % | 1.30 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.17 | %†† | 1.22 | % | 1.22 | % | 1.19 | % | 1.28 | % | 1.43 | % | ||||||||||||||
Portfolio turnover rate | 27 | % | 77 | % | 61 | % | 80 | % | 80 | % | 68 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 85,980 | $ | 86,136 | $ | 80,378 | $ | 85,747 | $ | 86,301 | $ | 78,734 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class A | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 17.33 | $ | 14.79 | $ | 15.12 | $ | 15.13 | $ | 13.03 | $ | 10.16 | ||||||||||||||
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Net investment income (loss) (a) | 0.04 | 0.18 | 0.29 | 0.33 | 0.35 | 0.38 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.81 | 3.29 | 0.46 | (0.02 | ) | 2.10 | 2.82 | |||||||||||||||||||
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Total from investment operations | 0.85 | 3.47 | 0.75 | 0.31 | 2.45 | 3.20 | ||||||||||||||||||||
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Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.48 | ) | (0.31 | ) | (0.31 | ) | (0.32 | ) | (0.35 | ) | (0.33 | ) | ||||||||||||||
From net realized gain on investments | (0.23 | ) | (0.62 | ) | (0.77 | ) | — | — | — | |||||||||||||||||
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Total dividends and distributions | (0.71 | ) | (0.93 | ) | (1.08 | ) | (0.32 | ) | (0.35 | ) | (0.33 | ) | ||||||||||||||
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Net asset value at end of period | $ | 17.47 | $ | 17.33 | $ | 14.79 | $ | 15.12 | $ | 15.13 | $ | 13.03 | ||||||||||||||
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Total investment return (b) | 5.06 | %(c) | 24.78 | % | 5.30 | % | 2.13 | % | 19.05 | % | 32.11 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 0.49 | %†† | 1.13 | % | 1.96 | % | 2.08 | % | 2.48 | % | 3.34 | % | ||||||||||||||
Net expenses | 0.97 | %†† | 0.99 | % | 1.00 | % | 0.99 | % | 1.05 | % | 1.10 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 0.97 | %†† | 0.99 | % | 1.00 | % | 0.99 | % | 1.05 | % | 1.15 | % | ||||||||||||||
Portfolio turnover rate | 27 | % | 77 | % | 61 | % | 80 | % | 80 | % | 68 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 408,468 | $ | 391,577 | $ | 317,267 | $ | 367,398 | $ | 367,972 | $ | 355,311 |
* | Unaudited. |
†† | 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. |
(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 | 19 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class B | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 17.37 | $ | 14.84 | $ | 15.15 | $ | 15.16 | $ | 13.05 | $ | 10.18 | ||||||||||||||
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Net investment income (loss) (a) | (0.04 | ) | 0.03 | 0.15 | 0.18 | 0.21 | 0.27 | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.82 | 3.29 | 0.47 | (0.02 | ) | 2.11 | 2.83 | |||||||||||||||||||
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Total from investment operations | 0.78 | 3.32 | 0.62 | 0.16 | 2.32 | 3.10 | ||||||||||||||||||||
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Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.42 | ) | (0.17 | ) | (0.16 | ) | (0.17 | ) | (0.21 | ) | (0.23 | ) | ||||||||||||||
From net realized gain on investments | (0.23 | ) | (0.62 | ) | (0.77 | ) | — | — | — | |||||||||||||||||
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Total dividends and distributions | (0.65 | ) | (0.79 | ) | (0.93 | ) | (0.17 | ) | (0.21 | ) | (0.23 | ) | ||||||||||||||
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Net asset value at end of period | $ | 17.50 | $ | 17.37 | $ | 14.84 | $ | 15.15 | $ | 15.16 | $ | 13.05 | ||||||||||||||
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Total investment return (b) | 4.63 | % (c) | 23.50 | % | 4.31 | % | 1.19 | % | 17.93 | % | 30.83 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | (0.46 | %)†† | 0.19 | % | 0.99 | % | 1.13 | % | 1.51 | % | 2.42 | % | ||||||||||||||
Net expenses | 1.92 | % †† | 1.97 | % | 1.97 | % | 1.94 | % | 2.03 | % | 2.05 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.92 | % †† | 1.97 | % | 1.97 | % | 1.94 | % | 2.03 | % | 2.19 | % | ||||||||||||||
Portfolio turnover rate | 27 | % | 77 | % | 61 | % | 80 | % | 80 | % | 68 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 31,519 | $ | 32,629 | $ | 33,103 | $ | 43,420 | $ | 54,646 | $ | 59,041 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class C | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 17.36 | $ | 14.82 | $ | 15.14 | $ | 15.15 | $ | 13.04 | $ | 10.18 | ||||||||||||||
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Net investment income (loss) (a) | (0.04 | ) | 0.03 | 0.15 | 0.18 | 0.21 | 0.27 | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.81 | 3.30 | 0.46 | (0.02 | ) | 2.11 | 2.82 | |||||||||||||||||||
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Total from investment operations | 0.77 | 3.33 | 0.61 | 0.16 | 2.32 | 3.09 | ||||||||||||||||||||
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Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.42 | ) | (0.17 | ) | (0.16 | ) | (0.17 | ) | (0.21 | ) | (0.23 | ) | ||||||||||||||
From net realized gain on investments | (0.23 | ) | (0.62 | ) | (0.77 | ) | — | — | — | |||||||||||||||||
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Total dividends and distributions | (0.65 | ) | (0.79 | ) | (0.93 | ) | (0.17 | ) | (0.21 | ) | (0.23 | ) | ||||||||||||||
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Net asset value at end of period | $ | 17.48 | $ | 17.36 | $ | 14.82 | $ | 15.14 | $ | 15.15 | $ | 13.04 | ||||||||||||||
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Total investment return (b) | 4.57 | % (c) | 23.60 | % | 4.24 | % | 1.20 | % | 17.94 | % | 30.73 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | (0.46 | %)†† | 0.19 | % | 0.98 | % | 1.13 | % | 1.49 | % | 2.39 | % | ||||||||||||||
Net expenses | 1.92 | % †† | 1.97 | % | 1.97 | % | 1.94 | % | 2.03 | % | 2.05 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.92 | % †† | 1.97 | % | 1.97 | % | 1.94 | % | 2.03 | % | 2.18 | % | ||||||||||||||
Portfolio turnover rate | 27 | % | 77 | % | 61 | % | 80 | % | 80 | % | 68 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 88,498 | $ | 78,135 | $ | 75,372 | $ | 90,273 | $ | 90,474 | $ | 72,563 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
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
Six months ended April 30, | Year ended October 31, | November 28, through | ||||||||||||||||||||||||
Class I | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 17.35 | $ | 14.81 | $ | 15.13 | $ | 15.15 | $ | 13.04 | $ | 9.55 | ||||||||||||||
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Net investment income (loss) (a) | 0.06 | 0.22 | 0.33 | 0.38 | 0.38 | 0.38 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.83 | 3.29 | 0.47 | (0.04 | ) | 2.12 | 3.44 | |||||||||||||||||||
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Total from investment operations | 0.89 | 3.51 | 0.80 | 0.34 | 2.50 | 3.82 | ||||||||||||||||||||
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Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.51 | ) | (0.35 | ) | (0.35 | ) | (0.36 | ) | (0.39 | ) | (0.33 | ) | ||||||||||||||
From net realized gain on investments | (0.23 | ) | (0.62 | ) | (0.77 | ) | — | — | — | |||||||||||||||||
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Total dividends and distributions | (0.74 | ) | (0.97 | ) | (1.12 | ) | (0.36 | ) | (0.39 | ) | (0.33 | ) | ||||||||||||||
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Net asset value at end of period | $ | 17.50 | $ | 17.35 | $ | 14.81 | $ | 15.13 | $ | 15.15 | $ | 13.04 | ||||||||||||||
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Total investment return (b) | 5.25 | %(c) | 25.05 | % | 5.56 | % | 2.39 | % | 19.41 | % | 40.46 | %(c)(d) | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 0.75 | %†† | 1.37 | % | 2.21 | % | 2.33 | % | 2.66 | % | 3.33 | %†† | ||||||||||||||
Net expenses | 0.72 | %†† | 0.74 | % | 0.75 | % | 0.74 | % | 0.80 | % | 0.86 | %†† | ||||||||||||||
Expenses (before waiver/reimbursement) | 0.72 | %†† | 0.74 | % | 0.75 | % | 0.74 | % | 0.80 | % | 0.89 | %†† | ||||||||||||||
Portfolio turnover rate | 27 | % | 77 | % | 61 | % | 80 | % | 80 | % | 68 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 342,018 | $ | 258,279 | $ | 180,257 | $ | 242,147 | $ | 206,563 | $ | 64,931 |
* | Unaudited. |
** | 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 |
Notes to Financial Statements (Unaudited)
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 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”) adopted procedures for the valuation of the Fund’s securities and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board 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 Sub-Committee deals in the first instance with such valuation and 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. Any action taken by the Sub-Committee with respect to the valuation of a portfolio security is submitted by the Valuation Committee to the Board for its review at its next regularly scheduled meeting immediately after such action.
“Fair value” is defined as the price that the Fund would receive upon selling an asset or liability in an orderly transaction to an independent buyer in the principal or most advantageous market for the asset or liability. Fair value measurements are determined within a framework that 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” refer 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 based on the information available. 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 below.
• | Level 1—quoted prices in active markets for an identical asset or liability |
• | Level 2—other significant observable inputs (including quoted prices for a similar asset or liability in active markets, interest rates and yield curves, prepayment speeds, credit risk etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring fair value of an asset or liability) |
22 | MainStay Convertible Fund |
The aggregate value by input level, as of April 30, 2014, for the Fund’s assets or liabilities is included at the end of the Fund’s Portfolio of Investments.
The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs among others:
• 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 |
An asset or liability for which market values cannot be measured using the methodologies described above are valued by methods deemed reasonable and in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund generally 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 asset or liability are discounted to calculate fair value. Discounts may also be applied due to the nature and/or duration of any restrictions on the disposition of the asset or liability. Due to the inherent valuation uncertainty of such assets or liabilities, fair values may differ significantly from values that would have been used had an active market existed. For the six-month period ended April 30, 2014, there have been no material 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 readily available from a third party pricing source or, if so provided, does not, in the opinion of the Manager or Subadvisor reflect the security’s market value; (vi) a security subject to trading collars for which no or limited trading takes place; and (vii) 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 April 30, 2014, 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 last 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 last quoted bid and ask prices. Prices are normally 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 Manager, in consultation with the Subadvisor. Those prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Manager, in consultation with the Subadvisor, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities purchased on a 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 at the time of purchase (“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 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
mainstayinvestments.com | 23 |
Notes to Financial Statements (Unaudited) (continued)
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 from net investment income, if any, at least quarterly and distributions from 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, net of any foreign tax withheld at the source, 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. The straight-line method approximates the effective interest method for short-term investments. Income from payment-in-kind securities is recorded daily based on the effective interest method of accrual. 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 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 if 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 April 30, 2014, 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
24 | MainStay Convertible Fund |
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 April 30, 2014.
(J) 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.
(K) 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 compensation 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 the 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 excess of $100 million. The effective management fee rate was 0.59% for the six-month period ended April 30, 2014, inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets.
For the six-month period ended April 30, 2014, New York Life Investments earned fees from the Fund in the amount of $2,597,344.
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 $12,139 and $49,440, respectively, for the six-month period ended April 30, 2014. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $8, $560, $20,154, and $1,998, respectively, for the six-month period ended April 30, 2014.
mainstayinvestments.com | 25 |
Notes to Financial Statements (Unaudited) (continued)
(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 six-month period ended April 30, 2014, were as follows:
Investor Class | $ | 125,613 | ||
Class A | 174,643 | |||
Class B | 46,721 | |||
Class C | 121,054 | |||
Class I | 132,555 |
(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
The tax character of distributions paid during the year ended October 31, 2013, shown in the Statements of Changes in Net Assets was as follows:
2013 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 15,879,570 | ||
Long-Term Capital Gain | 24,852,256 | |||
Total | $ | 40,731,826 |
Note 5–Custodian
State Street is the custodian of cash and securities held by the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities held by 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, who serves as the agent 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. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the six-month period ended April 30, 2014.
Note 7–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2014, purchases and sales of securities, other than short-term securities, were $300,651 and $231,715, respectively.
Note 8–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 210,159 | $ | 3,655,978 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 201,473 | 3,402,160 | ||||||
Shares redeemed | (286,655 | ) | (4,970,732 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 124,977 | 2,087,406 | ||||||
Shares converted into Investor Class (See Note 1) | 80,508 | 1,393,238 | ||||||
Shares converted from Investor Class (See Note 1) | (255,161 | ) | (4,462,002 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (49,676 | ) | $ | (981,358 | ) | |||
|
|
|
| |||||
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 | ) | |||
|
| |||||||
26 | MainStay Convertible Fund |
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 3,986,850 | $ | 69,451,846 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 872,167 | 14,733,304 | ||||||
Shares redeemed | (4,360,400 | ) | (75,346,275 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 498,617 | 8,838,875 | ||||||
Shares converted into Class A (See Note 1) | 282,655 | 4,934,697 | ||||||
|
|
|
| |||||
Net increase (decrease) | 781,272 | $ | 13,773,572 | |||||
|
|
|
| |||||
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 | |||||
|
|
|
| |||||
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 124,401 | $ | 2,164,723 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 61,723 | 1,046,204 | ||||||
Shares redeemed | (154,998 | ) | (2,691,327 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 31,126 | 519,600 | ||||||
Shares converted from Class B (See Note 1) | (107,801 | ) | (1,865,933 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (76,675 | ) | $ | (1,346,333 | ) | |||
|
|
|
| |||||
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 | ) | |||
|
|
|
| |||||
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 735,637 | $ | 12,781,810 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 130,837 | 2,216,377 | ||||||
Shares redeemed | (305,306 | ) | (5,314,809 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 561,168 | $ | 9,683,378 | |||||
|
|
|
| |||||
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 | ) | |||
|
|
|
| |||||
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 6,589,405 | $ | 114,426,862 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 492,831 | 8,339,012 | ||||||
Shares redeemed | (2,418,516 | ) | (41,759,338 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 4,663,720 | $ | 81,006,536 | |||||
|
|
|
| |||||
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 | |||||
|
|
|
|
Note 9–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the six-month period ended April 30, 2014, events and transactions subsequent to April 30, 2014, 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 | 27 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”) requires that each mutual fund’s board of trustees, including a majority of the independent trustees, annually review and approve the fund’s investment advisory agreements. At its December 10-11, 2013 meeting, the Board of Trustees of the MainStay Group of Funds (“Board”) unanimously approved the Management Agreement with respect to the MainStay Convertible Fund (“Fund”) and New York Life Investment Management LLC (“New York Life Investments”) and the Subadvisory Agreement between New York Life Investments and MacKay Shields LLC (“MacKay Shields”) with respect to the Fund.
In reaching its decision to approve the Agreements, the Board considered information furnished by New York Life Investments and MacKay Shields in connection with a contract review process that took place at various meetings of the Board and its Contracts Committee between September 2013 and December 2013 as well as other relevant information furnished to the Board throughout the year by New York Life Investments and MacKay Shields. Information requested by and furnished to the Board in connection with the contract review process included, among other items, reports on the Fund and “peer funds” prepared by Strategic Insight Mutual Fund Research and Consulting, LLC (“Strategic Insight”), an independent third-party service provider engaged by the Board to report objectively on the Fund’s investment performance, management and subadvisory fees and ordinary operating expenses. The Board also considered information provided by New York Life Investments and MacKay Shields on the fees charged to other investment advisory clients (including institutional separate accounts) that follow investment strategies similar to the Fund and the rationale for any differences in the Fund’s management and subadvisory fees and the fees charged to those other investment advisory clients. In addition, the Board requested and received information on the profitability of the Fund to New York Life Investments and its affiliates, including MacKay Shields as subadvisor to the Fund and responses from New York Life Investments and MacKay Shields to a series of questions encompassing a variety of topics prepared on behalf of the Board by independent legal counsel to the Board and its independent trustees (the “Independent Trustees”). Information provided to the Board at its meetings throughout the year included, among other items, detailed investment performance reports on the Fund prepared by the Investment Consulting Group at New York Life Investments. The structure and format for this regular reporting were developed in consultation with the Board. The Board also received from New York Life Investments throughout the year, among other items, periodic reports on legal and compliance matters, portfolio turnover, and sales and marketing activity.
In considering the Agreements, the members of the Board reviewed and evaluated all of the information and factors they believed to be relevant and appropriate in light of legal advice furnished to them by independent legal counsel and through the exercise of their own business judgment. The broad factors considered by the Board are discussed in greater detail below and included, among other items: (i) the nature, scope and quality of the services provided to the Fund by New York Life Investments and MacKay Shields; (ii) the investment performance of the Fund , New York Life Investments and MacKay Shields; (iii) the costs of the services provided, and profits realized, by New York Life Investments and MacKay Shields from their relationships with the Fund; (iv) the extent to which economies of scale may be realized as the
Fund grows and the extent to which economies of scale may benefit Fund investors; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to similar funds and accounts managed by New York Life Investments and MacKay Shields and peer funds identified by Strategic Insight.
While individual members of the Board may have weighed certain factors differently, the Board’s decision to approve the Agreements was based on a consideration of all the information provided to the Board, including information provided to the Board throughout the year and specifically in connection with the contract review process. The Board’s conclusions with respect to the Agreements also were based, in part, on the Board’s consideration of the Agreements in prior years. In addition to considering the above-referenced factors, the Board observed that in the marketplace there are a range of investment options available to shareholders of the Fund and that the Fund’s shareholders, having had the opportunity to consider other investment options, have chosen to invest in the Fund. A more detailed discussion of the factors that figured prominently in the Board’s decisions to approve the Agreements is provided below.
Nature, Scope and Quality of Services to Be Provided by New York Life Investments and MacKay Shields
The Board examined the nature, scope and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience in serving as manager of the Fund, noting that New York Life Investments manages other mutual funds, serves a variety of other investment advisory clients, including other pooled investment vehicles, and has experience with overseeing mutual fund service providers, including subadvisors. The Board considered the experience of senior personnel at New York Life Investments providing management and administrative services to the Fund as well as New York Life Investments’ reputation and financial condition. The Board also considered the full range of non-advisory services that New York Life Investments supplies to the Fund under the terms
of the Management Agreement, including: (i) fund accounting and oversight services provided by New York Life Investments’ Fund Accounting and Administration Group; (ii) investment oversight and analytical services provided by New York Life Investments’ Investment Consulting Group; (iii) compliance services provided by the Fund’s Chief Compliance Officer as well as New York Life Investments’ compliance department, including oversight and implementation of the Fund’s compliance program; and (iv) legal services provided by New York Life Investments’ Office of the General Counsel. Additional information about the non-advisory services provided by New York Life Investments is set forth in the Fund’s Management Agreement. The Board also considered New York Life Investments’ willingness to invest in personnel and infrastructure that benefit the Fund and noted that New York Life Investments is responsible for compensating the Fund’s officers. The Board also considered benefits to shareholders of being part of the MainStay Group of Funds, including the privilege of exchanging investments between the same class of shares without the imposition of a sales charge, as described more fully in the Fund’s prospectus.
The Board also examined the nature, scope and quality of the advisory services that MacKay Shields provides to the Fund. The Board evaluated
28 | MainStay Convertible Fund |
MacKay Shields’ experience in serving as subadvisor to the Fund and managing other portfolios. It examined MacKay Shields’ track record and experience in providing investment advisory services, the experience of investment advisory, senior management and administrative personnel at MacKay Shields, and MacKay Shields’ overall legal and compliance environment. The Board also reviewed MacKay Shields’ willingness to invest in personnel that benefit the Fund. In this regard, the Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers and the method for compensating portfolio managers.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund should continue to benefit from the nature, scope and quality of these services as a result of New York Life Investments’ and MacKay Shields’ experience, personnel, operations and resources.
Investment Performance
In evaluating the Fund’s investment performance, the Board considered investment performance results in light of the Fund’s investment objective, strategies and risks, as disclosed in the Fund’s prospectus. The Board particularly considered detailed investment reports on the Fund’s performance provided to the Board throughout the year by the Investment Consulting Group of New York Life Investments. These reports include, among other items, information on the Fund’s gross and net returns, the Fund’s investment performance relative to relevant investment categories and Fund benchmarks, the Fund’s risk-adjusted investment performance, and the Fund’s investment performance as compared to peer funds, as appropriate. The Board also considered information provided by Strategic Insight showing the investment performance of the Fund as compared to peer funds.
In considering the Fund’s investment performance, the Board focused principally on the Fund’s long-term performance track record. The Board also gave weight to its ongoing discussions with senior management at New York Life Investments concerning the Fund’s investment performance as well as discussions between the Fund’s portfolio managers and the Board that generally occur on an annual basis. In addition, the Board considered any specific actions that New York Life Investments or MacKay Shields had taken, or had agreed with the Board to take, to enhance Fund investment performance and the results of those actions.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the long-term investment performance of the Fund, along with ongoing efforts by New York Life Investments and MacKay Shields to enhance investment returns, supported a determination to approve the Agreements. The Fund discloses more information about investment performance in the Portfolio Management Discussion and Analysis, Investment and Performance Comparison and Financial Highlights sections of this Semiannual Report and in the Fund’s prospectus.
Costs of the Services Provided, and Profits Realized, by New York Life Investments and MacKay Shields
The Board considered the costs of the services provided by New York Life Investments and MacKay Shields under the Agreements and the
profits realized by New York Life Investments and its affiliates, including MacKay Shields, due to their relationships with the Fund. Because MacKay Shields is an affiliate of New York Life Investments whose subadvisory fees are paid directly by New York Life Investments, the Board considered cost and profitability information for New York Life Investments and MacKay Shields in the aggregate.
In evaluating the costs and profits of New York Life Investments and its affiliates , including MacKay Shields, the Board considered, among other factors, each party’s investments in personnel, systems, equipment and other resources necessary to manage the Fund, and that New York Life Investments is responsible for paying the subadvisory fees for the Fund. The Board acknowledged that New York Life Investments and MacKay Shields must be in a position to pay and retain experienced professional personnel to provide services to the Fund and that the ability to maintain a strong financial position is important in order for New York Life Investments and MacKay Shields to continue to provide high-quality services to the Fund. The Board also noted that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds.
In addition, the Board noted the difficulty in obtaining reliable comparative data about mutual fund managers’ profitability, since such information generally is not publicly available and may be impacted by numerous factors, including the structure of a fund manager’s organization, the types of funds it manages, the methodology used to allocate certain fixed costs to specific funds, and the manager’s capital structure and costs of capital. While recognizing the difficulty in evaluating a manager’s profitability with respect to the Fund and noting that other profitability methodologies may also be reasonable, the Board concluded that the profitability methodology presented by New York Life Investments to the Board, which was developed by New York Life Investments in consultation with an independent consultant, was reasonable in all material respects.
In considering the costs and profitability of the Fund, the Board also considered certain fall-out benefits that may be realized by New York Life Investments and its affiliates due to their relationships with the Fund. The Board recognized, for example, the benefits to MacKay Shields from legally permitted “soft-dollar” arrangements by which brokers provide research and other services to MacKay Shields in exchange for commissions paid by the Fund with respect to trades on the Fund’s portfolio securities.
The Board further considered that, in addition to fees earned by New York Life Investments for managing the Fund, New York Life Investments’ affiliates also earn revenues from serving the Fund in various other capacities, including as the Fund’s transfer agent and distributor. The Board observed that information about these other revenues, and their impact on the profitability of the Fund to New York Life Investments and its affiliates, was furnished to the Board as part of the 15(c) process. The Board noted that, although it assessed the overall profitability of the Fund to New York Life Investments and its affiliates as part of the contract review process, when considering the reasonableness of the fees to be paid to New York Life Investments and its affiliates under the Agreements, the Board considered the profitability of New York Life Investments’ relationship with the Fund on a pre-tax basis and without regard to distribution expenses.
mainstayinvestments.com | 29 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
After evaluating the information presented to the Board, the Board concluded, within the context of its overall determinations regarding the Agreements, that any profits realized by New York Life Investments and its affiliates, including MacKay Shields, due to their relationships with the Fund supported the Board’s decision to approve the Agreements.
Extent to Which Economies of Scale May Be Realized as the Fund Grows
The Board considered whether the Fund’s expense structure permits economies of scale to be shared with Fund investors. The Board also considered a report from New York Life Investments, prepared at the request of the Board, that addressed economies of scale in the mutual fund business generally, the changing economics of the mutual fund business and the various ways in which the benefits of economies of scale may be shared with the MainStay Group of Funds. The Board reviewed information from New York Life Investments showing how the Fund’s management fee schedule compared to fee schedules of other funds and accounts managed by New York Life Investments. The Board also reviewed information from Strategic Insight showing how the Fund’s management fee schedule hypothetically would compare with fees paid for similar services by peer funds at varying asset levels. While recognizing the difficulty of determining economies of scale with precision, the Board acknowledged that economies of scale may be shared with the Fund in a number of ways, including, for example, through the imposition of management fee breakpoints and by initially setting relatively low management fees.
Based on this information, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund’s expense structure appropriately reflects economies of scale for the benefit of Fund investors. The Board noted, however, that it would continue to evaluate the reasonableness of the Fund’s expense structure as the Fund grows over time.
Management and Subadvisory Fees and Total Ordinary Operating Expenses
The Board evaluated the reasonableness of the fees to be paid under the Agreements and the Fund’s expected total ordinary operating expenses. The Board primarily considered the reasonableness of the management fee paid by the Fund to New York Life Investments, since the fees paid to MacKay Shields are paid by New York Life Investments, not the Fund.
In assessing the reasonableness of the Fund’s fees and expenses, the Board primarily considered comparative data provided by Strategic Insight on the fees and expenses charged by similar mutual funds managed by other investment advisers. In addition, the Board considered information provided by New York Life Investments and MacKay Shields on fees charged to other investment advisory clients, including institutional separate accounts and other funds with similar investment objectives as the Fund. The Board particularly considered differences in the contractual management fee schedules of the retail MainStay Funds and similarly-managed MainStay VP Portfolios, taking into account New York Life Investments’ rationale for any differences in fee schedules. The Board also took into account explanations provided by New York Life Investments about the different scope of services provided to
mutual funds as compared with other investment advisory clients. Additionally, the Board considered the impact of any contractual breakpoints, voluntary waivers and expense limitation arrangements on the Fund’s net management fee and expenses.
The Board noted that, outside of the Fund’s management fee and the fees charged under a share class’s Rule 12b-1 and/or shareholder services plans, a share class’s most significant “other expenses” are transfer agent fees. Transfer agent fees are charged to the Fund based on the number of shareholder accounts (a “per-account” fee) as compared with certain other fees (e.g., management fees), which are charged based on the Fund’s average net assets. The Board took into account information from New York Life Investments showing that the Fund’s transfer agent fee schedule is reasonable, including industry data showing that the per-account fees that NYLIM Service Company LLC, the Fund’s transfer agent, charges the Fund are within the range of per-account fees charged by transfer agents to other mutual funds. In addition, the Board considered NYLIM Service Company LLC’s profitability in connection with the transfer agent services it provides to the Fund.
The Board considered that, because the Fund’s transfer agent fees are billed on a per-account basis, the impact of transfer agent fees on a share class’s expense ratio may be more significant in cases where the share class has a high number of accounts with limited assets (i.e., small accounts). The Board observed that transfer agent fees are a significant portion of total expenses of many Funds in the MainStay Group of Funds. The impact of transfer agent fees on the expense ratios of these MainStay Funds tend to be greater than for other open-end retail funds, because the MainStay Group of Funds generally has a significant number of small accounts relative to competitor funds. The Board acknowledged the role that the MainStay Group of Funds historically has played in serving the investment needs of New York Life Insurance Company (“New York Life”) policyholders, who often maintain smaller account balances than other fund investors. The Board also acknowledged measures that it and New York Life Investments have taken in recent years to mitigate the effect of small accounts on the expense ratios of Fund share classes, including: (i) encouraging New York Life agents to consolidate multiple small accounts held by the same investor into one MainStay Asset Allocation Fund account; (ii) increasing investment minimums from $500 to $1,000 in 2003; (iii) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iv) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (v) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (vi) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vii) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. In addition, the Board acknowledged New York Life Investments’ efforts to encourage intermediaries to consolidate small accounts in multiple Funds held by the same investor into a single Asset Allocation Fund account, if appropriate under the circumstances, in an effort to mitigate the effect of small accounts on the Funds in the MainStay Group of Funds.
30 | MainStay Convertible Fund |
After considering all of the factors outlined above, the Board concluded that the Fund’s management and subadvisory fees and total ordinary operating expenses were within a range that is competitive and, within the context of the Board’s overall conclusions regarding the Agreements, support a conclusion that these fees and expenses are reasonable.
Conclusion
On the basis of the information provided to it and its evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the Agreements.
mainstayinvestments.com | 31 |
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).
32 | MainStay Convertible 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 Fund
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 Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund1
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund2
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 LLC3
New York, New York
Cornerstone Capital Management LLC3
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC3
Chicago, Illinois
MacKay Shields LLC3
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC3
New York, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP4
PricewaterhouseCoopers LLP5
1. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
2. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
3. An affiliate of New York Life Investment Management LLC.
4. For all Funds listed above except MainStay Marketfield Fund.
5. For MainStay Marketfield Fund only.
Not part of the Semiannual 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.
©2014 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-34040 MS164-14 | MSC10-06/14 NL005 |
MainStay Income Builder Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2014
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Message from the President
Stocks and bonds generally advanced during the six months ended April 30, 2014, but results varied across different markets, asset classes and regions.
According to Russell data, mid-capitalization stocks tended to provide the strongest returns, outperforming large-cap stocks overall. As a group, small-cap stocks tended to underperform their larger-capitalization counterparts. Value outperformed growth at all capitalization levels as the 2013 market rally ended and investors moved from rapid-growth stocks toward utilities, real estate investment trusts (REITs) and other stocks that tend to be more defensive.
The reporting period opened with investors still reacting to the government shutdown and asking questions about the debt ceiling and the so-called fiscal cliff. Even so, U.S. stocks climbed relatively steadily through the end of 2013. After reaching a high point in January, the U.S. stock market tumbled to its low point for the reporting period in early February, hurt by weaker economic data and severe weather in the Northeast. From that point, domestic stocks generally recovered, advancing to new highs before the end of the reporting period.
International stocks benefited from the European Central Bank’s accommodative policies and an improving European economy, despite high levels of debt and unemployment. In Japan, a weaker currency and accommodative central bank policies had fueled a stock rally in 2013, but Japanese stocks began to decline in mid-January on concerns about the Prime Minister’s economic policies, including a substantial increase in the nation’s sales tax. International stocks also felt the effects of tensions in Ukraine and slowing growth in China.
Throughout the reporting period, the Federal Reserve held the federal funds target rate in a range close to zero. On December 18, 2013, the Federal Open Market Committee announced plans to begin tapering its direct security purchases (widely known as quantitative easing) in January of 2014. The announcement led investors to anticipate rising interest rates.
According to U.S. Department of the Treasury data, yields did rise through the early part of 2014. After peaking early in the year, however, U.S. Treasury yields generally trended downward. As of April 30, 2014, yields at the short and long ends of the U.S. Treasury yield curve1 were slightly lower than at the beginning of the reporting period, while yields on 1- to 10-year U.S. Treasury securities had moved slightly higher.
In harmony with these trends, extensive tax-loss harvesting in the municipal market tended to push municipal yields higher in November and December. Redemptions slowed as the new year progressed, and a scarcity of municipal supply pushed municipal bond prices higher—and yields lower—during the last four months of the reporting period.
Throughout the reporting period, our portfolio managers pursued the investment objectives of their respective Funds within the investment strategies outlined in the Prospectus. Using time-tested security-selection, portfolio-monitoring and risk-management techniques, they sought to maximize exposure to potential opportunities while seeking to minimize exposure to unnecessary risks.
The report that follows provides additional information about the decisions, securities and market forces that affected your MainStay Fund during the six months ended April 30, 2014. We encourage you to read this information carefully. It can help you evaluate your diversification and assess your asset allocation as you pursue your long-range financial goals.
We thank you for choosing MainStay Funds, and we look forward to a lasting and productive relationship.
Sincerely,
Stephen P. Fisher
1. | 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 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. Past performance is no guarantee of future results.
Not part of the Semiannual 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 Period Ended April 30, 2014
Class | Sales Charge | Six Months | One Year | Five Years | Ten Years | Gross Expense Ratio2 | ||||||||||||||||||
Investor Class Shares3 | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges |
| 0.88 6.75 | %
|
| 5.96 12.12 | %
|
| 13.45 14.74 | %
|
| 6.36 6.96 | %
|
| 1.32 1.32 | %
| |||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges | | 1.00 6.88 | |
| 6.24 12.42 |
| | 13.81 15.11 | | | 6.53 7.14 | | | 1.04 1.04 | | |||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges | | 1.38 6.38 | | | 6.30 11.30 | | | 13.67 13.91 | | | 6.17 6.17 | | | 2.07 2.07 | | |||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges | | 5.34 6.34 | | | 10.26 11.26 | | | 13.88 13.88 | | | 6.15 6.15 | | | 2.07 2.07 | | |||||||
Class I Shares | No Sales Charge | 7.02 | 12.66 | 15.40 | 7.56 | 0.79 |
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. |
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 | Six Months | One Year | Five Years | Ten Years | ||||||||||||
MSCI World Index4 | 6.32 | % | 16.62 | % | 16.03 | % | 7.17 | % | ||||||||
Russell 1000® Index5 | 8.25 | 20.81 | 19.52 | 8.05 | ||||||||||||
Income Builder Composite Index6 | 4.08 | 8.00 | 10.66 | 6.35 | ||||||||||||
Barclays U.S. Aggregate Bond Index7 | 1.74 | –0.26 | 4.88 | 4.83 | ||||||||||||
Average Lipper Mixed-Asset Target Allocation Growth Fund8 | 5.02 | 12.11 | 13.79 | 6.45 |
4. | 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. |
5. | 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 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. |
6. | 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. |
7. | 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. |
8. | 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 November 1, 2013, to April 30, 2014, 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 November 1, 2013, to April 30, 2014.
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 April 30, 2014. 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 11/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/14 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/14 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,067.50 | $ | 6.46 | $ | 1,018.50 | $ | 6.31 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,068.80 | $ | 5.23 | $ | 1,019.70 | $ | 5.11 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,063.80 | $ | 10.29 | $ | 1,014.80 | $ | 10.04 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,063.40 | $ | 10.28 | $ | 1,014.80 | $ | 10.04 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,070.20 | $ | 3.95 | $ | 1,021.00 | $ | 3.86 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.26% for Investor Class, 1.02% for Class A, 2.01% for Class B and Class C and 0.77% for Class I) multiplied by the average account value over the period, divided by 365 and multiplied by 181 (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 April 30, 2014 (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 April 30, 2014 (excluding short-term investment) (Unaudited)
1. | Verizon Communications, Inc. |
2. | Total S.A. |
3. | Vinci S.A. |
4. | Imperial Tobacco Group PLC |
5. | GlaxoSmithKline PLC |
6. | Swisscom A.G. |
7. | National Grid PLC |
8. | Lorillard, Inc. |
9. | Targa Resources Partners, L.P. |
10. | Altria Group, Inc. |
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, Michael A. Welhoelter, CFA, John Tobin, PhD, CFA, and Kera Van Valen, 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 six months ended April 30, 2014?
Excluding all sales charges, MainStay Income Builder Fund returned 6.75% for Investor Class shares, 6.88% for Class A shares, 6.38% for Class B shares and 6.34% for Class C shares for the six months ended April 30, 2014. Over the same period, Class I shares returned 7.02%. For the six months ended April 30, 2014, all share classes outperformed the 6.32% return of the MSCI World Index,1 which is the Fund’s broad-based securities-market index, and the 1.74% return of the Barclays U.S. Aggregate Bond Index,1 which is an additional benchmark for the Fund. Over the same period, all share classes outperformed the 5.02% return of the average Lipper2 mixed-asset target allocation growth fund. See page 5 for Fund returns with applicable sales charges.
Were there any changes to the Fund during the reporting period?
Effective February 28, 2014, John Tobin and Kera Van Valen were added as portfolio managers of the equity portion of the Fund.
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. The position in S&P 500® equity futures had a positive impact on the Fund’s overall performance during the reporting period, while the Fund’s position in U.S. Treasury note futures did not have a material impact on the Fund’s overall performance.
What factors affected the relative performance of the equity portion of the Fund during the reporting period?
The equity portion of the Fund provided strong absolute and relative returns for the reporting period. Stock selection contributed to returns relative to the MSCI World Index in eight out of ten sectors, helping overall results. (Contributions take weightings and total returns into account.) The Fund’s lack of exposure to Japan and favorable stock selection in the United Kingdom also helped relative results. Stock selection in the United States and an overweight position relative to the MSCI Word Index in the telecommunication services sector, which underperformed the overall market, were the most significant detractors from relative results in the equity portion of the Fund.
In the equity portion of the Fund, which sectors were the strongest positive 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 increase 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 these goals and increase their dividends during the reporting period. We believe that 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, sector commentary may provide additional insight if it is viewed in the proper context for this strategy.
An overweight position relative to the MSCI World Index and advantageous stock selection helped the utilities sector provide the most significant positive contribution to the Fund’s relative performance. Stock selection provided a positive contribution in most sectors, most significantly in consumer staples, health care, industrials and materials.
The Fund’s overweight position relative to the MSCI World Index in the telecommunication services sector, which underperformed the overall market, was the most significant detractor from relative results. An underweight position relative to the Index in the information technology sector also detracted from relative results.
During the reporting period, which individual stocks made the strongest positive contributions to absolute performance in the equity portion of the Fund and which stocks detracted the most?
Among the stocks that made the strongest positive contributions to absolute performance in the equity portion of the Fund were U.K. pharmaceutical company AstraZeneca, Swiss telecommunications company Swisscom and French construction company and concession operator Vinci. AstraZeneca’s shares advanced during the reporting period mainly on the heels of its acquisition of Bristol-Myers Squibb��s share of the two companies’ diabetes alliance, which is seen as an important contributor to AstraZeneca’s future growth. AstraZeneca shares got a further boost in mid-April 2014, when U.S. drug company Pfizer revealed that it had approached AstraZeneca with an acquisition proposal. Swisscom benefited from signs that its average revenue per user had bottomed, and that its mobile net additions appeared to be increasing. Vinci’s shares advanced as the company experienced an uptick in
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 |
construction revenue and won numerous contracts that led to a record backlog.
Among the stocks that diminished results the most during the reporting period were U.K. food retailer Wm Morrison Supermarkets, toy manufacturer Mattel and offshore oil & gas drilling company Diamond Offshore Drilling. Wm Morrison Supermarkets was negatively affected by the strength of the discount segment in the U.K. food retail market. The stock sold off after the company announced a profit warning driven by further investments in their core proposition and pricing. Diamond Offshore Drilling traded lower as expectations for 2014 and 2015 rig day rates moved downward. The company faced an increased supply of new rigs and rigs whose former lease arrangements had recently expired. The increase in supply, however, came just as rig demand was softening. Mattel, the largest toy manufacturer in the world, posted disappointing results during the holiday season, which is particularly important to toy companies.
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. Companies including Norwegian offshore oil producer Statoil, Canadian fertilizer company Potash and global food and home products company Unilever, among others, were added to the Fund because of their favorable shareholder-yield attributes. The Fund sold several positions, including shares of media company Comcast to increase the yield of equity portion of the Fund and shares of aerospace & defense company Honeywell and pharmaceutical company Bristol-Myers Squibb as sources of cash to fund higher-yielding opportunities.
How did the Fund’s equity sector weightings change during the reporting period?
Sector weightings in the equity portion of the Fund are generally the result of our bottom-up stock selection process. During the reporting period, the largest decreases in equity exposure occurred in the industrials, health care and consumer discretionary sectors. On the other hand, financials, consumer staples and materials saw the largest equity sector-weighting increases.
How was the equity portion of the Fund positioned at the end of the reporting period?
The equity portion of the Fund continues to seek attractive returns 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 mix of companies 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 Fund may also differ from the Index in its sector weightings.
As of April 30, 2014, the most significant overweight positions relative to the MSCI World Index in the equity portion of the Fund were in the utilities and telecommunication services sectors. As of the same date, the equity portion of the Fund held notable underweight sector positions in financials, information technology and consumer discretionary.
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 primarily because of an overweight position in spread product,3 specifically high-yield corporate bonds. The Federal Reserve’s willingness to pump liquidity into the market (by keeping short-term interest rates close to zero) continued to stimulate lending and investments as well as investors’ appetite for yield. The Federal Reserve’s accommodative stance strengthened the performance of credit-related assets, such as high-yield and investment-grade corporate bonds, during the reporting period.
High-yield corporate bonds represented the largest overweight position relative to the Barclays U.S. Aggregate Bond Index in the fixed-income portion of the Fund. These securities performed well as spreads compressed during the reporting period. (The Barclays U.S. Aggregate Bond Index consists entirely of investment-grade bonds.) Though April 2014 marked one of the largest high-yield defaults on record, defaults were still trending at or close to all-time lows, which served as a tailwind for the sector.
Investment-grade corporate-bond spreads compressed to a post-financial-crisis low of 98 basis points by the end of the reporting period. (A basis point is one-hundredth of a percentage point.) Lower-quality bonds (i.e., those rated BBB)4 and longer-duration bonds (i.e., those with 8- to 15-year maturities) outperformed, partly because of declining U.S. Treasury yields. During the first four months of 2014, investment-grade corporate bond issuance remained strong. Approximately
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” refers to assets that typically trade at a spread to U.S. Treasury securities. |
4. | An obligation rated ‘BBB’ by Standard & Poor’s (“S&P”) is deemed by S&P to exhibit adequate protection parameters. In the opinion of S&P, however, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. 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. |
10 | MainStay Income Builder Fund |
$92 billion in new investment-grade corporate bond issues was priced in April, bringing the year-to-date total to $445 billion, according to data provided by Barclays. The strong issuance fed investor demand for yield as companies continued to refinance and issue new debt at very attractive levels.
Throughout the reporting period, the fixed-income portion of the Fund held underweight positions relative to the Barclays U.S. Aggregate Bond Index in U.S. Treasury securities and assets with high correlations to them. Although these underweighted asset classes have rallied since the beginning of 2014, the Fund still managed to outperform the Index.
During the reporting period, what was the duration5 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 our 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, although they 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 exposure to a short position in U.S. Treasury futures. This position shortened the already short duration relative to the Barclays U.S. Aggregate Bond Index. At the end of the reporting period, the effective duration of the fixed-income portion of the Fund was approximately 3.1 years.
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 implementation of its decision to taper bond purchases. Although the Fund experienced some periods of volatility, we did not make any material changes to the positioning of the fixed-income portion of the Fund, but did selectively and opportunistically increase modestly the weightings in both bank loans and emerging-market corporate debt. 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 compensation for assuming credit risk—alongside a favorable balance of supply
and demand for corporate debt. For these reasons, the fixed-income portion of the Fund has maintained a risk profile that is relatively higher than that of the Barclays U.S. Aggregate Bond Index, specifically through a relative overweight position 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?
An overweight position in high-yield corporate bonds, which outperformed the Barclays U.S. Aggregate Bond Index, was the driving force behind the relative outperformance of the fixed-income portion of the Fund during the reporting period. 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 also positive contributors to the relative performance of the fixed-income portion of the Fund. Our position in investment-grade corporate bonds also had a positive impact on performance 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 relative performance of the fixed-income portion of the Fund, as U.S. Treasury securities and agency mortgages underperformed high-yield corporate bonds during the reporting period.
Did the fixed-income portion of the Fund make any significant purchases or sales during the reporting period?
During the reporting period, we purchased bonds of Comunicaciones Celulares, S.A., the leading mobile communication provider in Guatemala. We also purchased the bonds of Amsted Industries, which manufactures industrial components in the United States and internationally.
During the reporting period, the fixed-income portion of the Fund exited positions in financial companies Banque PSA Finance Peugeot and LBG Capital (Lloyds). We sold the Fund’s Banque PSA Finance Peugeot bonds as the spread narrowed significantly upon the bonds becoming fully valued. The position in LBG Capital (Lloyds) was eliminated given an attractive tender/exchange offer in which the fixed-income portion of the Fund participated.
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 | 11 |
How did sector weightings change in the fixed-income portion of the Fund during the reporting period?
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. As already mentioned, however, we slightly increased weightings in both bank loans and emerging-market corporate debt. The largest position in the fixed-income portion of the Fund remained in high-yield corporate bonds, as we believed the compensation, or spread, for the risk associated with the sector was still adequate.
How was the fixed-income portion of the Fund positioned at the end of the reporting period?
As of April 30, 2014, 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. As of the same date, the fixed-income portion of 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.
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 April 30, 2014 (Unaudited)
Principal Amount | Value | |||||||
Long-Term Bonds 42.1%† Asset-Backed Securities 1.1% |
| |||||||
Home Equity 1.0% |
| |||||||
Ameriquest Mortgage Securities, Inc. Series 2003-8, Class AF5 | $ | 97,536 | $ | 96,950 | ||||
Carrington Mortgage Loan Trust | 389,917 | 351,316 | ||||||
Chase Funding Mortgage Loan | 217,674 | 222,117 | ||||||
CIT Group Home Equity Loan Trust | 48,106 | 48,851 | ||||||
Citifinancial Mortgage Securities, Inc. Series 2003-3, Class AF5 | 141,040 | 144,644 | ||||||
Citigroup Mortgage Loan Trust | 928,650 | 711,360 | ||||||
Countrywide Asset-Backed Certificates | 485,496 | 502,250 | ||||||
Equity One ABS, Inc. |
| |||||||
Series 2003-4, Class AF6 5.333%, due 10/25/34 (a)(b) | 179,739 | 184,757 | ||||||
Series 2003-3, Class AF4 5.495%, due 12/25/33 (a)(b) | 340,989 | 330,290 | ||||||
GSAA Home Equity Trust | 6,344,498 | 3,238,010 | ||||||
HSI Asset Securitization Corp. Trust | 233,749 | 208,238 | ||||||
JP Morgan Mortgage Acquisition Corp. Series 2007-HE1, Class AF1 | 862,094 | 614,353 | ||||||
Master Asset Backed Securities Trust Series 2006-HE4, Class A1 | 818,283 | 350,583 | ||||||
Merrill Lynch Mortgage Investors Trust Series 2007-MLN1, Class A2A | 3,209,240 | 1,921,799 | ||||||
RAMP Trust | 48,867 | 49,037 | ||||||
Series 2003-RZ5, Class A7 | 90,813 | 93,860 |
Principal Amount | Value | |||||||
Home Equity (continued) |
| |||||||
RASC Trust | $ | 69,161 | $ | 70,829 | ||||
Saxon Asset Securities Trust | 96,707 | 100,423 | ||||||
Soundview Home Equity Loan Trust | 1,329,764 | 838,454 | ||||||
Specialty Underwriting & Residential Finance Trust | 836,478 | 399,658 | ||||||
Terwin Mortgage Trust | 106,741 | 110,340 | ||||||
|
| |||||||
10,588,119 | ||||||||
|
| |||||||
Student Loans 0.1% |
| |||||||
Keycorp Student Loan Trust | 881,409 | 826,373 | ||||||
|
| |||||||
Total Asset-Backed Securities |
| 11,414,492 | ||||||
|
| |||||||
Convertible Bonds 0.3% | ||||||||
Household Products & Wares 0.2% |
| |||||||
Jarden Corp. | 2,650,000 | 2,651,656 | ||||||
|
| |||||||
Oil & Gas Services 0.1% |
| |||||||
Hornbeck Offshore Services, Inc. | 760,000 | 867,350 | ||||||
|
| |||||||
Total Convertible Bonds | 3,519,006 | |||||||
|
| |||||||
Corporate Bonds 36.6% | ||||||||
Aerospace & Defense 0.4% |
| |||||||
B/E Aerospace, Inc. |
| |||||||
5.25%, due 4/1/22 | 540,000 | 558,900 | ||||||
6.875%, due 10/1/20 | 1,805,000 | 1,971,963 | ||||||
TransDigm, Inc. | 1,600,000 | 1,760,000 | ||||||
�� |
|
| ||||||
4,290,863 | ||||||||
|
| |||||||
Agriculture 0.0%‡ |
| |||||||
Lorillard Tobacco Co. | 255,000 | 316,999 | ||||||
|
|
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund's 10 largest holdings or issuers held, as of April 30, 2014, 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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Airlines 0.8% | ||||||||
Continental Airlines, Inc. |
| |||||||
Series A | $ | 1,842,151 | $ | 2,155,317 | ||||
7.875%, due 1/2/20 | 1,153,394 | 1,257,199 | ||||||
U.S. Airways Group, Inc. | 1,209,486 | 1,366,719 | ||||||
U.S. Airways, Inc. | 2,276,028 | 2,543,461 | ||||||
UAL 2009-1 Pass-Through Trust | 770,135 | 877,030 | ||||||
|
| |||||||
8,199,726 | ||||||||
|
| |||||||
Auto Manufacturers 0.6% |
| |||||||
Chrysler Group LLC / CG Co-Issuer, Inc. | 2,100,000 | 2,359,875 | ||||||
Ford Motor Co. |
| |||||||
6.625%, due 10/1/28 | 1,500,000 | 1,807,084 | ||||||
7.45%, due 7/16/31 | 450,000 | 587,206 | ||||||
8.90%, due 1/15/32 | 215,000 | 296,970 | ||||||
Navistar International Corp. | 1,525,000 | 1,551,688 | ||||||
|
| |||||||
6,602,823 | ||||||||
|
| |||||||
Auto Parts & Equipment 0.6% | ||||||||
Continental Rubber of America Corp. 4.50%, due 9/15/19 (d) | 2,200,000 | 2,331,780 | ||||||
Dana Holding Corp. | 2,280,000 | 2,354,100 | ||||||
Goodyear Tire & Rubber Co. (The) | ||||||||
6.50%, due 3/1/21 | 625,000 | 676,562 | ||||||
8.25%, due 8/15/20 | 1,200,000 | 1,327,500 | ||||||
|
| |||||||
6,689,942 | ||||||||
|
| |||||||
Banks 4.2% | ||||||||
AgriBank FCB | 300,000 | 385,572 | ||||||
Banco Santander Mexico S.A. | 2,260,000 | 2,248,700 | ||||||
Bank of America Corp. | ||||||||
5.625%, due 7/1/20 | 1,200,000 | 1,371,403 | ||||||
6.50%, due 8/1/16 | 135,000 | 150,602 | ||||||
7.625%, due 6/1/19 | 1,015,000 | 1,252,580 | ||||||
8.00%, due 12/31/49 (c) | 1,500,000 | 1,698,750 | ||||||
Bank of America NA | 990,000 | 1,190,421 | ||||||
BBVA Bancomer S.A. | 1,985,000 | 2,213,275 |
Principal Amount | Value | |||||||
Banks (continued) | ||||||||
CIT Group, Inc. | ||||||||
3.875%, due 2/19/19 | $ | 1,740,000 | $ | 1,759,575 | ||||
4.25%, due 8/15/17 | 100,000 | 104,750 | ||||||
Citigroup, Inc. | ||||||||
6.30%, due 12/29/49 (c) | 2,820,000 | 2,809,425 | ||||||
6.875%, due 6/1/25 | 1,715,000 | 2,060,782 | ||||||
8.50%, due 5/22/19 | 85,000 | 108,296 | ||||||
Discover Bank | 1,064,000 | 1,347,559 | ||||||
Goldman Sachs Group, Inc. (The) | 3,045,000 | 3,019,547 | ||||||
HSBC Holdings PLC | 115,000 | 129,387 | ||||||
JPMorgan Chase & Co. | ||||||||
6.125%, due 12/29/49 (c) | 3,005,000 | 3,005,000 | ||||||
7.90%, due 4/29/49 (c) | 3,300,000 | 3,729,000 | ||||||
Mellon Capital III | £ | 1,950,000 | 3,418,806 | |||||
Mizuho Financial Group Cayman 3, Ltd. | $ | 2,250,000 | 2,296,192 | |||||
Morgan Stanley | ||||||||
4.875%, due 11/1/22 | 1,125,000 | 1,187,158 | ||||||
5.00%, due 11/24/25 | 2,535,000 | 2,630,151 | ||||||
5.45%, due 12/29/49 (c) | 2,825,000 | 2,849,719 | ||||||
Royal Bank of Scotland Group PLC | 800,000 | 925,996 | ||||||
Wells Fargo & Co. | ||||||||
5.90%, due 12/29/49 (c) | 2,375,000 | 2,432,237 | ||||||
7.98%, due 3/29/49 (c) | 1,200,000 | 1,362,000 | ||||||
|
| |||||||
45,686,883 | ||||||||
|
| |||||||
Beverages 0.1% | ||||||||
Embotelladora Andina S.A. | 1,350,000 | 1,433,399 | ||||||
|
| |||||||
Building Materials 0.6% | ||||||||
USG Corp. | ||||||||
6.30%, due 11/15/16 | 4,695,000 | 5,070,600 | ||||||
9.75%, due 1/15/18 | 1,330,000 | 1,602,650 | ||||||
|
| |||||||
6,673,250 | ||||||||
|
| |||||||
Chemicals 0.8% | ||||||||
Dow Chemical Co. (The) | ||||||||
4.125%, due 11/15/21 | 1,605,000 | 1,695,652 | ||||||
8.55%, due 5/15/19 | 225,000 | 288,438 | ||||||
Hexion U.S. Finance Corp. | 1,735,000 | 1,802,231 | ||||||
Huntsman International LLC | 2,900,000 | 3,233,500 | ||||||
Rockwood Specialties Group, Inc. 4.625%, due 10/15/20 | 1,525,000 | 1,563,125 | ||||||
|
| |||||||
8,582,946 | ||||||||
|
|
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) | ||||||||
Coal 0.3% | ||||||||
Alpha Natural Resources, Inc. | ||||||||
6.00%, due 6/1/19 | $ | 1,100,000 | $ | 836,000 | ||||
6.25%, due 6/1/21 | 110,000 | 81,125 | ||||||
Cloud Peak Energy Resources LLC / Cloud Peak Energy Finance Corp. | 2,275,000 | 2,366,000 | ||||||
|
| |||||||
3,283,125 | ||||||||
|
| |||||||
Commercial Services 0.7% | ||||||||
Avis Budget Car Rental LLC / Avis Budget Finance, Inc. | 1,518,000 | 1,616,670 | ||||||
Hertz Corp. (The) | ||||||||
5.875%, due 10/15/20 | 450,000 | 477,000 | ||||||
7.375%, due 1/15/21 | 2,700,000 | 2,973,375 | ||||||
Quebecor World, Inc. (Litigation Recovery Trust—Escrow Shares) | 110,000 | 1,617 | ||||||
Rent-A-Center, Inc. | 725,000 | 679,687 | ||||||
United Rentals North America, Inc. | ||||||||
6.125%, due 6/15/23 | 710,000 | 763,250 | ||||||
8.375%, due 9/15/20 | 1,305,000 | 1,446,919 | ||||||
|
| |||||||
7,958,518 | ||||||||
|
| |||||||
Computers 0.4% | ||||||||
NCR Corp. | 2,730,000 | 2,777,775 | ||||||
SunGard Data Systems, Inc. | ||||||||
6.625%, due 11/1/19 | 1,100,000 | 1,152,250 | ||||||
7.375%, due 11/15/18 | 344,000 | 364,640 | ||||||
7.625%, due 11/15/20 | 200,000 | 218,500 | ||||||
|
| |||||||
4,513,165 | ||||||||
|
| |||||||
Cosmetics & Personal Care 0.2% | ||||||||
Albea Beauty Holdings S.A. | 1,850,000 | 2,016,500 | ||||||
|
| |||||||
Diversified Financial Services 0.5% | ||||||||
Alterra Finance LLC | 200,000 | 230,298 | ||||||
GE Capital Trust II | € | 2,240,000 | 3,332,968 | |||||
General Electric Capital Corp. | £ | 760,000 | 1,406,497 | |||||
|
| |||||||
4,969,763 | ||||||||
|
| |||||||
Electric 0.6% | ||||||||
Abu Dhabi National Energy Co. | $ | 2,200,000 | 2,167,000 |
Principal Amount | Value | |||||||
Electric (continued) | ||||||||
Great Plains Energy, Inc. | $ | 1,130,000 | $ | 1,269,523 | ||||
Puget Energy, Inc. | 815,000 | 941,951 | ||||||
Wisconsin Energy Corp. | 1,554,717 | 1,607,189 | ||||||
|
| |||||||
5,985,663 | ||||||||
|
| |||||||
Engineering & Construction 0.2% | ||||||||
MasTec, Inc. | 1,760,000 | 1,698,400 | ||||||
|
| |||||||
Entertainment 0.2% | ||||||||
Mohegan Tribal Gaming Authority | 1,935,000 | 2,128,500 | ||||||
|
| |||||||
Finance—Auto Loans 0.4% | ||||||||
Ally Financial, Inc. | 3,250,000 | 3,262,188 | ||||||
Ford Motor Credit Co. LLC | 350,000 | 405,713 | ||||||
General Motors Financial Co., Inc. | 325,000 | 328,250 | ||||||
|
| |||||||
3,996,151 | ||||||||
|
| |||||||
Finance—Consumer Loans 0.6% | ||||||||
HSBC Finance Capital Trust IX | 2,400,000 | 2,490,000 | ||||||
SLM Corp. | ||||||||
6.25%, due 1/25/16 | 1,045,000 | 1,127,294 | ||||||
8.00%, due 3/25/20 | 655,000 | 756,525 | ||||||
Springleaf Finance Corp. | 1,765,000 | 1,952,531 | ||||||
|
| |||||||
6,326,350 | ||||||||
|
| |||||||
Finance—Credit Card 0.3% | ||||||||
American Express Co. | 1,600,000 | 1,766,080 | ||||||
Discover Financial Services | 1,491,000 | 1,497,702 | ||||||
|
| |||||||
3,263,782 | ||||||||
|
| |||||||
Finance—Investment Banker/Broker 0.2% |
| |||||||
Jefferies Group LLC | ||||||||
5.125%, due 1/20/23 | 722,000 | 762,277 | ||||||
6.45%, due 6/8/27 | 1,000,000 | 1,074,471 | ||||||
|
| |||||||
1,836,748 | ||||||||
|
| |||||||
Finance—Mortgage Loan/Banker 0.1% |
| |||||||
Countrywide Financial Corp. | 1,200,000 | 1,313,968 | ||||||
|
|
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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Finance—Other Services 0.2% | ||||||||
Icahn Enterprises, L.P. / Icahn Enterprises Finance Corp. | ||||||||
5.875%, due 2/1/22 (d) | $ | 320,000 | $ | 324,800 | ||||
6.00%, due 8/1/20 (d) | 2,110,000 | 2,226,050 | ||||||
|
| |||||||
2,550,850 | ||||||||
|
| |||||||
Food 1.3% | ||||||||
ARAMARK Corp. | 2,500,000 | 2,621,875 | ||||||
Grupo Bimbo S.A.B. de C.V. | 1,640,000 | 1,699,696 | ||||||
JBS Finance II, Ltd. | 675,000 | 722,250 | ||||||
JBS USA LLC / JBS USA Finance, Inc. 8.25%, due 2/1/20 (d) | 480,000 | 525,360 | ||||||
Kerry Group Financial Services | 2,899,000 | 2,718,413 | ||||||
Minerva Luxembourg S.A. | 2,500,000 | 2,571,875 | ||||||
Smithfield Foods, Inc. | ||||||||
6.625%, due 8/15/22 | 575,000 | 627,469 | ||||||
7.75%, due 7/1/17 | 925,000 | 1,070,687 | ||||||
Virgolino de Oliveira Finance, Ltd. 11.75%, due 2/9/22 (d) | 1,700,000 | 1,236,750 | ||||||
|
| |||||||
13,794,375 | ||||||||
|
| |||||||
Health Care—Products 0.3% | ||||||||
Alere, Inc. | 1,850,000 | 2,030,375 | ||||||
Kinetic Concepts, Inc. / KCI U.S.A., Inc. | 1,300,000 | 1,485,250 | ||||||
|
| |||||||
3,515,625 | ||||||||
|
| |||||||
Health Care—Services 1.2% | ||||||||
CHS / Community Health Systems, Inc. | 1,775,000 | 1,810,500 | ||||||
CIGNA Corp. | 270,000 | 293,107 | ||||||
Fresenius Medical Care U.S. Finance II, Inc. | 1,985,000 | 2,114,025 | ||||||
HCA, Inc. | 3,750,000 | 3,721,875 | ||||||
MPH Acquisition Holdings LLC | 2,330,000 | 2,411,550 | ||||||
Tenet Healthcare Corp. | 2,750,000 | 2,887,500 | ||||||
|
| |||||||
13,238,557 | ||||||||
|
| |||||||
Holding Company—Diversified 0.0%‡ |
| |||||||
Hutchison Whampoa International, Ltd. 7.625%, due 4/9/19 (d) | 215,000 | 262,094 | ||||||
|
|
Principal Amount | Value | |||||||
Home Builders 1.7% | ||||||||
Beazer Homes USA, Inc. | ||||||||
5.75%, due 6/15/19 (d) | $ | 1,025,000 | $ | 1,012,188 | ||||
7.25%, due 2/1/23 | 1,875,000 | 1,931,250 | ||||||
K Hovnanian Enterprises, Inc. | 5,435,000 | 5,883,387 | ||||||
Lennar Corp. | 2,400,000 | 2,427,000 | ||||||
MDC Holdings, Inc. | 2,750,000 | 2,970,000 | ||||||
Shea Homes, L.P. / Shea Homes Funding Corp. | 1,575,000 | 1,728,562 | ||||||
Standard Pacific Corp. | 2,000,000 | 2,360,000 | ||||||
|
| |||||||
18,312,387 | ||||||||
|
| |||||||
Household Products & Wares 0.2% | ||||||||
Reynolds Group Issuer, Inc. | ||||||||
5.75%, due 10/15/20 | 2,000,000 | 2,080,000 | ||||||
9.875%, due 8/15/19 | 260,000 | 288,600 | ||||||
|
| |||||||
2,368,600 | ||||||||
|
| |||||||
Insurance 3.7% | ||||||||
Allstate Corp. (The) | 3,790,000 | 4,083,725 | ||||||
American International Group, Inc. | ||||||||
Series A3 | € | 1,300,000 | 1,853,152 | |||||
Series A2 | £ | 1,100,000 | 1,903,670 | |||||
Chubb Corp. (The) | $ | 1,660,000 | 1,842,600 | |||||
Genworth Holdings, Inc. | 1,915,000 | 2,392,892 | ||||||
Hartford Financial Services Group, Inc. 6.10%, due 10/1/41 | 4,100,000 | 5,015,042 | ||||||
Hartford Life, Inc. | 355,000 | 443,177 | ||||||
Liberty Mutual Group, Inc. | ||||||||
4.25%, due 6/15/23 (d) | 250,000 | 256,691 | ||||||
6.50%, due 3/15/35 (d) | 220,000 | 260,811 | ||||||
7.80%, due 3/7/87 (d) | 1,760,000 | 2,002,000 | ||||||
10.75%, due 6/15/88 (c)(d) | 750,000 | 1,132,500 | ||||||
Oil Insurance, Ltd. | 1,320,000 | 1,241,818 | ||||||
Pacific Life Insurance Co. | 2,575,000 | 3,325,033 | ||||||
Progressive Corp. (The) | 3,700,000 | 4,099,600 | ||||||
Protective Life Corp. | 1,640,000 | 2,312,646 |
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) | ||||||||
Insurance (continued) | ||||||||
Prudential Financial, Inc. | $ | 1,760,000 | $ | 1,817,200 | ||||
Swiss Re Capital I, L.P. | 1,350,000 | 1,444,500 | ||||||
Voya Financial, Inc. | 2,800,000 | 3,172,831 | ||||||
XL Group PLC | 2,120,000 | 2,088,200 | ||||||
|
| |||||||
40,688,088 | ||||||||
|
| |||||||
Investment Company 0.2% | ||||||||
CDP Financial, Inc. | 2,300,000 | 2,547,908 | ||||||
|
| |||||||
Iron & Steel 0.7% | ||||||||
AK Steel Corp. | 1,900,000 | 2,123,250 | ||||||
Cliffs Natural Resources, Inc. | ||||||||
3.95%, due 1/15/18 | 745,000 | 766,113 | ||||||
5.90%, due 3/15/20 | 1,085,000 | 1,137,898 | ||||||
United States Steel Corp. | 1,500,000 | 1,676,250 | ||||||
Vale S.A. | 1,545,000 | 1,494,819 | ||||||
|
| |||||||
7,198,330 | ||||||||
|
| |||||||
Lodging 1.5% | ||||||||
Caesars Entertainment Operating Co., Inc. | 2,705,000 | 2,357,250 | ||||||
MGM Resorts International | ||||||||
6.75%, due 10/1/20 | 8,531,000 | 9,427,608 | ||||||
8.625%, due 2/1/19 | 80,000 | 95,500 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | ||||||||
6.75%, due 5/15/18 | 265,000 | 311,671 | ||||||
7.15%, due 12/1/19 | 1,900,000 | 2,260,901 | ||||||
Wynn Las Vegas LLC / Wynn Las Vegas Capital Corp. | 1,500,000 | 1,657,650 | ||||||
|
| |||||||
16,110,580 | ||||||||
|
| |||||||
Machinery—Construction & Mining 0.2% |
| |||||||
Terex Corp. | 2,400,000 | 2,604,000 | ||||||
|
| |||||||
Media 0.7% | ||||||||
CCO Holdings LLC / CCO Holdings Capital Corp. | 1,555,000 | 1,568,606 | ||||||
Clear Channel Communications, Inc. 9.00%, due 3/1/21 | 2,420,000 | 2,571,250 |
Principal Amount | Value | |||||||
Media (continued) | ||||||||
DISH DBS Corp. | $ | 1,400,000 | $ | 1,529,500 | ||||
NBC Universal Media LLC | 160,000 | 182,666 | ||||||
Time Warner Entertainment Co., L.P. 8.375%, due 3/15/23 | 800,000 | 1,074,001 | ||||||
Time Warner, Inc. | 300,000 | 412,929 | ||||||
|
| |||||||
7,338,952 | ||||||||
|
| |||||||
Mining 0.7% | ||||||||
Aleris International, Inc. | 1,900,000 | 1,914,250 | ||||||
Anglo American Capital PLC | 250,000 | 319,833 | ||||||
FMG Resources August 2006 Pty, Ltd. 8.25%, due 11/1/19 (d) | 2,000,000 | 2,210,000 | ||||||
Rio Tinto Finance USA, Ltd. | 1,300,000 | 1,707,546 | ||||||
Vedanta Resources PLC | 1,690,000 | 1,791,400 | ||||||
|
| |||||||
7,943,029 | ||||||||
|
| |||||||
Miscellaneous—Manufacturing 0.5% |
| |||||||
Amsted Industries, Inc. | 2,985,000 | 2,977,538 | ||||||
Bombardier, Inc. | 2,530,000 | 2,574,275 | ||||||
Siemens Financieringsmaatschappij N.V. 6.125%, due 8/17/26 (d) | 300,000 | 368,523 | ||||||
|
| |||||||
5,920,336 | ||||||||
|
| |||||||
Office & Business Equipment 0.0%‡ | ||||||||
Xerox Corp. | 300,000 | 308,724 | ||||||
|
| |||||||
Oil & Gas 3.0% |
| |||||||
Berry Petroleum Co. | 1,490,000 | 1,527,250 | ||||||
Chesapeake Energy Corp. | 2,350,000 | 2,640,813 | ||||||
Denbury Resources, Inc. | 2,550,000 | 2,734,875 | ||||||
ENI S.p.A. | 1,825,000 | 1,930,003 | ||||||
EP Energy LLC / EP Energy Finance, Inc. 9.375%, due 5/1/20 | 1,850,000 | 2,132,125 | ||||||
Gazprom OAO Via Gaz Capital S.A. | 1,460,000 | 1,314,000 | ||||||
Linn Energy LLC / Linn Energy Finance Corp. | 6,190,000 | 6,677,462 |
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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Oil & Gas (continued) |
| |||||||
Petrobras Global Finance B.V. | $ | 2,610,000 | $ | 2,438,687 | ||||
Plains Exploration & Production Co. 6.125%, due 6/15/19 | 1,700,000 | 1,874,250 | ||||||
Precision Drilling Corp. | ||||||||
6.50%, due 12/15/21 | 1,495,000 | 1,618,338 | ||||||
6.625%, due 11/15/20 | 635,000 | 682,625 | ||||||
Rosneft Finance S.A. | 1,270,000 | 1,346,200 | ||||||
Samson Investment Co. | 1,820,000 | 1,920,100 | ||||||
SM Energy Co. | 1,970,000 | 1,930,600 | ||||||
Swift Energy Co. | 1,875,000 | 1,865,625 | ||||||
|
| |||||||
32,632,953 | ||||||||
|
| |||||||
Oil & Gas Services 0.5% |
| |||||||
Basic Energy Services, Inc. | 2,520,000 | 2,696,400 | ||||||
Hornbeck Offshore Services, Inc. |
| |||||||
5.00%, due 3/1/21 | 1,300,000 | 1,261,000 | ||||||
5.875%, due 4/1/20 | 1,700,000 | 1,768,000 | ||||||
|
| |||||||
5,725,400 | ||||||||
|
| |||||||
Pharmaceuticals 0.2% |
| |||||||
Valeant Pharmaceuticals International, Inc. | 1,500,000 | 1,672,500 | ||||||
|
| |||||||
Pipelines 2.6% |
| |||||||
Access Midstream Partners, L.P. / ACMP Finance Corp. | 2,745,000 | 2,779,312 | ||||||
Atlas Pipeline Partners, L.P. / Atlas Pipeline Finance Corp. | 1,850,000 | 1,961,000 | ||||||
Energy Transfer Partners, L.P. |
| |||||||
4.65%, due 6/1/21 | 1,455,000 | 1,551,691 | ||||||
7.60%, due 2/1/24 | 650,000 | 804,339 | ||||||
Kinder Morgan, Inc. | 2,930,000 | 2,930,158 | ||||||
MarkWest Energy Partners, L.P. / |
| |||||||
5.50%, due 2/15/23 | 1,975,000 | 2,049,062 | ||||||
6.25%, due 6/15/22 | 91,000 | 98,053 | ||||||
ONEOK, Inc. | 350,000 | 343,785 | ||||||
Plains All American Pipeline, L.P. / PAA Finance Corp. | 3,050,000 | 3,039,560 |
Principal Amount | Value | |||||||
Pipelines (continued) |
| |||||||
Regency Energy Partners, L.P. / Regency Energy Finance Corp. | ||||||||
5.875%, due 3/1/22 | $ | 1,350,000 | $ | 1,414,125 | ||||
6.875%, due 12/1/18 | 1,265,000 | 1,342,481 | ||||||
Spectra Energy Partners, L.P. | 1,740,000 | 1,862,244 | ||||||
¨Targa Resources Partners, L.P. / |
| |||||||
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 | 1,754,323 | ||||||
|
| |||||||
28,194,408 | ||||||||
|
| |||||||
Real Estate Investment Trusts 0.0%‡ |
| |||||||
Health Care REIT, Inc. | 290,000 | 318,065 | ||||||
|
| |||||||
Retail 0.9% |
| |||||||
AmeriGas Finance LLC / |
| |||||||
6.75%, due 5/20/20 | 740,000 | 804,750 | ||||||
7.00%, due 5/20/22 | 1,400,000 | 1,540,000 | ||||||
Brinker International, Inc. | 1,885,000 | 1,879,939 | ||||||
CVS Caremark Corp. | 233,217 | 259,242 | ||||||
Macy's Retail Holdings, Inc. | 1,750,000 | 1,817,366 | ||||||
QVC, Inc. | 2,500,000 | 2,561,553 | ||||||
Wal-Mart Stores, Inc. | 314,000 | 392,083 | ||||||
|
| |||||||
9,254,933 | ||||||||
|
| |||||||
Semiconductors 0.1% |
| |||||||
Freescale Semiconductor, Inc. |
| |||||||
5.00%, due 5/15/21 (d) | 400,000 | 404,000 | ||||||
6.00%, due 1/15/22 (d) | 1,000,000 | 1,045,000 | ||||||
|
| |||||||
1,449,000 | ||||||||
|
| |||||||
Software 0.6% |
| |||||||
Fidelity National Information Services, Inc. | 1,485,000 | 1,589,785 | ||||||
First Data Corp. |
| |||||||
7.375%, due 6/15/19 (d) | 2,535,000 | 2,718,787 | ||||||
8.875%, due 8/15/20 (d) | 1,635,000 | 1,812,806 | ||||||
|
| |||||||
6,121,378 | ||||||||
|
| |||||||
Telecommunications 2.2% |
| |||||||
CC Holdings GS V LLC / Crown Castle GS III Corp. | 2,140,000 | 2,164,248 |
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 | |||||||
Corporate Bonds (continued) | ||||||||
Telecommunications (continued) |
| |||||||
Comcel Trust Co. | $ | 1,700,000 | $ | 1,778,625 | ||||
CommScope, Inc. | 2,556,000 | 2,766,870 | ||||||
GTP Towers Issuer LLC | 1,500,000 | 1,538,940 | ||||||
Hughes Satellite Systems Corp. |
| |||||||
6.50%, due 6/15/19 | 1,100,000 | 1,210,000 | ||||||
7.625%, due 6/15/21 | 1,200,000 | 1,353,000 | ||||||
Sprint Communications, Inc. | 1,900,000 | 1,914,250 | ||||||
Sprint Corp. | 1,300,000 | 1,417,000 | ||||||
T-Mobile USA, Inc. | 3,515,000 | 3,695,144 | ||||||
Telefonica Emisiones SAU |
| |||||||
4.57%, due 4/27/23 | 2,552,000 | 2,669,081 | ||||||
5.462%, due 2/16/21 | 395,000 | 444,754 | ||||||
¨Verizon Communications, Inc. | 2,325,000 | 2,562,931 | ||||||
|
| |||||||
23,514,843 | ||||||||
|
| |||||||
Transportation 0.6% |
| |||||||
CHC Helicopter S.A. | 2,353,500 | 2,530,013 | ||||||
Hapag-Lloyd A.G. | 375,000 | 401,250 | ||||||
PHI, Inc. | 2,005,000 | 2,035,075 | ||||||
Ukraine Railways via Shortline PLC | 1,750,000 | 1,300,894 | ||||||
|
| |||||||
6,267,232 | ||||||||
|
| |||||||
Total Corporate Bonds |
| 397,620,611 | ||||||
|
| |||||||
Foreign Bonds 0.6% | ||||||||
Banks 0.2% |
| |||||||
Barclays Bank PLC | £ | 1,186,000 | 2,645,790 | |||||
|
| |||||||
Diversified Financial Services 0.2% |
| |||||||
Ageas Hybrid Financing S.A. | € | 1,700,000 | 2,393,871 | |||||
|
| |||||||
Packaging & Containers 0.2% |
| |||||||
Rexam PLC | 1,250,000 | 1,851,591 | ||||||
|
| |||||||
Total Foreign Bonds | 6,891,252 | |||||||
|
|
Principal Amount | Value | |||||||
Foreign Government Bond 0.2% | ||||||||
Portugal 0.2% |
| |||||||
Portugal Obrigacoes do Tesouro OT | € | 1,000,000 | $ | 1,539,786 | ||||
|
| |||||||
Total Foreign Government Bond |
| 1,539,786 | ||||||
|
| |||||||
Loan Assignments 1.3% (i) | ||||||||
Airlines 0.2% |
| |||||||
U.S. Airways Group, Inc. | $ | 2,000,000 | 1,981,250 | |||||
|
| |||||||
Auto Parts & Equipment 0.2% |
| |||||||
Allison Transmission, Inc. | 1,780,106 | 1,772,095 | ||||||
|
| |||||||
Commercial Services 0.2% |
| |||||||
Allied Security Holdings, LLC | 1,815,068 | 1,813,934 | ||||||
|
| |||||||
Entertainment 0.2% |
| |||||||
Scientific Games International, Inc. | 2,493,750 | 2,484,398 | ||||||
|
| |||||||
Media 0.3% |
| |||||||
Clear Channel Communications, Inc. Term Loan D | 1,966,831 | 1,949,622 | ||||||
Virgin Media Investment Holdings, Ltd. USD Term Loan B | 1,500,000 | 1,486,875 | ||||||
|
| |||||||
3,436,497 | ||||||||
|
| |||||||
Mining 0.1% |
| |||||||
FMG Resources August 2006 Pty, Ltd. New Term Loan B | 1,083,555 | 1,082,032 | ||||||
|
| |||||||
Pharmaceuticals 0.1% |
| |||||||
Valeant Pharmaceuticals | 1,609,248 | 1,607,236 | ||||||
|
| |||||||
Total Loan Assignments |
| 14,177,442 | ||||||
|
|
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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Mortgage-Backed Securities 0.7% | ||||||||
Commercial Mortgage Loans |
| |||||||
Banc of America Commercial Mortgage Trust | $ | 400,000 | $ | 441,322 | ||||
Bayview Commercial Asset Trust | 235,742 | 206,333 | ||||||
Bear Stearns Commercial Mortgage Securities Trust | ||||||||
Series 2006-PW12, Class AAB | 46,258 | 46,276 | ||||||
Series 2007-PW16, Class A4 | 400,000 | 447,555 | ||||||
Citigroup Commercial Mortgage Trust | 200,000 | 224,833 | ||||||
Citigroup/Deutsche Bank Commercial Mortgage Trust | 1,000,000 | 1,055,929 | ||||||
Commercial Mortgage Pass-Through Certificates | 92,875 | 94,222 | ||||||
Four Times Square Trust | 860,000 | 970,643 | ||||||
JP Morgan Chase Commercial Mortgage Securities Trust | ||||||||
Series 2004-C3, Class A5 | 510,000 | 518,622 | ||||||
Series 2007-CB20, Class A3 | 93,630 | 93,947 | ||||||
Series 2007-LD12, Class A3 | 267,519 | 268,317 | ||||||
LB-UBS Commercial Mortgage Trust Series 2006-C7, Class A3 | 500,000 | 547,181 | ||||||
Merrill Lynch / Countrywide Commercial Mortgage Trust | 358,506 | 360,415 | ||||||
Morgan Stanley Capital I Trust | ||||||||
Series 2007-IQ14, Class AAB | 304,791 | 315,828 | ||||||
Series 2006-HQ9, Class AM | 500,000 | 546,678 |
Principal Amount | Value | |||||||
Commercial Mortgage Loans |
| |||||||
Timberstar Trust | $ | 280,000 | $ | 303,318 | ||||
Wachovia Bank Commercial Mortgage Trust | 500,000 | 545,268 | ||||||
|
| |||||||
6,986,687 | ||||||||
|
| |||||||
Residential Mortgages (Collateralized Mortgage Obligations) 0.1% |
| |||||||
Mortgage Equity Conversion Asset Trust | 582,503 | 466,002 | ||||||
WaMu Mortgage Pass-Through Certificates | 646,783 | 562,130 | ||||||
|
| |||||||
1,028,132 | ||||||||
|
| |||||||
Total Mortgage-Backed Securities | 8,014,819 | |||||||
|
| |||||||
U.S. Government & Federal Agencies 1.0% | ||||||||
Federal Home Loan Mortgage Corporation |
| |||||||
6.50%, due 11/1/16 | 8,374 | 8,694 | ||||||
6.50%, due 2/1/27 | 115 | 129 | ||||||
6.50%, due 5/1/29 | 30,615 | 34,450 | ||||||
6.50%, due 6/1/29 | 12,738 | 14,335 | ||||||
6.50%, due 7/1/29 | 52,896 | 59,535 | ||||||
6.50%, due 8/1/29 | 13,195 | 14,848 | ||||||
6.50%, due 9/1/29 | 1,505 | 1,697 | ||||||
6.50%, due 6/1/32 | 5,993 | 6,764 | ||||||
6.50%, due 1/1/37 | 5,326 | 5,986 | ||||||
7.00%, due 3/1/26 | 180 | 185 | ||||||
7.00%, due 9/1/26 | 8,182 | 9,159 | ||||||
7.00%, due 7/1/32 | 22,256 | 25,929 | ||||||
7.50%, due 1/1/16 | 721 | 742 | ||||||
7.50%, due 5/1/32 | 8,758 | 9,946 | ||||||
|
| |||||||
192,399 | ||||||||
|
| |||||||
Federal National Mortgage Association (Mortgage Pass-Through Securities) 0.0%‡ |
| |||||||
4.50%, due 7/1/20 | 3,984 | 4,236 | ||||||
4.50%, due 3/1/21 | 11,632 | 12,365 | ||||||
6.00%, due 4/1/19 | 1,543 | 1,721 | ||||||
7.00%, due 10/1/37 | 1,428 | 1,572 | ||||||
7.00%, due 11/1/37 | 26,512 | 31,147 | ||||||
7.50%, due 10/1/15 | 6,371 | 6,558 | ||||||
|
| |||||||
57,599 | ||||||||
|
|
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. |
Principal Amount | Value | |||||||
U.S. Government & Federal Agencies (continued) | ||||||||
Government National Mortgage Association |
| |||||||
5.00%, due 12/15/37 | $ | 6,614 | $ | 7,268 | ||||
5.50%, due 9/15/35 | 26,010 | 29,055 | ||||||
6.50%, due 4/15/29 | 40 | 45 | ||||||
6.50%, due 5/15/29 | 172 | 194 | ||||||
6.50%, due 8/15/29 | 26 | 30 | ||||||
6.50%, due 10/15/31 | 4,562 | 5,272 | ||||||
7.00%, due 9/15/23 | 888 | 912 | ||||||
7.00%, due 7/15/25 | 1,608 | 1,614 | ||||||
7.00%, due 12/15/25 | 4,116 | 4,202 | ||||||
7.00%, due 11/15/27 | 12,372 | 13,796 | ||||||
7.00%, due 12/15/27 | 57,719 | 64,577 | ||||||
7.00%, due 6/15/28 | 4,434 | 4,594 | ||||||
7.50%, due 6/15/26 | 461 | 517 | ||||||
7.50%, due 10/15/30 | 27,141 | 30,749 | ||||||
8.00%, due 9/15/26 | 141 | 143 | ||||||
8.00%, due 10/15/26 | 8,332 | 9,369 | ||||||
8.50%, due 11/15/26 | 21,820 | 22,392 | ||||||
|
| |||||||
194,729 | ||||||||
|
| |||||||
United States Treasury Bonds 0.8% | ||||||||
2.875%, due 5/15/43 | 8,835,000 | 7,876,950 | ||||||
4.375%, due 5/15/40 | 415,000 | 487,496 | ||||||
|
| |||||||
8,364,446 | ||||||||
|
| |||||||
United States Treasury Notes 0.2% | ||||||||
0.25%, due 12/15/15 | 1,435,000 | 1,434,495 | ||||||
1.375%, due 6/30/18 | 95,000 | 94,889 | ||||||
|
| |||||||
1,529,384 | ||||||||
|
| |||||||
Total U.S. Government & Federal Agencies |
| 10,338,557 | ||||||
|
| |||||||
Yankee Bonds 0.3% (k) | ||||||||
Banks 0.1% | ||||||||
Royal Bank of Scotland Group PLC 6.125%, due 12/15/22 | 1,530,000 | 1,628,477 | ||||||
|
| |||||||
Insurance 0.2% | ||||||||
Validus Holdings, Ltd. | 1,425,000 | 2,018,907 | ||||||
|
| |||||||
Total Yankee Bonds | 3,647,384 | |||||||
|
| |||||||
Total Long-Term Bonds | 457,163,349 | |||||||
|
|
Shares | Value | |||||||
Common Stocks 50.6% | ||||||||
Aerospace & Defense 1.4% | ||||||||
BAE Systems PLC | 1,140,690 | $ | 7,703,760 | |||||
Lockheed Martin Corp. | 43,210 | 7,092,490 | ||||||
|
| |||||||
14,796,250 | ||||||||
|
| |||||||
Agriculture 4.7% | ||||||||
¨Altria Group, Inc. | 240,038 | 9,627,924 | ||||||
British American Tobacco PLC | 117,937 | 6,804,092 | ||||||
¨Imperial Tobacco Group PLC | 248,500 | 10,728,333 | ||||||
¨Lorillard, Inc. | 167,240 | 9,937,401 | ||||||
Philip Morris International, Inc. | 65,783 | 5,619,842 | ||||||
Reynolds American, Inc. | 151,710 | 8,560,995 | ||||||
|
| |||||||
51,278,587 | ||||||||
|
| |||||||
Auto Manufacturers 0.9% | ||||||||
Daimler A.G. Registered Shares | 84,710 | 7,842,267 | ||||||
Ford Motor Co. | 125,000 | 2,018,750 | ||||||
|
| |||||||
9,861,017 | ||||||||
|
| |||||||
Banks 1.8% | ||||||||
Citigroup, Inc. | 41,000 | 1,964,310 | ||||||
Commonwealth Bank of Australia | 40,780 | 2,989,097 | ||||||
Svenska Handelsbanken AB Class A | 114,310 | 5,736,421 | ||||||
Wells Fargo & Co. | 88,330 | 4,384,701 | ||||||
Westpac Banking Corp. | 121,616 | 3,967,903 | ||||||
|
| |||||||
19,042,432 | ||||||||
|
| |||||||
Beverages 1.1% |
| |||||||
Anheuser-Busch InBev N.V. | 29,127 | 3,169,707 | ||||||
Coca-Cola Co. (The) | 75,470 | 3,078,421 | ||||||
Diageo PLC, Sponsored ADR | 23,560 | 2,892,697 | ||||||
PepsiCo., Inc. | 35,410 | 3,041,365 | ||||||
|
| |||||||
12,182,190 | ||||||||
|
| |||||||
Chemicals 2.6% |
| |||||||
BASF S.E. | 69,174 | 8,006,652 | ||||||
Dow Chemical Co. (The) | 105,080 | 5,243,492 | ||||||
E.I. du Pont de Nemours & Co. | 48,516 | 3,266,097 | ||||||
Potash Corporation of Saskatchewan, Inc. | 121,085 | 4,378,434 | ||||||
Yara International ASA | 163,800 | 7,732,160 | ||||||
|
| |||||||
28,626,835 | ||||||||
|
| |||||||
Commercial Services 0.7% |
| |||||||
Automatic Data Processing, Inc. | 41,270 | 3,217,409 | ||||||
R.R. Donnelley & Sons Co. | 234,920 | 4,134,592 | ||||||
|
| |||||||
7,352,001 | ||||||||
|
| |||||||
Computers 0.4% |
| |||||||
Apple, Inc. | 8,030 | 4,738,423 | ||||||
|
| |||||||
Electric 6.1% |
| |||||||
Ameren Corp. | 167,240 | 6,908,684 | ||||||
Dominion Resources, Inc. | 42,960 | 3,116,318 |
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 April 30, 2014 (Unaudited) (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Electric (continued) |
| |||||||
Duke Energy Corp. | 118,903 | $ | 8,857,085 | |||||
Electricite de France S.A. | 218,410 | 8,376,738 | ||||||
Integrys Energy Group, Inc. | 55,580 | 3,405,942 | ||||||
PPL Corp. | 250,440 | 8,349,670 | ||||||
Southern Co. (The) | 90,895 | 4,165,718 | ||||||
SSE PLC | 294,390 | 7,579,979 | ||||||
TECO Energy, Inc. | 359,905 | 6,463,894 | ||||||
Terna S.p.A. | 1,724,350 | 9,329,876 | ||||||
|
| |||||||
66,553,904 | ||||||||
|
| |||||||
Electrical Components & Equipment 0.3% |
| |||||||
Emerson Electric Co. | 48,683 | 3,319,207 | ||||||
|
| |||||||
Engineering & Construction 1.0% |
| |||||||
¨Vinci S.A. | 143,925 | 10,850,299 | ||||||
|
| |||||||
Entertainment 0.3% |
| |||||||
Regal Entertainment Group Class A | 201,440 | 3,787,072 | ||||||
|
| |||||||
Environmental Controls 0.3% |
| |||||||
Waste Management, Inc. | 68,450 | 3,042,602 | ||||||
|
| |||||||
Finance—Other Services 0.5% |
| |||||||
CME Group, Inc. | 75,710 | 5,329,227 | ||||||
|
| |||||||
Food 1.0% |
| |||||||
Nestle S.A. Registered | 42,725 | 3,298,675 | ||||||
Unilever PLC | 94,670 | 4,226,189 | ||||||
WM Morrison Supermarkets PLC | 829,540 | 2,813,795 | ||||||
|
| |||||||
10,338,659 | ||||||||
|
| |||||||
Food Services 0.3% |
| |||||||
Compass Group PLC | 191,470 | 3,045,277 | ||||||
|
| |||||||
Gas 1.7% |
| |||||||
Centrica PLC | 1,447,670 | 8,066,008 | ||||||
¨National Grid PLC | 706,470 | 10,025,512 | ||||||
|
| |||||||
18,091,520 | ||||||||
|
| |||||||
Household Products & Wares 0.5% |
| |||||||
Kimberly-Clark Corp. | 46,825 | 5,256,106 | ||||||
|
| |||||||
Insurance 1.9% |
| |||||||
Allianz S.E. Registered | 24,450 | 4,234,998 | ||||||
Arthur J. Gallagher & Co. | 65,540 | 2,950,611 | ||||||
Muenchener Rueckversicherungs-Gesellschaft A.G. Registered | 33,470 | 7,729,036 | ||||||
SCOR SE | 172,250 | 6,286,130 | ||||||
|
| |||||||
21,200,775 | ||||||||
|
|
Shares | Value | |||||||
Investment Company 0.0%‡ | ||||||||
BGP Holdings PLC (e)(g)(h) | 20,068 | $ | 3 | |||||
|
| |||||||
Machinery—Diversified 0.3% |
| |||||||
Deere & Co. | 30,570 | 2,853,404 | ||||||
|
| |||||||
Media 1.2% |
| |||||||
Dex Media, Inc. (e) | 464 | 3,401 | ||||||
ION Media Networks, Inc. (e)(f)(g)(h) | 12 | 4,539 | ||||||
Pearson PLC | 246,810 | 4,621,356 | ||||||
Shaw Communications, Inc. | 194,180 | 4,703,690 | ||||||
Wolters Kluwer N.V. | 115,770 | 3,223,512 | ||||||
|
| |||||||
12,556,498 | ||||||||
|
| |||||||
Mining 0.4% |
| |||||||
BHP Billiton, Ltd. | 112,620 | 3,949,556 | ||||||
|
| |||||||
Miscellaneous—Manufacturing 0.4% |
| |||||||
Orkla ASA | 557,480 | 4,603,855 | ||||||
|
| |||||||
Oil & Gas 3.2% |
| |||||||
ConocoPhillips | 70,140 | 5,212,103 | ||||||
Diamond Offshore Drilling, Inc. | 88,090 | 4,810,595 | ||||||
Royal Dutch Shell PLC, ADR | 111,890 | 8,810,219 | ||||||
Statoil ASA | 169,410 | 5,141,323 | ||||||
¨Total S.A. | 155,578 | 11,111,496 | ||||||
|
| |||||||
35,085,736 | ||||||||
|
| |||||||
Pharmaceuticals 3.9% |
| |||||||
AbbVie, Inc. | 77,640 | 4,043,491 | ||||||
AstraZeneca PLC, Sponsored ADR | 45,970 | 3,633,929 | ||||||
¨GlaxoSmithKline PLC | 383,230 | 10,559,778 | ||||||
Johnson & Johnson | 32,987 | 3,341,253 | ||||||
Merck & Co., Inc. | 73,039 | 4,277,164 | ||||||
Novartis A.G. | 62,610 | 5,427,955 | ||||||
Roche Holding A.G., (Genusscheine) | 22,305 | 6,538,677 | ||||||
Sanofi | 39,570 | 4,283,096 | ||||||
|
| |||||||
42,105,343 | ||||||||
|
| |||||||
Pipelines 1.6% |
| |||||||
Enterprise Products Partners, L.P. | 61,630 | 4,507,002 | ||||||
Kinder Morgan Energy Partners, L.P. | 86,640 | 6,530,923 | ||||||
MarkWest Energy Partners, L.P. | 51,430 | 3,257,576 | ||||||
¨Targa Resources Partners, L.P. | 60,180 | 3,563,258 | ||||||
|
| |||||||
17,858,759 | ||||||||
|
| |||||||
Real Estate Investment Trusts 1.6% |
| |||||||
Corrections Corporation of America | 153,405 | 5,031,684 | ||||||
Health Care REIT, Inc. | 137,870 | 8,698,218 | ||||||
Unibail-Rodamco SE | 14,805 | 3,997,027 | ||||||
|
| |||||||
17,726,929 | ||||||||
|
| |||||||
Retail 0.3% |
| |||||||
McDonald's Corp. | 34,452 | 3,492,744 | ||||||
|
|
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. |
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Semiconductors 0.7% |
| |||||||
KLA-Tencor Corp. | 48,235 | $ | 3,086,558 | |||||
Microchip Technology, Inc. | 86,400 | 4,107,456 | ||||||
|
| |||||||
7,194,014 | ||||||||
|
| |||||||
Software 0.3% |
| |||||||
Microsoft Corp. | 84,463 | 3,412,305 | ||||||
|
| |||||||
Telecommunications 7.4% |
| |||||||
AT&T, Inc. | 235,677 | 8,413,669 | ||||||
BCE, Inc. | 213,770 | 9,517,792 | ||||||
CenturyLink, Inc. | 212,601 | 7,421,901 | ||||||
Deutsche Telekom A.G. | 551,430 | 9,245,340 | ||||||
Philippine Long Distance Telephone Co., Sponsored ADR | 49,000 | 3,160,500 | ||||||
Rogers Communications, Inc. Class B | 85,910 | 3,411,945 | ||||||
¨Swisscom A.G. | 16,980 | 10,321,895 | ||||||
Telstra Corp., Ltd. | 1,692,080 | 8,205,541 | ||||||
¨Verizon Communications, Inc. | 194,419 | 9,085,200 | ||||||
Vivendi S.A. | 208,453 | 5,593,072 | ||||||
Vodafone Group PLC | 1,503,268 | 5,684,112 | ||||||
|
| |||||||
80,060,967 | ||||||||
|
| |||||||
Toys, Games & Hobbies 0.4% |
| |||||||
Mattel, Inc. | 124,520 | 4,883,052 | ||||||
|
| |||||||
Transportation 0.3% |
| |||||||
Deutsche Post A.G. Registered | 87,850 | 3,307,177 | ||||||
|
| |||||||
Water 1.1% |
| |||||||
Severn Trent PLC | 124,760 | 3,886,394 | ||||||
United Utilities Group PLC | 616,209 | 8,281,651 | ||||||
|
| |||||||
12,168,045 | ||||||||
|
| |||||||
Total Common Stocks | 549,950,770 | |||||||
|
| |||||||
Principal Amount | Value | |||||||
Short-Term Investment 5.1% | ||||||||
Repurchase Agreement 5.1% |
| |||||||
State Street Bank and Trust Co. | $ | 55,287,746 | $ | 55,287,746 | ||||
|
| |||||||
Total Short-Term Investment |
| 55,287,746 | ||||||
|
| |||||||
Total Investments | 97.8 | % | 1,062,401,865 | |||||
Other Assets, Less Liabilities | 2.2 | 23,998,274 | ||||||
Net Assets | 100.0 | % | $ | 1,086,400,139 | ||||
Contracts Long | Unrealized Appreciation (Depreciation) (l) | |||||||
Futures Contracts 0.1% | ||||||||
Standard & Poor's 500 Index Mini | 2,090 | $ | 1,186,806 | |||||
|
| |||||||
Total Futures Contracts Long |
| 1,186,806 | ||||||
|
| |||||||
Contracts Short | ||||||||
United States Treasury Notes | (745 | ) | (47,407 | ) | ||||
United States Treasury Notes | (1,102 | ) | 77,605 | |||||
|
| |||||||
Total Futures Contracts Short |
| 30,198 | ||||||
|
| |||||||
Total Futures Contracts |
| $ | 1,217,004 | |||||
|
|
‡ | Less than one-tenth of a percent. |
(a) | Step coupon—Rate shown was the rate in effect as of April 30, 2014. |
(b) | Subprime mortgage investment or other asset-backed security. The total market value of these securities as of April 30, 2014 was $10,588,119, which represented 1.0% of the Fund's net assets. |
(c) | Floating rate—Rate shown was the rate in effect as of April 30, 2014. |
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 April 30, 2014 (Unaudited) (continued)
(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) | Non-income producing security. |
(f) | Restricted security. |
(g) | Illiquid security—The total market value of these securities as of April 30, 2014, was $472,161, which represented less than one-tenth of a percent of the Fund's net assets. |
(h) | Fair valued security—Represents fair value as measured in good faith under procedures approved by the Board of Trustees. As of April 30, 2014, the total market value of fair valued security was $731,403, which represented 0.1% of the Fund's net assets. |
(i) | 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 April 30, 2014. |
(j) | Collateral strip rate—A bond whose interest was based on the weighted net interest rate of the collateral. The coupon rate adjusts periodically based on a predetermined schedule. Rate shown was the rate in effect as of April 30, 2014. |
(k) | Yankee Bond—Dollar-denominated bond issued in the United States by a foreign bank or corporation. |
(l) | Represents the difference between the value of the contracts at the time they were opened and the value as of April 30, 2014. |
(m) | As of April 30, 2014, cash in the amount of $10,262,000 was on deposit with a broker for futures transactions. |
(n) | As of April 30, 2014, cost was $930,038,335 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 142,547,781 | ||
Gross unrealized depreciation | (10,184,251 | ) | ||
|
| |||
Net unrealized appreciation | $ | 132,363,530 | ||
|
|
The following abbreviations are used in the above portfolio:
ADR—American Depositary Receipt
£—British Pound Sterling
€—Euro
As of April 30, 2014, the Fund held the following foreign currency forward contracts:
Foreign Currency Buy Contracts | Expiration Date | Counterparty | Contract Amount | Contract Amount | Unrealized | |||||||||||||||||||||||||||
Euro vs. U.S. Dollar | 5/7/14 | JPMorgan Chase Bank | EUR | 53,615,000 | USD | 74,321,113 | USD | 61,275 | ||||||||||||||||||||||||
Pound Sterling vs. U.S. Dollar | 5/7/14 | JPMorgan Chase Bank | GBP | 28,113,000 | 47,429,442 | 34,664 | ||||||||||||||||||||||||||
Foreign Currency Sales Contracts | Contract Amount Sold | Contract Amount Purchased | ||||||||||||||||||||||||||||||
Euro vs. U.S. Dollar | 5/7/14 | JPMorgan Chase Bank | EUR | 53,615,000 | USD | 72,987,447 | USD | (1,394,940 | ) | |||||||||||||||||||||||
Euro vs. U.S. Dollar | 7/17/14 | JPMorgan Chase Bank | 58,031,000 | 80,425,163 | (70,538 | ) | ||||||||||||||||||||||||||
Pound Sterling vs. U.S. Dollar | 5/7/14 | JPMorgan Chase Bank | GBP | 28,113,000 | 45,932,738 | (1,531,368 | ) | |||||||||||||||||||||||||
Pound Sterling vs. .U.S. Dollar | 7/17/14 | JPMorgan Chase Bank | 31,254,000 | 52,696,744 | (41,371 | ) | ||||||||||||||||||||||||||
Net unrealized appreciation (depreciation) on foreign currency forward contracts | USD | (2,942,278 | ) |
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. |
The following is a summary of the fair valuations according to the inputs used as of April 30, 2014, 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 | $ | — | $ | 11,414,492 | $ | — | $ | 11,414,492 | ||||||||
Convertible Bonds | — | 3,519,006 | — | 3,519,006 | ||||||||||||
Corporate Bonds (b) | — | 397,359,752 | 260,859 | 397,620,611 | ||||||||||||
Foreign Bonds | — | 6,891,252 | — | 6,891,252 | ||||||||||||
Foreign Government Bond | — | 1,539,786 | — | 1,539,786 | ||||||||||||
Loan Assignments | — | 14,177,442 | — | 14,177,442 | ||||||||||||
Mortgage-Backed Securities (c) | — | 7,548,817 | 466,002 | 8,014,819 | ||||||||||||
U.S. Government & Federal Agencies | — | 10,338,557 | — | 10,338,557 | ||||||||||||
Yankee Bonds | — | 3,647,384 | — | 3,647,384 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Long-Term Bonds | — | 456,436,488 | 726,861 | 457,163,349 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Common Stocks (d) | 549,946,228 | — | 4,542 | 549,950,770 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 55,287,746 | — | 55,287,746 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 549,946,228 | 511,724,234 | 731,403 | 1,062,401,865 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other Financial Instruments | ||||||||||||||||
Foreign Currency Forward Contract (e) | — | 95,939 | — | 95,939 | ||||||||||||
Futures Contracts Long (e) | 1,186,806 | — | — | 1,186,806 | ||||||||||||
Futures Contracts Short (e) | 77,605 | — | — | 77,605 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Other Financial Instruments | 1,264,411 | 95,939 | — | 1,360,350 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities and Other Financial Instruments | $ | 551,210,639 | $ | 511,820,173 | $ | 731,403 | $ | 1,063,762,215 | ||||||||
|
|
|
|
|
|
|
|
Liability Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Foreign Currency Forward Contracts (e) | $ | — | $ | (3,038,217 | ) | $ | — | $ | (3,038,217 | ) | ||||||
Futures Contracts Short (e) | (47,407 | ) | — | — | (47,407 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Other Financial Instruments | $ | (47,407 | ) | $ | (3,038,217 | ) | $ | — | $ | (3,085,624 | ) | |||||
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|
(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 $259,242 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 $466,002 is held in Residential Mortgage (Collateralized Mortgage Obligation) within the Mortgage-Backed Securities section of the Portfolio of Investments. |
(d) | The Level 3 securities valued at $3, and $4,539 are held in Investment Company, and Media, respectively, within the Common Stocks section of the Portfolio of Investments. |
(e) | The value listed for these securities reflects unrealized appreciation (depreciation) as shown on the Portfolio of Investments. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 25 |
Portfolio of Investments April 30, 2014 (Unaudited) (continued)
The Fund recognizes transfers between the levels as of the beginning of the period.
For the period ended April 30, 2014, 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, 2013 | Accrued Discounts (Premiums) | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Purchases | Sales (a) | Transfers in to Level 3 | Transfers out of Level 3 | Balance as of April 30, 2014 | Change in Investments 2014 (b) | ||||||||||||||||||||||||||||||
Long-Term Bonds | ||||||||||||||||||||||||||||||||||||||||
Corporate Bonds | ||||||||||||||||||||||||||||||||||||||||
Commercial Services | $ | 1,617 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,617 | $ | — | ||||||||||||||||||||
Retail | 264,033 | (129 | ) | (130 | ) | 2,594 | — | (7,126 | ) | — | — | 259,242 | 3,167 | |||||||||||||||||||||||||||
Loan Assignments | ||||||||||||||||||||||||||||||||||||||||
Auto Parts & Equipment | 2,675,828 | 2,346 | 11,715 | (45,504 | ) | — | (2,644,385 | ) | — | — | — | — | ||||||||||||||||||||||||||||
Mortgage-Backed Securities | ||||||||||||||||||||||||||||||||||||||||
Residential Mortgage (Collateralized Mortgage Obligation) | 465,776 | — | — | 55,786 | — | (55,560 | ) | — | — | 466,002 | 40,784 | |||||||||||||||||||||||||||||
Common Stocks | ||||||||||||||||||||||||||||||||||||||||
Investment Company | 3 | — | — | — | — | — | — | — | 3 | — | ||||||||||||||||||||||||||||||
Media | — | — | — | 4,518 | 21 | — | — | — | 4,539 | 4,518 | ||||||||||||||||||||||||||||||
Warrants | ||||||||||||||||||||||||||||||||||||||||
Media | 0 | (c) | — | — | 21 | — | (21 | ) | — | — | — | — | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||
Total | $ | 3,407,257 | $ | 2,217 | $ | 11,585 | $ | 17,415 | $ | 21 | $ | (2,707,092 | ) | $ | — | $ | — | $ | 731,403 | $ | 48,469 | |||||||||||||||||||
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|
|
(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. |
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 Assets and Liabilities as of April 30, 2014 (Unaudited)
Assets | ||||
Investment in securities, at value | $ | 1,062,401,865 | ||
Cash collateral on deposit at broker | 10,262,000 | |||
Cash denominated in foreign currencies | 2,469,249 | |||
Unrealized appreciation on unfunded commitments | 4,601 | |||
Receivables: | ||||
Dividends and interest | 8,634,720 | |||
Investment securities sold | 5,423,356 | |||
Fund shares sold | 4,182,031 | |||
Variation margin on futures contracts | 231,841 | |||
Unrealized appreciation on foreign currency forward contracts | 95,939 | |||
Other assets | 71,112 | |||
|
| |||
Total assets | 1,093,776,714 | |||
|
| |||
Liabilities | ||||
Due to custodian | 2,087 | |||
Payables: | ||||
Investment securities purchased | 2,813,479 | |||
Manager (See Note 3) | 544,613 | |||
Fund shares redeemed | 385,359 | |||
Transfer agent (See Note 3) | 256,416 | |||
NYLIFE Distributors (See Note 3) | 224,378 | |||
Shareholder communication | 61,527 | |||
Professional fees | 40,178 | |||
Trustees | 1,213 | |||
Accrued expenses | 9,108 | |||
Unrealized depreciation on foreign currency forward contracts | 3,038,217 | |||
|
| |||
Total liabilities | 7,376,575 | |||
|
| |||
Net assets | $ | 1,086,400,139 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 534,163 | ||
Additional paid-in capital | 920,884,152 | |||
|
| |||
921,418,315 | ||||
Undistributed net investment income | 6,302,108 | |||
Accumulated net realized gain (loss) on investments, futures transactions and foreign currency transactions | 27,690,978 | |||
Net unrealized appreciation (depreciation) on investments and futures contracts | 133,823,454 | |||
Net unrealized appreciation (depreciation) on unfunded commitments | 4,601 | |||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (2,839,317 | ) | ||
|
| |||
Net assets | $ | 1,086,400,139 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 168,990,490 | ||
|
| |||
Shares of beneficial interest outstanding | 8,328,984 | |||
|
| |||
Net asset value per share outstanding | $ | 20.29 | ||
Maximum sales charge (5.50% of offering price) | 1.18 | |||
|
| |||
Maximum offering price per share outstanding | $ | 21.47 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 449,786,833 | ||
|
| |||
Shares of beneficial interest outstanding | 22,177,524 | |||
|
| |||
Net asset value per share outstanding | $ | 20.28 | ||
Maximum sales charge (5.50% of offering price) | 1.18 | |||
|
| |||
Maximum offering price per share outstanding | $ | 21.46 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 50,784,725 | ||
|
| |||
Shares of beneficial interest outstanding | 2,491,311 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 20.38 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 76,980,932 | ||
|
| |||
Shares of beneficial interest outstanding | 3,782,291 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 20.35 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 339,857,159 | ||
|
| |||
Shares of beneficial interest outstanding | 16,636,149 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 20.43 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 27 |
Statement of Operations for the six months ended April 30, 2014 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Dividends (a) | $ | 15,550,070 | ||
Interest | 12,184,962 | |||
|
| |||
Total income | 27,735,032 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 3,131,547 | |||
Distribution/Service—Investor Class (See Note 3) | 206,191 | |||
Distribution/Service—Class A (See Note 3) | 509,237 | |||
Distribution/Service—Class B (See Note 3) | 249,300 | |||
Distribution/Service—Class C (See Note 3) | 325,015 | |||
Transfer agent (See Note 3) | 782,656 | |||
Shareholder communication | 64,153 | |||
Registration | 50,696 | |||
Professional fees | 46,146 | |||
Custodian | 39,961 | |||
Trustees | 8,599 | |||
Miscellaneous | 21,990 | |||
|
| |||
Total expenses | 5,435,491 | |||
|
| |||
Net investment income (loss) | 22,299,541 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 19,158,104 | |||
Futures transactions | 20,842,780 | |||
Foreign currency transactions | (2,719,839 | ) | ||
|
| |||
Net realized gain (loss) on investments, futures transactions and foreign currency transactions | 37,281,045 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments and unfunded commitments | 15,998,415 | |||
Futures contracts | (6,843,775 | ) | ||
Translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (1,126,595 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on investments, futures contracts and foreign currency transactions | 8,028,045 | |||
|
| |||
Net realized and unrealized gain (loss) on investments, futures transactions and foreign currency transactions | 45,309,090 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 67,608,631 | ||
|
|
(a) | Dividends recorded net of foreign withholding taxes in the amount of $582,272. |
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. |
Statements of Changes in Net Assets
for the six months ended April 30, 2014 (Unaudited) and the year ended October 31, 2013
2014 | 2013 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 22,299,541 | $ | 30,202,290 | ||||
Net realized gain (loss) on investments, futures transactions and foreign currency transactions | 37,281,045 | 48,575,803 | ||||||
Net change in unrealized appreciation (depreciation) on investments, unfunded commitments, futures contracts and foreign currency transactions | 8,028,045 | 57,756,255 | ||||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 67,608,631 | 136,534,348 | ||||||
|
| |||||||
Dividends and distributions to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (2,661,798 | ) | (5,611,090 | ) | ||||
Class A | (7,101,780 | ) | (12,582,135 | ) | ||||
Class B | (623,282 | ) | (1,326,383 | ) | ||||
Class C | (812,835 | ) | (972,526 | ) | ||||
Class I | (5,622,739 | ) | (9,677,969 | ) | ||||
|
| |||||||
(16,822,434 | ) | (30,170,103 | ) | |||||
|
| |||||||
From net realized gain on investments: | ||||||||
Investor Class | (4,383,814 | ) | — | |||||
Class A | (10,462,255 | ) | — | |||||
Class B | (1,343,673 | ) | — | |||||
Class C | (1,586,185 | ) | — | |||||
Class I | (7,620,793 | ) | — | |||||
|
| |||||||
(25,396,720 | ) | — | ||||||
|
| |||||||
Total dividends and distributions to shareholders | (42,219,154 | ) | (30,170,103 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 133,161,765 | 224,065,417 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 39,243,400 | 28,400,593 | ||||||
Cost of shares redeemed | (70,044,670 | ) | (131,828,751 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | 102,360,495 | 120,637,259 | ||||||
|
| |||||||
Net increase (decrease) in net assets | 127,749,972 | 227,001,504 | ||||||
Net Assets | ||||||||
Beginning of period | 958,650,167 | 731,648,663 | ||||||
|
| |||||||
End of period | $ | 1,086,400,139 | $ | 958,650,167 | ||||
|
| |||||||
Undistributed net investment income at end of period | $ | 6,302,108 | $ | 825,001 | ||||
|
|
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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Investor Class | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 19.84 | $ | 17.46 | $ | 15.93 | $ | 15.58 | $ | 13.89 | $ | 12.58 | ||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.42 | 0.64 | 0.62 | 0.60 | 0.59 | 0.30 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.94 | 2.44 | 1.39 | 0.37 | 1.81 | 1.36 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.07 | ) | (0.06 | ) | 0.14 | (0.05 | ) | (0.16 | ) | 0.00 | ‡ | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 1.29 | 3.02 | 2.15 | 0.92 | 2.24 | �� | 1.66 | |||||||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.32 | ) | (0.64 | ) | (0.62 | ) | (0.57 | ) | (0.55 | ) | (0.35 | ) | ||||||||||||||
From net realized gain on investments | (0.52 | ) | — | — | — | — | — | |||||||||||||||||||
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|
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|
|
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|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.84 | ) | (0.64 | ) | (0.62 | ) | (0.57 | ) | (0.55 | ) | (0.35 | ) | ||||||||||||||
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|
|
|
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|
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| |||||||||||||||
Net asset value at end of period | $ | 20.29 | $ | 19.84 | $ | 17.46 | $ | 15.93 | $ | 15.58 | $ | 13.89 | ||||||||||||||
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|
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|
|
|
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|
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| |||||||||||||||
Total investment return (b) | 6.75 | %(c) | 17.62 | % | 13.72 | % | 5.92 | % | 16.39 | % | 13.57 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 4.32 | %†† | 3.46 | % | 3.73 | % | 3.73 | % | 4.02 | % | 2.40 | % | ||||||||||||||
Net expenses | 1.26 | %†† | 1.32 | % | 1.37 | % | 1.40 | % | 1.50 | % | 1.40 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.26 | %†† | 1.32 | % | 1.37 | % | 1.40 | % | 1.50 | % | 1.72 | % | ||||||||||||||
Portfolio turnover rate | 10 | % | 31 | % | 25 | % | 33 | % | 76 | % | 182 | %(d) | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 168,990 | $ | 168,097 | $ | 160,758 | $ | 163,168 | $ | 170,852 | $ | 161,824 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
(d) | The portfolio turnover rate not including mortgage dollar rolls was 151% for the year ended October 31, 2009. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class A | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 19.83 | $ | 17.46 | $ | 15.92 | $ | 15.58 | $ | 13.88 | $ | 12.57 | ||||||||||||||
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|
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|
|
|
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|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.45 | 0.69 | 0.67 | 0.66 | 0.64 | 0.33 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.93 | 2.43 | 1.40 | 0.35 | 1.82 | 1.36 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.07 | ) | (0.06 | ) | 0.14 | (0.05 | ) | (0.16 | ) | 0.00 | ‡ | |||||||||||||||
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|
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|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 1.31 | 3.06 | 2.21 | 0.96 | 2.30 | 1.69 | ||||||||||||||||||||
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|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.34 | ) | (0.69 | ) | (0.67 | ) | (0.62 | ) | (0.60 | ) | (0.38 | ) | ||||||||||||||
From net realized gain on investments | (0.52 | ) | — | — | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.86 | ) | (0.69 | ) | (0.67 | ) | (0.62 | ) | (0.60 | ) | (0.38 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 20.28 | $ | 19.83 | $ | 17.46 | $ | 15.92 | $ | 15.58 | $ | 13.88 | ||||||||||||||
|
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|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 6.88 | %(c) | 17.90 | % | 14.16 | % | 6.21 | % | 16.80 | % | 13.82 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 4.57 | %†† | 3.71 | % | 4.03 | % | 4.05 | % | 4.37 | % | 2.60 | % | ||||||||||||||
Net expenses | 1.02 | %†† | 1.04 | % | 1.06 | % | 1.08 | % | 1.15 | % | 1.20 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.02 | %†† | 1.04 | % | 1.06 | % | 1.08 | % | 1.15 | % | 1.23 | % | ||||||||||||||
Portfolio turnover rate | 10 | % | 31 | % | 25 | % | 33 | % | 76 | % | 182 | %(d) | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 449,787 | $ | 397,101 | $ | 292,603 | $ | 242,939 | $ | 239,564 | $ | 222,648 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
(d) | 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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class B | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 19.93 | $ | 17.54 | $ | 15.99 | $ | 15.64 | $ | 13.93 | $ | 12.61 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.35 | 0.51 | 0.50 | 0.49 | 0.48 | 0.21 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.94 | 2.44 | 1.40 | 0.35 | 1.84 | 1.35 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.07 | ) | (0.06 | ) | 0.14 | (0.05 | ) | (0.17 | ) | 0.00 | ‡ | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 1.22 | 2.89 | 2.04 | 0.79 | 2.15 | 1.56 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.25 | ) | (0.50 | ) | (0.49 | ) | (0.44 | ) | (0.44 | ) | (0.24 | ) | ||||||||||||||
From net realized gain on investments | (0.52 | ) | — | — | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends | (0.77 | ) | (0.50 | ) | (0.49 | ) | (0.44 | ) | (0.44 | ) | (0.24 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 20.38 | $ | 19.93 | $ | 17.54 | $ | 15.99 | $ | 15.64 | $ | 13.93 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 6.38 | %(c) | 16.74 | % | 12.87 | % | 5.14 | % | 15.53 | % | 12.77 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 3.58 | %†† | 2.73 | % | 2.99 | % | 2.98 | % | 3.25 | % | 1.65 | % | ||||||||||||||
Net expenses | 2.01 | %†† | 2.07 | % | 2.12 | % | 2.15 | % | 2.24 | % | 2.14 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 2.01 | %†† | 2.07 | % | 2.12 | % | 2.15 | % | 2.24 | % | 2.47 | % | ||||||||||||||
Portfolio turnover rate | 10 | % | 31 | % | 25 | % | 33 | % | 76 | % | 182 | %(d) | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 50,785 | $ | 51,138 | $ | 51,233 | $ | 59,225 | $ | 71,239 | $ | 79,742 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
(d) | The portfolio turnover rate not including mortgage dollar rolls was 151% for the year ended October 31, 2009. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class C | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 19.90 | $ | 17.52 | $ | 15.97 | $ | 15.62 | $ | 13.92 | $ | 12.59 | ||||||||||||||
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Net investment income (loss) (a) | 0.36 | 0.49 | 0.49 | 0.48 | 0.48 | 0.22 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.93 | 2.45 | 1.41 | 0.36 | 1.82 | 1.35 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.07 | ) | (0.06 | ) | 0.14 | (0.05 | ) | (0.16 | ) | 0.00 | ‡ | |||||||||||||||
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Total from investment operations | 1.22 | 2.88 | 2.04 | 0.79 | 2.14 | 1.57 | ||||||||||||||||||||
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Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.25 | ) | (0.50 | ) | (0.49 | ) | (0.44 | ) | (0.44 | ) | (0.24 | ) | ||||||||||||||
From net realized gain on investments | (0.52 | ) | — | — | — | — | — | |||||||||||||||||||
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Total dividends and distributions | (0.77 | ) | (0.50 | ) | (0.49 | ) | (0.44 | ) | (0.44 | ) | (0.24 | ) | ||||||||||||||
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Net asset value at end of period | $ | 20.35 | $ | 19.90 | $ | 17.52 | $ | 15.97 | $ | 15.62 | $ | 13.92 | ||||||||||||||
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Total investment return (b) | 6.34 | %(c) | 16.70 | % | 12.96 | % | 5.08 | % | 15.55 | % | 12.69 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 3.63 | %†† | 2.61 | % | 2.88 | % | 2.98 | % | 3.27 | % | 1.67 | % | ||||||||||||||
Net expenses | 2.01 | %†† | 2.07 | % | 2.12 | % | 2.15 | % | 2.24 | % | 2.17 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 2.01 | %†† | 2.07 | % | 2.12 | % | 2.15 | % | 2.24 | % | 2.47 | % | ||||||||||||||
Portfolio turnover rate | 10 | % | 31 | % | 25 | % | 33 | % | 76 | % | 182 | %(d) | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 76,981 | $ | 55,889 | $ | 22,444 | $ | 10,899 | $ | 10,312 | $ | 9,622 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
(d) | 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 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class I | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 19.97 | $ | 17.57 | $ | 16.02 | $ | 15.67 | $ | 13.97 | $ | 12.65 | ||||||||||||||
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Net investment income (loss) (a) | 0.48 | 0.74 | 0.72 | 0.70 | 0.68 | 0.77 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.94 | 2.46 | 1.40 | 0.36 | 1.82 | 0.97 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.07 | ) | (0.06 | ) | 0.14 | (0.05 | ) | (0.16 | ) | 0.00 | ‡ | |||||||||||||||
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Total from investment operations | 1.35 | 3.14 | 2.26 | 1.01 | 2.34 | 1.74 | ||||||||||||||||||||
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Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.37 | ) | (0.74 | ) | (0.71 | ) | (0.66 | ) | (0.64 | ) | (0.42 | ) | ||||||||||||||
From net realized gain on investments | (0.52 | ) | — | — | — | — | — | |||||||||||||||||||
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Total dividends and distributions | (0.89 | ) | (0.74 | ) | (0.71 | ) | (0.66 | ) | (0.64 | ) | (0.42 | ) | ||||||||||||||
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Net asset value at end of period | $ | 20.43 | $ | 19.97 | $ | 17.57 | $ | 16.02 | $ | 15.67 | $ | 13.97 | ||||||||||||||
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Total investment return (b) | 7.02 | %(c) | 18.25 | % | 14.41 | % | 6.50 | % | 17.07 | % | 14.14 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 4.84 | %†† | 3.97 | % | 4.28 | % | 4.30 | % | 4.60 | % | 3.74 | % | ||||||||||||||
Net expenses | 0.77 | %†† | 0.79 | % | 0.81 | % | 0.83 | % | 0.89 | % | 0.97 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 0.77 | %†† | 0.79 | % | 0.81 | % | 0.83 | % | 0.89 | % | 0.97 | % | ||||||||||||||
Portfolio turnover rate | 10 | % | 31 | % | 25 | % | 33 | % | 76 | % | 182 | %(d) | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 339,857 | $ | 286,425 | $ | 204,611 | $ | 164,317 | $ | 164,393 | $ | 189,333 |
* | Unaudited. |
†† | 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 I shares are not subject to sales charges. |
(c) | Total investment return is not annualized. |
(d) | The portfolio turnover rate not including mortgage dollar rolls was 151% for the year ended October 31, 2009. |
32 | 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. |
Notes to Financial Statements (Unaudited)
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 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”) adopted procedures for the valuation of the Fund's securities and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board 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 Sub-Committee deals in the first instance with such valuation and 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. Any action taken by the Sub-Committee with respect to the valuation of a portfolio security is submitted by the Valuation Committee to the Board for its review at its next regularly scheduled meeting immediately after such action.
“Fair value” is defined as the price that the Fund would receive upon selling an asset or liability in an orderly transaction to an independent buyer in the principal or most advantageous market for the asset or liability. Fair value measurements are determined within a framework that 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” refer 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 based on the information available. 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 below.
• | Level 1—quoted prices in active markets for an identical asset or liability |
• | Level 2—other significant observable inputs (including quoted prices for a similar asset or liability in active markets, interest rates and yield curves, prepayment speeds, credit risk etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring fair value of an asset or liability) |
mainstayinvestments.com | 33 |
Notes to Financial Statements (Unaudited) (continued)
The aggregate value by input level, as of April 30, 2014, for the Fund’s assets or liabilities is included at the end of the Fund’s Portfolio of Investments.
The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs among others:
• 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 |
An asset or liability for which market values cannot be measured using the methodologies described above are valued by methods deemed reasonable and in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund generally 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 asset or liability are discounted to calculate fair value. Discounts may also be applied due to the nature and/or duration of any restrictions on the disposition of the asset or liability. Due to the inherent valuation uncertainty of such assets or liabilities, fair values may differ significantly from values that would have been used had an active market existed. For the six-month period ended April 30, 2014, there have been no material 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 readily available from a third party pricing source or, if so provided, does not, in the opinion of the Manager or Subadvisors reflect the security’s market value; (vi) a security subject to trading collars for which no or limited trading takes place; and (vii) 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 April 30, 2014, the Fund held securities with a value of $731,403 that were fair valued in such a manner.
Certain securities held by the Fund may principally trade in foreign markets. Events may occur between the time that foreign markets close 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 April 30, 2014, no foreign equity securities were fair valued in such a manner.
Equity securities and Exchange-Traded Funds are valued at the last 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 last quoted bid and ask prices. Prices are normally 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 primarily traded. Investments in other mutual funds are valued at their respective NAV(s) 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 Manager in consultation with the Subadvisors. Those prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Manager, in consultation with the Subadvisors to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities purchased on a 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 at the time of purchase (“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.
34 | MainStay Income Builder Fund |
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 April 30, 2014, the Fund did not hold securities that were valued by single broker quotes 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 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. The Fund may be subject to foreign taxes on income and other transaction-based taxes imposed by certain countries in which they invest. A portion of the taxes on gains on investments or
currency purchases/repatriation 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 six-month period ended April 30, 2014, 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 from net investment income, if any, at least quarterly and distributions from 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, net of any foreign tax withheld at the source, 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. The straight-line method approximates the effective interest method for short-term investments. 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.
mainstayinvestments.com | 35 |
Notes to Financial Statements (Unaudited) (continued)
(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 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 if 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 may invest 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, if any, are mark-to-market and any unrealized gains and losses are recorded in the Statement of Assets and Liabilities. (See Note 5)
(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 market 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 in order to hedge against anticipated changes in interest rates that might otherwise have an adverse effect upon the value of the Fund's securities. The Fund may also use equity index futures contracts to add exposure to the equity markets. 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 purchase and sell foreign currency forward contracts for purposes of seeking to enhance portfolio returns and
36 | MainStay Income Builder Fund |
manage portfolio risk more efficiently. Foreign currency forward contracts may also be used to gain exposure to a particular currency or to hedge against the risk of loss due to changing currency exchange rates. Foreign currency forward contracts to purchase or sell a foreign currency may also be used in anticipation of future purchases or sales of securities denominated in foreign currency, even if the specific investments have not yet been selected.
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.
(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 they simultaneously agrees to buy a similar security on a delayed delivery basis. The dollar roll transactions of the Fund are generally 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 April 30, 2014, the Fund did not hold any rights or warrants.
(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
mainstayinvestments.com | 37 |
Notes to Financial Statements (Unaudited) (continued)
reserve the right to reinstitute lending when deemed appropriate. The Fund did not have any portfolio securities on loan as of April 30, 2014.
(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. 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 6)
(Q) 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.
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 or 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 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. These securities pay investors a higher interest rate because of the increased risk of loss. Although certain loans are collateralized, there is no guarantee that the value of the collateral will be sufficient to repay the loan. In a recession or serious credit event, the value of these securities could decline significantly.
(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. The amounts disclosed in the table represent the monthly average held during the six-month period ended April 30, 2014.
Fair value of derivatives instruments as of April 30, 2014:
Asset 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) | $ | — | $ | 1,186,806 | $ | 77,605 | $ | 1,264,411 | |||||||||
Forward Contracts | Unrealized appreciation on foreign currency forward contracts | 95,939 | — | — | 95,939 | |||||||||||||
|
|
|
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|
|
|
| |||||||||||
Total Fair Value | $ | 95,939 | $ | 1,186,806 | $ | 77,605 | $ | 1,360,350 | ||||||||||
|
|
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) | $ | — | $ | — | $ | (47,407 | ) | $ | (47,407 | ) | |||||||
Forward Contracts | Unrealized depreciation on foreign currency forward contracts | (3,038,217 | ) | — | — | (3,038,217 | ) | |||||||||||
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| |||||||||||||||||
Total Fair Value | $ | (3,038,217 | ) | $ | — | $ | (47,407 | ) | $ | (3,085,624 | ) | |||||||
|
|
(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. |
38 | MainStay Income Builder Fund |
The effect of derivative instruments on the Statement of Operations for the period ended April 30, 2014:
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 | $ | — | $ | 22,271,954 | $ | (1,429,174 | ) | $ | 20,842,780 | ||||||||
Forward Contracts | Net realized gain (loss) on foreign currency transactions | (2,712,110 | ) | — | — | (2,712,110 | ) | |||||||||||
|
| |||||||||||||||||
Total Realized Gain (Loss) | $ | (2,712,110 | ) | $ | 22,271,954 | $ | (1,429,174 | ) | $ | 18,130,670 | ||||||||
|
|
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 | $ | — | $ | (7,881,944 | ) | $ | 1,038,169 | $ | (6,843,775 | ) | |||||||
Forward Contracts | Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (1,219,266 | ) | — | — | (1,219,266 | ) | |||||||||||
|
| |||||||||||||||||
Total Change in Unrealized Appreciation (Depreciation) | $ | (1,219,266 | ) | $ | (7,881,944 | ) | $ | 1,038,169 | $ | (8,063,041 | ) | |||||||
|
|
Number of Contracts, Notional Amounts or Shares/Units
Foreign Exchange Contracts Risk | Equity Contracts Risk | Interest Rate Contracts Risk | Total | |||||||||||||
Futures Contracts Long (Average number of contracts) | 2,063 | 2,063 | ||||||||||||||
Futures Contracts Short (Average number of contracts) | — | — | (1,714 | ) | (1,714 | ) | ||||||||||
Forward Contracts Long (Average notional amount) | $ | 121,750,555 | — | — | $ | 121,750,555 | ||||||||||
Forward Contracts Short (Average notional amount) | $ | (133,557,546 | ) | — | — | $ | (133,557,546 | ) | ||||||||
|
|
The following table presents the Fund’s derivative assets by counterparty net of amounts available for offset under a master netting agreement, or similar agreement, and net of the related collateral received by the Fund as of April 30, 2014.
Counterparty | Gross Assets in Statement of Assets and Liabilities | Derivative assets/(liabilities) available for offset | Collateral Received | Net Amount of Derivative Assets* | ||||||||||||
JPMorgan Chase Bank | $ | 95,939 | $ | (95,939 | ) | $ | — | $ | — | |||||||
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|
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|
|
|
The following table presents the Fund’s derivative liabilities by counterparty net of amounts available for offset under a master netting agreement, or similar agreement, and net of the related collateral pledged by the Fund as of April 30, 2014.
Counterparty | Gross Liabilities in Statement of Assets and Liabilities | Derivative assets/(liabilities) available for offset | Collateral Pledged | Net Amount of Derivative Liabilities† | ||||||||||||
JPMorgan Chase Bank | $ | 3,038,217 | $ | (95,939 | ) | $ | — | $ | 2,942,278 | |||||||
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|
|
|
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|
|
* | Represents the net amount receivable from the counterparty in the event of default. |
† | Represents the net amount payable to the counterparty in the event of default. |
mainstayinvestments.com | 39 |
Notes to Financial Statements (Unaudited) (continued)
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 compensation 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 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 six-month period ended April 30, 2014, inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets.
For the six-month period ended April 30, 2014, New York Life Investments earned fees from the Fund in the amount of $3,131,547.
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 $17,343 and $74,684, respectively, for the six-month period ended April 30, 2014. 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, $618, $29,410 and $7,400, respectively, for the six-month period ended April 30, 2014.
(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 six-month period ended April 30, 2014, were as follows:
Investor Class | $ | 273,567 | ||
Class A | 182,732 | |||
Class B | 82,700 | |||
Class C | 107,626 | |||
Class I | 136,031 |
(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 April 30, 2014, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class A | $ | 4,382 | 0.0 | %‡ | ||||
Class I | 99,959,222 | 29.4 |
‡ | Less than one-tenth of a percent. |
40 | MainStay Income Builder Fund |
Note 4–Federal Income Tax
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 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 | $5,293 | $— |
The tax character of distributions paid during the year ended October 31, 2013, shown in the Statements of Changes in Net Assets was as follows:
2013 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 30,170,103 |
Note 5–Commitments and Contingencies
As of April 30, 2014, the Fund had an unfunded loan commitment pursuant to the following loan agreement:
Borrower | Unfunded Commitments | Unrealized Appreciation | ||||||
Allied Security Holdings, LLC | ||||||||
2nd Lien Delayed Draw Term Loan due 8/14/21 | $ | 684,932 | $ | 4,601 |
Commitment is available until maturity date.
Note 6–Restricted Securities
As of April 30, 2014, the Fund held the following restricted securities:
Security | Date(s) of Acquisition | Shares | Cost | 4/30/14 Value | Percent of Net Assets | |||||||||||||||
ION Media Networks, Inc. | ||||||||||||||||||||
Common Stock | 3/11/14 | 12 | $ | 21 | $ | 4,539 | 0.0 | %‡ | ||||||||||||
Quebecor World, Inc. (Litigation Recovery Trust—Escrow Shares) | ||||||||||||||||||||
Corporate Bond 9.75% | 9/3/09 | 110,000 | — | 1,617 | 0.0 | ‡ | ||||||||||||||
Total | $ | 21 | $ | 6,156 | 0.0 | %‡ |
‡ | Less than one-tenth of a percent. |
Note 7–Custodian
State Street is the custodian of cash and securities held by the Fund. Custodial fees are charged to the Fund based on the Fund's net assets and/or the market value of securities held by the Fund and the number of certain cash transactions incurred by the Fund.
Note 8–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, who serves as the agent 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. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the six-month period ended April 30, 2014.
Note 9–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2014, sales of U.S. government securities were $2,064. There were no purchases of U.S. government securities. Purchases and sales of securities, other than U.S. government securities and short-term securities, were $185,387 and $88,238, respectively.
mainstayinvestments.com | 41 |
Notes to Financial Statements (Unaudited) (continued)
Note 10–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 266,210 | $ | 5,234,683 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 364,000 | 7,012,727 | ||||||
Shares redeemed | (433,911 | ) | (8,523,205 | ) | ||||
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| |||||||
Net increase (decrease) in shares outstanding before conversion | 196,299 | 3,724,205 | ||||||
Shares converted into Investor Class | 134,658 | 2,622,079 | ||||||
Shares converted from Investor Class (See Note 1) | (474,288 | ) | (9,277,640 | ) | ||||
|
| |||||||
Net increase (decrease) | (143,331 | ) | $ | (2,931,356 | ) | |||
|
| |||||||
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 | ) | ||||
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| |||||||
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 | ) | |||
|
| |||||||
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 2,390,847 | $ | 47,241,394 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 872,197 | 16,806,041 | ||||||
Shares redeemed | (1,652,598 | ) | (32,407,957 | ) | ||||
|
| |||||||
Net increase (decrease) in shares | 1,610,446 | 31,639,478 | ||||||
Shares converted into Class A (See Note 1) | 544,065 | 10,626,776 | ||||||
|
| |||||||
Net increase (decrease) | 2,154,511 | $ | 42,266,254 | |||||
|
| |||||||
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 | ) | ||||
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| |||||||
Net increase (decrease) in shares | 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 | ) | ||||
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| |||||||
Net increase (decrease) | 3,260,948 | $ | 61,636,010 | |||||
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| |||||||
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 200,594 | $ | 3,964,387 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 97,604 | 1,889,604 | ||||||
Shares redeemed | (169,422 | ) | (3,339,585 | ) | ||||
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|
| |||||
Net increase (decrease) in shares outstanding before conversion | 128,776 | 2,514,406 | ||||||
Shares converted from Class B (See Note 1) | (203,191 | ) | (3,971,215 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (74,415 | ) | $ | (1,456,809 | ) | |||
|
|
|
| |||||
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 | ) | |||
|
|
|
| |||||
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 1,092,118 | $ | 21,552,592 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 97,083 | 1,877,750 | ||||||
Shares redeemed | (215,295 | ) | (4,238,499 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 973,906 | $ | 19,191,843 | |||||
|
|
|
| |||||
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 | |||||
|
|
|
| |||||
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 2,784,439 | $ | 55,168,709 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 600,539 | 11,657,278 | ||||||
Shares redeemed | (1,091,000 | ) | (21,535,424 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 2,293,978 | $ | 45,290,563 | |||||
|
|
|
| |||||
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 | |||||
|
|
|
|
Note 11–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the six-month period ended April 30, 2014, events and transactions subsequent to April 30, 2014, 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.
42 | MainStay Income Builder Fund |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreements (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”) requires that each mutual fund’s board of trustees, including a majority of the independent trustees, annually review and approve the fund’s investment advisory agreements. At its December 10-11, 2013 meeting, the Board of Trustees of the MainStay Group of Funds (“Board”) unanimously approved the Management Agreement with respect to the MainStay Income Builder Fund (“Fund”) and New York Life Investment Management LLC (“New York Life Investments”) and the Subadvisory Agreements between New York Life Investments and Epoch Investment Partners, Inc. (“Epoch”) and MacKay Shields LLC (“MacKay Shields”) with respect to the Fund.
In reaching its decision to approve the Agreements, the Board considered information furnished by New York Life Investments, Epoch and MacKay Shields in connection with a contract review process that took place at various meetings of the Board and its Contracts Committee between September 2013 and December 2013 as well as other relevant information furnished to the Board throughout the year by New York Life Investments, Epoch and MacKay Shields. Information requested by and furnished to the Board in connection with the contract review process included, among other items, reports on the Fund and “peer funds” prepared by Strategic Insight Mutual Fund Research and Consulting, LLC (“Strategic Insight”), an independent third-party service provider engaged by the Board to report objectively on the Fund’s investment performance, management and subadvisory fees and ordinary operating expenses. The Board also considered information provided by New York Life Investments, Epoch and MacKay Shields on the fees charged to other investment advisory clients (including institutional separate accounts) that follow investment strategies similar to the Fund and the rationale for any differences in the Fund’s management and subadvisory fees and the fees charged to those other investment advisory clients. In addition, the Board requested and received information on the profitability of the Fund to New York Life Investments and its affiliates, including Epoch as subadvisor to the Fund, and MacKay Shields and responses from New York Life Investments, Epoch and MacKay Shields to a series of questions encompassing a variety of topics prepared on behalf of the Board by independent legal counsel to the Board and its independent trustees (the “Independent Trustees”). Information provided to the Board at its meetings throughout the year included, among other items, detailed investment performance reports on the Fund prepared by the Investment Consulting Group at New York Life Investments. The structure and format for this regular reporting were developed in consultation with the Board. The Board also received from New York Life Investments throughout the year, among other items, periodic reports on legal and compliance matters, portfolio turnover, and sales and marketing activity.
In considering the Agreements, the members of the Board reviewed and evaluated all of the information and factors they believed to be relevant and appropriate in light of legal advice furnished to them by independent legal counsel and through the exercise of their own business judgment. The broad factors considered by the Board are discussed in greater detail below and included, among other items: (i) the nature, scope and quality of the services provided to the Fund by New York Life Investments, Epoch and MacKay Shields; (ii) the investment performance of the Fund, New York Life Investments, Epoch and MacKay Shields; (iii) the costs of the services provided, and profits
realized, by New York Life Investments, Epoch and MacKay Shields from their relationships with the Fund; (iv) the extent to which economies of scale may be realized as the Fund grows and the extent to which economies of scale may benefit Fund investors; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to similar funds and accounts managed by New York Life Investments, Epoch and MacKay Shields and peer funds identified by Strategic Insight.
While individual members of the Board may have weighed certain factors differently, the Board’s decision to approve the Agreements was based on a consideration of all the information provided to the Board, including information provided to the Board throughout the year and specifically in connection with the contract review process. The Board’s conclusions with respect to the Agreements also were based, in part, on the Board’s consideration of the Agreements in prior years. In addition to considering the above-referenced factors, the Board observed that in the marketplace there are a range of investment options available to shareholders of the Fund and that the Fund’s shareholders, having had the opportunity to consider other investment options, have chosen to invest in the Fund. A more detailed discussion of the factors that figured prominently in the Board’s decisions to approve the Agreements is provided below.
Nature, Scope and Quality of Services to Be Provided by New York Life Investments, Epoch and MacKay Shields
The Board examined the nature, scope and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience in serving as manager of the Fund, noting that New York Life Investments manages other mutual funds, serves a variety of other investment advisory clients, including other pooled investment vehicles, and has experience with overseeing mutual fund service providers, including subadvisors. The Board considered the experience of senior personnel at New York Life Investments providing management and administrative services to the Fund as well as New York Life Investments’ reputation and financial condition. The Board also considered the full range of non-advisory services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and oversight services provided by New York Life Investments’ Fund Accounting and Administration Group; (ii) investment oversight and analytical services provided by New York Life Investments’ Investment Consulting Group; (iii) compliance services provided by the Fund’s Chief Compliance Officer as well as New York Life Investments’ compliance department, including oversight and implementation of the Fund’s compliance program; and (iv) legal services provided by New York Life Investments’ Office of the General Counsel. Additional information about the non-advisory services provided by New York Life Investments is set forth in the Fund’s Management Agreement. The Board also considered New York Life Investments’ willingness to invest in personnel and infrastructure that benefit the Fund and noted that New York Life Investments is responsible for compensating the Fund’s officers. The Board also considered benefits to shareholders of being part of the MainStay Group of Funds, including the privilege of exchanging investments between the same class of shares without the imposition of a sales charge, as described more fully in the Fund’s prospectus.
mainstayinvestments.com | 43 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreements (Unaudited) (continued)
The Board also examined the nature, scope and quality of the advisory services that Epoch and MacKay Shields provide to the Fund. The Board evaluated Epoch’s and MacKay Shields’ experience in serving as subadvisors to the Fund and managing other portfolios. It examined Epoch’s and MacKay Shields’ track records and experience in providing investment advisory services, the experience of investment advisory, senior management and administrative personnel at Epoch and MacKay Shields, and Epoch’s and MacKay Shields’ overall legal and compliance environments. The Board also reviewed Epoch’s and MacKay Shields’ willingness to invest in personnel that benefit the Fund. In this regard, the Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers and the method for compensating portfolio managers.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund should continue to benefit from the nature, scope and quality of these services as a result of New York Life Investments’, Epoch’s and MacKay Shields’ experience, personnel, operations and resources.
Investment Performance
In evaluating the Fund’s investment performance, the Board considered investment performance results in light of the Fund’s investment objective, strategies and risks, as disclosed in the Fund’s prospectus. The Board particularly considered detailed investment reports on the Fund’s performance provided to the Board throughout the year by the Investment Consulting Group of New York Life Investments. These reports include, among other items, information on the Fund’s gross and net returns, the Fund’s investment performance relative to relevant investment categories and Fund benchmarks, the Fund’s risk-adjusted investment performance, and the Fund’s investment performance as compared to peer funds, as appropriate. The Board also considered information provided by Strategic Insight showing the investment performance of the Fund as compared to peer funds.
In considering the Fund’s investment performance, the Board focused principally on the Fund’s long-term performance track record. The Board also gave weight to its ongoing discussions with senior management at New York Life Investments concerning the Fund’s investment performance as well as discussions between the Fund’s portfolio managers and the Board that generally occur on an annual basis. In addition, the Board considered any specific actions that New York Life Investments, Epoch or MacKay Shields had taken, or had agreed with the Board to take, to enhance Fund investment performance and the results of those actions.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the long-term investment performance of the Fund, along with ongoing efforts by New York Life Investments, Epoch and MacKay Shields to enhance investment returns, supported a determination to approve the Agreements. The Fund discloses more information about investment performance in the Portfolio Management Discussion and Analysis, Investment and Performance Comparison and Financial Highlights sections of this Semiannual Report and in the Fund’s prospectus.
Costs of the Services Provided, and Profits Realized, by New York Life Investments, Epoch and MacKay Shields
The Board considered the costs of the services provided by New York Life Investments, Epoch and MacKay Shields under the Agreements and the profits realized by New York Life Investments and its affiliates, including MacKay Shields, and Epoch due to their relationships with the Fund. Because MacKay Shields is an affiliate of New York Life Investments whose subadvisory fees are paid directly by New York Life Investments, the Board considered cost and profitability information for New York Life Investments and MacKay Shields in the aggregate. Because Epoch’s subadvisory fees are negotiated at arm’s-length by New York Life Investments and are paid by New York Life Investments, not the Fund, the Board principally considered the profits realized by New York Life Investments and its affiliates with respect to the Fund.
In evaluating the costs and profits of New York Life Investments and its affiliates, including MacKay Shields, and Epoch, the Board considered, among other factors, each party’s investments in personnel, systems, equipment and other resources necessary to manage the Fund, and that New York Life Investments is responsible for paying the subadvisory fees for the Fund. The Board acknowledged that New York Life Investments, Epoch and MacKay Shields must be in a position to pay and retain experienced professional personnel to provide services to the Fund and that the ability to maintain a strong financial position is important in order for New York Life Investments, Epoch and MacKay Shields to continue to provide high-quality services to the Fund. The Board also noted that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds.
In addition, the Board noted the difficulty in obtaining reliable comparative data about mutual fund managers’ profitability, since such information generally is not publicly available and may be impacted by numerous factors, including the structure of a fund manager’s organization, the types of funds it manages, the methodology used to allocate certain fixed costs to specific funds, and the manager’s capital structure and costs of capital. While recognizing the difficulty in evaluating a manager’s profitability with respect to the Fund and noting that other profitability methodologies may also be reasonable, the Board concluded that the profitability methodology presented by New York Life Investments to the Board, which was developed by New York Life Investments in consultation with an independent consultant, was reasonable in all material respects.
In considering the costs and profitability of the Fund, the Board also considered certain fall-out benefits that may be realized by New York Life Investments and its affiliates due to their relationships with the Fund. The Board recognized, for example, the benefits to Epoch and MacKay Shields from legally permitted “soft-dollar” arrangements by which brokers provide research and other services to Epoch and MacKay Shields in exchange for commissions paid by the Fund with respect to trades on the Fund’s portfolio securities. The Board also requested and received information from New York Life Investments and Epoch concerning other business relationships between Epoch and its affiliates and New York Life Investments and its affiliates.
The Board further considered that, in addition to fees earned by New York Life Investments for managing the Fund, New York Life Investments’ affiliates also earn revenues from serving the Fund in
44 | MainStay Income Builder Fund |
various other capacities, including as the Fund’s transfer agent and distributor. The Board observed that information about these other revenues, and their impact on the profitability of the Fund to New York Life Investments and its affiliates, was furnished to the Board as part of the 15(c) process. The Board noted that, although it assessed the overall profitability of the Fund to New York Life Investments and its affiliates as part of the contract review process, when considering the reasonableness of the fees to be paid to New York Life Investments and its affiliates under the Agreements, the Board considered the profitability of New York Life Investments’ relationship with the Fund on a pre-tax basis and without regard to distribution expenses.
After evaluating the information presented to the Board, the Board concluded, within the context of its overall determinations regarding the Agreements, that any profits realized by New York Life Investments and its affiliates, including MacKay Shields, due to their relationships with the Fund supported the Board’s decision to approve the Agreements. With respect to Epoch, the Board concluded that any profits realized by Epoch due to its relationship with the Fund are the result of arm’s-length negotiations between New York Life Investments and Epoch and are based on fees paid to Epoch by New York Life Investments, not the Fund.
Extent to Which Economies of Scale May Be Realized as the Fund Grows
The Board considered whether the Fund’s expense structure permits economies of scale to be shared with Fund investors. The Board also considered a report from New York Life Investments, prepared at the request of the Board, that addressed economies of scale in the mutual fund business generally, the changing economics of the mutual fund business and the various ways in which the benefits of economies of scale may be shared with the MainStay Group of Funds. The Board reviewed information from New York Life Investments showing how the Fund’s management fee schedule compared to fee schedules of other funds and accounts managed by New York Life Investments. The Board also reviewed information from Strategic Insight showing how the Fund’s management fee schedule hypothetically would compare with fees paid for similar services by peer funds at varying asset levels. While recognizing the difficulty of determining economies of scale with precision, the Board acknowledged that economies of scale may be shared with the Fund in a number of ways, including, for example, through the imposition of management fee breakpoints and by initially setting relatively low management fees.
Based on this information, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund’s expense structure appropriately reflects economies of scale for the benefit of Fund investors. The Board noted, however, that it would continue to evaluate the reasonableness of the Fund’s expense structure as the Fund grows over time.
Management and Subadvisory Fees and Total Ordinary Operating Expenses
The Board evaluated the reasonableness of the fees to be paid under the Agreements and the Fund’s expected total ordinary operating
expenses. The Board primarily considered the reasonableness of the management fee paid by the Fund to New York Life Investments, since the fees paid to Epoch and MacKay Shields are paid by New York Life Investments, not the Fund.
In assessing the reasonableness of the Fund’s fees and expenses, the Board primarily considered comparative data provided by Strategic Insight on the fees and expenses charged by similar mutual funds managed by other investment advisers. In addition, the Board considered information provided by New York Life Investments, Epoch and MacKay Shields on fees charged to other investment advisory clients, including institutional separate accounts and other funds with similar investment objectives as the Fund. The Board particularly considered differences in the contractual management fee schedules of the retail MainStay Funds and similarly-managed MainStay VP Portfolios, taking into account New York Life Investments’ rationale for any differences in fee schedules. The Board also took into account explanations provided by New York Life Investments about the different scope of services provided to mutual funds as compared with other investment advisory clients. Additionally, the Board considered the impact of any contractual breakpoints, voluntary waivers and expense limitation arrangements on the Fund’s net management fee and expenses.
The Board noted that, outside of the Fund’s management fee and the fees charged under a share class’s Rule 12b-1 and/or shareholder services plans, a share class’s most significant “other expenses” are transfer agent fees. Transfer agent fees are charged to the Fund based on the number of shareholder accounts (a “per-account” fee) as compared with certain other fees (e.g., management fees), which are charged based on the Fund’s average net assets. The Board took into account information from New York Life Investments showing that the Fund’s transfer agent fee schedule is reasonable, including industry data showing that the per-account fees that NYLIM Service Company LLC, the Fund’s transfer agent, charges the Fund are within the range of per-account fees charged by transfer agents to other mutual funds. In addition, the Board considered NYLIM Service Company LLC’s profitability in connection with the transfer agent services it provides to the Fund.
The Board considered that, because the Fund’s transfer agent fees are billed on a per-account basis, the impact of transfer agent fees on a share class’s expense ratio may be more significant in cases where the share class has a high number of accounts with limited assets (i.e., small accounts). The Board observed that transfer agent fees are a significant portion of total expenses of many Funds in the MainStay Group of Funds. The impact of transfer agent fees on the expense ratios of these MainStay Funds tend to be greater than for other open-end retail funds, because the MainStay Group of Funds generally has a significant number of small accounts relative to competitor funds. The Board acknowledged the role that the MainStay Group of Funds historically has played in serving the investment needs of New York Life Insurance Company (“New York Life”) policyholders, who often maintain smaller account balances than other fund investors. The Board also acknowledged measures that it and New York Life Investments have taken in recent years to mitigate the effect of small accounts on the expense ratios of Fund share classes, including: (i) encouraging New York Life agents to consolidate multiple small accounts held by the
mainstayinvestments.com | 45 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreements (Unaudited) (continued)
same investor into one MainStay Asset Allocation Fund account; (ii) increasing investment minimums from $500 to $1,000 in 2003; (iii) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iv) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (v) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (vi) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vii) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. In addition, the Board acknowledged New York Life Investments’ efforts to encourage intermediaries to consolidate small accounts in multiple Funds held by the same investor into a single Asset Allocation Fund account, if appropriate under the circumstances, in an effort to mitigate the effect of small accounts on the Funds in the MainStay Group of Funds.
After considering all of the factors outlined above, the Board concluded that the Fund’s management and subadvisory fees and total ordinary operating expenses were within a range that is competitive and, within the context of the Board’s overall conclusions regarding the Agreements, support a conclusion that these fees and expenses are reasonable.
Conclusion
On the basis of the information provided to it and its evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the Agreements.
46 | MainStay Income Builder Fund |
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 | 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 Fund
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 Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund1
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund2
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 LLC3
New York, New York
Cornerstone Capital Management LLC3
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC3
Chicago, Illinois
MacKay Shields LLC3
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC3
New York, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP4
PricewaterhouseCoopers LLP5
1. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
2. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
3. An affiliate of New York Life Investment Management LLC.
4. For all Funds listed above except MainStay Marketfield Fund.
5. For MainStay Marketfield Fund only.
Not part of the Semiannual 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.
©2014 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-34254 MS164-14 | MSIB10-06/14 NL014 |
MainStay Global High Income Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2014
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Message from the President
Stocks and bonds generally advanced during the six months ended April 30, 2014, but results varied across different markets, asset classes and regions.
According to Russell data, mid-capitalization stocks tended to provide the strongest returns, outperforming large-cap stocks overall. As a group, small-cap stocks tended to underperform their larger-capitalization counterparts. Value outperformed growth at all capitalization levels as the 2013 market rally ended and investors moved from rapid-growth stocks toward utilities, real estate investment trusts (REITs) and other stocks that tend to be more defensive.
The reporting period opened with investors still reacting to the government shutdown and asking questions about the debt ceiling and the so-called fiscal cliff. Even so, U.S. stocks climbed relatively steadily through the end of 2013. After reaching a high point in January, the U.S. stock market tumbled to its low point for the reporting period in early February, hurt by weaker economic data and severe weather in the Northeast. From that point, domestic stocks generally recovered, advancing to new highs before the end of the reporting period.
International stocks benefited from the European Central Bank’s accommodative policies and an improving European economy, despite high levels of debt and unemployment. In Japan, a weaker currency and accommodative central bank policies had fueled a stock rally in 2013, but Japanese stocks began to decline in mid-January on concerns about the Prime Minister’s economic policies, including a substantial increase in the nation’s sales tax. International stocks also felt the effects of tensions in Ukraine and slowing growth in China.
Throughout the reporting period, the Federal Reserve held the federal funds target rate in a range close to zero. On December 18, 2013, the Federal Open Market Committee announced plans to begin tapering its direct security purchases (widely known as quantitative easing) in January of 2014. The announcement led investors to anticipate rising interest rates.
According to U.S. Department of the Treasury data, yields did rise through the early part of 2014. After peaking early in the year, however, U.S. Treasury yields generally trended downward. As of April 30, 2014, yields at the short and long ends of the U.S. Treasury yield curve1 were slightly lower than at the beginning of the reporting period, while yields on 1- to 10-year U.S. Treasury securities had moved slightly higher.
In harmony with these trends, extensive tax-loss harvesting in the municipal market tended to push municipal yields higher in November and December. Redemptions slowed as the new year progressed, and a scarcity of municipal supply pushed municipal bond prices higher—and yields lower—during the last four months of the reporting period.
Throughout the reporting period, our portfolio managers pursued the investment objectives of their respective Funds within the investment strategies outlined in the Prospectus. Using time-tested security-selection, portfolio-monitoring and risk-management techniques, they sought to maximize exposure to potential opportunities while seeking to minimize exposure to unnecessary risks.
The report that follows provides additional information about the decisions, securities and market forces that affected your MainStay Fund during the six months ended April 30, 2014. We encourage you to read this information carefully. It can help you evaluate your diversification and assess your asset allocation as you pursue your long-range financial goals.
We thank you for choosing MainStay Funds, and we look forward to a lasting and productive relationship.
Sincerely,
Stephen P. Fisher
1. | 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 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. Past performance is no guarantee of future results.
Not part of the Semiannual 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 Period Ended April 30, 2014
Class | Sales Charge | Six Months | One Year | Five Years | Ten Years | Gross Expense Ratio2 | ||||||||||||||||||
Investor Class Shares3 | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges |
| –1.86 2.77 | %
|
| –7.23 –2.86 | %
|
| 10.18 11.20 | %
|
| 8.35 8.85 | %
|
| 1.30 1.30 | %
| |||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges | | –1.84 2.79 | | | –7.11 –2.73 | | | 10.31 11.33 | | | 8.44 8.94 | | | 1.16 1.16 | | |||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges | | –2.62 2.36 | | | –8.15 –3.58 | | | 10.09 10.36 | | | 8.03 8.03 | | | 2.05 2.05 | | |||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges | | 1.27 2.27 | | | –4.49 –3.58 | | | 10.38 10.38 | | | 8.04 8.04 | | | 2.05 2.05 | | |||||||
Class I Shares4 | No Sales Charge | 2.91 | –2.49 | 11.62 | 9.21 | 0.91 |
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 | Six | One Year | Five Years | Ten Years | ||||||||||||
JPMorgan EMBI Global Diversified Index5 | 3.75 | % | –1.08 | % | 10.77 | % | 8.87 | % | ||||||||
Average Lipper Emerging Markets Hard Currency Debt Fund6 | 1.82 | –3.63 | 11.12 | 8.82 |
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 November 1, 2013, to April 30, 2014, 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 November 1, 2013, to April 30, 2014.
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 April 30, 2014. 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 11/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/14 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/14 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,027.70 | $ | 6.89 | $ | 1,018.00 | $ | 6.85 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,027.90 | $ | 6.03 | $ | 1,018.80 | $ | 6.01 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,023.60 | $ | 10.64 | $ | 1,014.30 | $ | 10.59 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,022.70 | $ | 10.63 | $ | 1,014.30 | $ | 10.59 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,029.10 | $ | 4.78 | $ | 1,020.10 | $ | 4.76 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.37% for Investor Class, 1.20% for Class A, 2.12% for Class B and Class C and 0.95% for Class I) multiplied by the average account value over the period, divided by 365 and multiplied by 181 (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 April 30, 2014 (Unaudited)
Brazil | 10.9 | % | ||
Russia | 7.7 | |||
Indonesia | 6.0 | |||
Turkey | 5.5 | |||
Venezuela | 5.3 | |||
Mexico | 5.0 | |||
Ukraine | 4.8 | |||
Colombia | 4.5 | |||
Peru | 3.9 | |||
Poland | 3.6 | |||
United States | 2.9 | |||
Kazakhstan | 2.5 | |||
Sri Lanka | 2.5 | |||
Portugal | 2.4 | |||
Belarus | 2.2 | |||
Georgia | 2.1 | |||
India | 2.1 | |||
Uruguay | 1.8 | |||
Hungary | 1.7 | |||
Republic of Korea | 1.7 | |||
Dominican Republic | 1.4 |
Ireland | 1.4 | % | ||
Paraguay | 1.4 | |||
United Arab Emirates | 1.4 | |||
Bahrain | 1.3 | |||
Panama | 1.3 | |||
United Kingdom | 1.2 | |||
Luxembourg | 1.1 | |||
Chile | 1.0 | |||
Gabon | 1.0 | |||
Croatia | 0.8 | |||
Guatemala | 0.8 | |||
Nigeria | 0.8 | |||
Vietnam | 0.8 | |||
Ghana | 0.7 | |||
Argentina | 0.5 | |||
Czech Republic | 0.5 | |||
Senegal | 0.5 | |||
Jamaica | 0.3 | |||
Other Assets, Less Liabilities | 2.7 | |||
|
| |||
100.0 | % | |||
|
|
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
Top Ten Holdings or Issuers Held as of April 30, 2014 (excluding short-term investment) (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. | Majapahit Holding B.V., 8.00%, due 8/7/19 |
4. | Republic of Venezuela, 9.25%, due 5/7/28 |
5. | Republic of Peru, 7.35%, due 7/21/25 |
6. | Poland Government Bond, 5.75%, due 10/25/21 |
7. | Gaz Capital S.A. for Gazprom, 9.25%, due 4/23/19 |
8. | Republic of Sri Lanka, 6.25%, due 10/4/20 |
9. | Portugal Obrigacoes do Tesouro OT, 4.95%, due 10/25/23 |
10. | Republic of Belarus, 8.95%, due 1/26/18 |
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 six months ended April 30, 2014?
Excluding all sales charges, MainStay Global High Income Fund returned 2.77% for Investor Class shares, 2.79% for Class A shares, 2.36% for Class B shares and 2.27% for Class C shares for the six months ended April 30, 2014. Over the same period, the Fund’s Class I shares returned 2.91%. For the six months ended April 30, 2014, all share classes underperformed the 3.75% 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 outperformed the 1.82% 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?
Emerging market sovereign debt slightly outperformed emerging market credit during the reporting period. While performance improved across emerging markets during the reporting period, we witnessed pockets of volatility in select regions such as Venezuela, where the current president unsettled the markets by expanding his authority to enact new laws without legislative approval. As a result, we reduced our exposure to the region. U.S. dollar denominated Argentine bonds rallied substantially during the reporting period—to the point where we believed that the country’s political and economic risks were not being factored into security prices. As result, we reduced our Argentine government exposure to zero.
What was the Fund’s duration3 strategy during the reporting period?
The Fund’s duration was shorter than that of the JPMorgan EMBI Global Diversified Index in order to lower its interest rate sensitivity relative to the Index. This has been achieved in part by shorting two-year U.S. Treasury futures, as well as increasing the Fund’s exposure to lower quality credits that we felt offered better opportunities for risk-adjusted returns (lower quality credits tend to be less interest rate sensitive than sovereign bonds). As of April 30, 2014, the Fund’s effective duration was 4.93 years, approximately two years shorter than the duration of the JPMorgan EMBI Global Diversified Index. The Fund pursued a shorter duration to reduce sensitivity to interest rates.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
In the beginning of the reporting period, we increased the Fund’s exposure to hard-currency emerging-market credit at attractive spread4 levels on the basis of our longer-term view that the emerging economies would weather the volatility they faced and our view that a longer-term systemic crisis in the sector was not on the horizon. As previously noted, we witnessed pockets of volatility in select regions such as Venezuela, and we reduced our exposure to the nation’s debt. U.S. dollar denominated Argentine bonds rallied substantially, and we reduced the Fund’s Argentine government exposure to zero.
The Russia/Ukraine conflict continued throughout the reporting period, and we perceived the situation as a fluid one with a degree of tail risk. We believe, however, that our modest investments in those nations relative to the JPMorgan EMBI Global Diversified Index offer adequate compensation in light of their solid fundamentals and healthy credit metrics.
During the reporting period, which market segments were the strongest positive contributors to the Fund’s absolute performance and which market segments were particularly weak?
The largest positive contributors to the Fund’s performance were opportunistic positions in Portuguese and Slovenian sovereign debt. (Contributions take weightings and total returns into account.) As the Euro zone crisis has retreated further into the past, the spreads on these issues relative to German debt compressed dramatically.
Three countries that detracted significantly from the Fund’s performance were Russia, Ukraine and Turkey. The first two countries were affected by heightened tensions and open conflict, while Turkey suffered from increased authoritarian rule and charges of corruption. Individual securities that negatively affected the Fund’s performance included corporate bonds of Russian companies Vimpelcom Holdings, Gazprom Capital, Lukoil International Finance, Novatek Finance and ALROSA Finance and Ukrainian company Ukraine Railways.
Did the Fund make any significant purchases or sales during the reporting period?
The Fund closed out its Argentine position as we no longer perceived the reward to be commensurate with the risk following a substantial rally. We pared the Fund’s exposure in
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. | 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 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. |
mainstayinvestments.com | 9 |
Venezuela as political and economic risks increased. We did, however, remain overweight relative to the JPMorgan EMBI Global Diversified Index in Venezuela. We sold the Fund’s position in Slovenian sovereign debt as spreads compressed to reasonable levels. In addition, we increased the Fund’s exposure to quasi-sovereign Kazak gas company Kazmunaygas in light of favorable country metrics.
How did the Fund’s sector and country weightings change during the reporting period?
Aside from the changes already mentioned, we increased the Fund’s exposure to Europe while decreasing exposure to Latin America. We slightly increased the Fund’s exposure to credit, more specifically high-yield credit, while slightly reducing the Fund’s exposure to emerging market sovereign debt.
How was the Fund positioned at the end of the reporting period?
As of April 30, 2014, the Fund held an overweight position relative to the JPMorgan EMBI Global Diversified Index in corporate bonds and an underweight position relative to the Index in sovereign debt. As of the same date, the Fund held overweight positions relative to the JPMorgan EMBI Global Diversified Index in Europe and Latin America and underweight positions relative to the Index in Asia and the Middle East.
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 April 30, 2014 (Unaudited)
Principal Amount | Value | |||||||
Long-Term Bonds 94.4%† Corporate Bonds 51.8% |
| |||||||
Argentina 0.5% |
| |||||||
WPE International Cooperatief UA | $ | 2,000,000 | $ | 1,265,000 | ||||
|
| |||||||
Brazil 9.3% |
| |||||||
Banco Bradesco S.A. | 3,000,000 | 3,138,750 | ||||||
Braskem Finance, Ltd. | ||||||||
6.45%, due 2/3/24 | 2,300,000 | 2,392,000 | ||||||
7.00%, due 5/7/20 (a) | 223,000 | 248,645 | ||||||
Fibria Overseas Finance, Ltd. | 3,000,000 | 3,292,500 | ||||||
Itau Unibanco Holding S.A. | 2,000,000 | 2,165,000 | ||||||
JBS Finance II, Ltd. | 3,000,000 | 3,210,000 | ||||||
Minerva Luxembourg S.A. | 3,750,000 | 3,857,813 | ||||||
Petrobras International Finance Co. | 3,000,000 | 3,072,357 | ||||||
USJ Acucar e Alcool S.A. | 2,000,000 | 1,952,500 | ||||||
Virgolino de Oliveira Finance, Ltd. | 3,000,000 | 2,182,500 | ||||||
|
| |||||||
25,512,065 | ||||||||
|
| |||||||
Chile 1.0% |
| |||||||
GeoPark Latin America, Ltd. Agencia en Chile | 1,500,000 | 1,575,000 | ||||||
VTR Finance B.V. | 1,000,000 | 1,042,091 | ||||||
|
| |||||||
2,617,091 | ||||||||
|
| |||||||
Colombia 2.5% |
| |||||||
Colombia Telecomunicaciones S.A. ESP | 5,000,000 | 4,950,000 | ||||||
Pacific Rubiales Energy Corp. | 2,000,000 | 1,932,500 | ||||||
|
| |||||||
6,882,500 | ||||||||
|
| |||||||
Czech Republic 0.5% |
| |||||||
CE Energy A.S. | € | 1,000,000 | 1,444,924 | |||||
|
| |||||||
Georgia 1.3% |
| |||||||
Georgian Oil and Gas Corp. | $ | 3,500,000 | 3,640,000 | |||||
|
|
Principal Amount | Value | |||||||
Guatemala 0.8% |
| |||||||
Industrial Senior Trust | $ | 2,200,000 | $ | 2,120,250 | ||||
|
| |||||||
India 2.1% |
| |||||||
ICICI Bank, Ltd. | 2,000,000 | 2,010,000 | ||||||
Vedanta Resources PLC | 3,500,000 | 3,710,000 | ||||||
|
| |||||||
5,720,000 | ||||||||
|
| |||||||
Indonesia 6.0% |
| |||||||
¨Majapahit Holding B.V. | 8,300,000 | 9,628,000 | ||||||
Pertamina Persero PT | 6,700,000 | 5,686,625 | ||||||
Perusahaan Listrik Negara PT | 1,500,000 | 1,224,375 | ||||||
|
| |||||||
16,539,000 | ||||||||
|
| |||||||
Ireland 1.4% |
| |||||||
UT2 Funding PLC | € | 2,700,000 | 3,951,865 | |||||
|
| |||||||
Kazakhstan 2.5% |
| |||||||
Kazakhstan Temir Zholy Finance B.V. | $ | 1,000,000 | 1,083,500 | |||||
KazMunaygas National Co. | 6,000,000 | 5,662,500 | ||||||
|
| |||||||
6,746,000 | ||||||||
|
| |||||||
Luxembourg 1.1% |
| |||||||
ArcelorMittal | 3,000,000 | 3,142,500 | ||||||
|
| |||||||
Mexico 5.0% |
| |||||||
Cemex Finance LLC | 3,000,000 | 3,003,750 | ||||||
Controladora Mabe S.A. de C.V. | ||||||||
7.875%, due 10/28/19 | 1,160,000 | 1,302,100 | ||||||
7.875%, due 10/28/19 (a) | 1,600,000 | 1,796,000 | ||||||
Grupo Bimbo S.A.B. de C.V. | 3,000,000 | 3,109,200 | ||||||
Petroleos Mexicanos | 4,000,000 | 4,440,000 | ||||||
|
| |||||||
13,651,050 | ||||||||
|
| |||||||
Paraguay 1.4% |
| |||||||
Banco Continental S.A.E. | 3,500,000 | 3,740,625 | ||||||
|
|
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest issuers held, as of April 30, 2014, 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 April 30, 2014 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Peru 1.1% |
| |||||||
BBVA Bancomer S.A. | $ | 3,000,000 | $ | 3,090,000 | ||||
|
| |||||||
Poland 0.9% |
| |||||||
TVN Finance Corp. III AB | € | 1,500,000 | 2,361,962 | |||||
|
| |||||||
Republic of Korea 1.7% |
| |||||||
Korea Finance Corp. | $ | 2,000,000 | 2,179,898 | |||||
Korea Gas Corp. | 2,000,000 | 2,487,932 | ||||||
|
| |||||||
4,667,830 | ||||||||
|
| |||||||
Russia 6.8% | ||||||||
ALROSA Finance S.A. | 3,500,000 | 3,570,000 | ||||||
¨Gaz Capital S.A. for Gazprom | 6,000,000 | 6,885,000 | ||||||
Lukoil International Finance B.V. | ||||||||
6.656%, due 6/7/22 (a) | 1,000,000 | 1,026,250 | ||||||
7.25%, due 11/5/19 (a) | 2,000,000 | 2,127,500 | ||||||
Novatek Finance, Ltd. | 2,000,000 | 1,940,000 | ||||||
Vimpelcom Holdings B.V. | 3,000,000 | 2,940,000 | ||||||
|
| |||||||
18,488,750 | ||||||||
|
| |||||||
Ukraine 1.2% |
| |||||||
Ukraine Railways via Shortline PLC | 4,500,000 | 3,345,156 | ||||||
|
| |||||||
United Arab Emirates 1.4% |
| |||||||
Abu Dhabi National Energy Co. | 3,750,000 | 3,693,750 | ||||||
|
| |||||||
United Kingdom 1.2% |
| |||||||
Lloyds TSB Bank PLC | A$ | 3,000,000 | 3,342,954 | |||||
|
| |||||||
Venezuela 2.1% |
| |||||||
Petroleos de Venezuela S.A. | $ | 5,900,000 | 5,723,000 | |||||
|
| |||||||
Total Corporate Bonds | 141,686,272 | |||||||
|
|
Principal Amount | Value | |||||||
Government & Federal Agencies 42.6% | ||||||||
Bahrain 1.3% |
| |||||||
Bahrain Government International Bond | $ | 3,200,000 | $ | 3,488,000 | ||||
|
| |||||||
Belarus 2.2% |
| |||||||
¨Republic of Belarus | 6,000,000 | 6,054,900 | ||||||
|
| |||||||
Brazil 1.6% |
| |||||||
Brazil Notas do Tesouro Nacional | B$ | 11,000,000 | 4,472,648 | |||||
|
| |||||||
Colombia 2.0% |
| |||||||
Republic of Colombia | C$ | 9,600,000,000 | 5,585,779 | |||||
|
| |||||||
Croatia 0.8% |
| |||||||
Republic of Croatia | $ | 2,000,000 | 2,150,000 | |||||
|
| |||||||
Dominican Republic 1.4% |
| |||||||
Dominican Republic | 3,500,000 | 3,885,000 | ||||||
|
| |||||||
Gabon 1.0% |
| |||||||
Gabonese Republic | 2,596,000 | 2,767,336 | ||||||
|
| |||||||
Georgia 0.8% |
| |||||||
Republic of Georgia | 2,000,000 | 2,151,000 | ||||||
|
| |||||||
Ghana 0.7% |
| |||||||
Republic of Ghana | 2,010,344 | 1,859,568 | ||||||
|
| |||||||
Hungary 1.7% |
| |||||||
Republic of Hungary | 4,250,000 | 4,702,625 | ||||||
|
| |||||||
Jamaica 0.3% |
| |||||||
Jamaica Government | 650,000 | 684,125 | ||||||
|
|
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) | ||||||||
Nigeria 0.8% |
| |||||||
Nigeria Government International Bond | $ | 2,000,000 | $ | 2,165,000 | ||||
|
| |||||||
Panama 1.3% |
| |||||||
Republic of Panama | 3,058,000 | 3,673,422 | ||||||
|
| |||||||
Peru 2.8% |
| |||||||
¨Republic of Peru | 5,800,000 | 7,598,000 | ||||||
|
| |||||||
Poland 2.7% |
| |||||||
¨Poland Government Bond | PLN 20,300,000 | 7,502,750 | ||||||
|
| |||||||
Portugal 2.4% |
| |||||||
¨Portugal Obrigacoes do Tesouro OT | € | 4,200,000 | 6,467,100 | |||||
|
| |||||||
Russia 0.9% |
| |||||||
Russian Federal Bond-OFZ | RUB 100,000,000 | 2,435,088 | ||||||
|
| |||||||
Senegal 0.5% |
| |||||||
Republic of Senegal | $ | 1,250,000 | 1,412,500 | |||||
|
| |||||||
Sri Lanka 2.5% |
| |||||||
¨Republic of Sri Lanka | 6,500,000 | 6,751,875 | ||||||
|
| |||||||
Turkey 5.5% |
| |||||||
¨Republic of Turkey | ||||||||
6.00%, due 1/14/41 | 5,000,000 | 5,172,500 | ||||||
7.375%, due 2/5/25 | 2,225,000 | 2,639,962 | ||||||
9.00%, due 3/8/17 | TRY 9,400,000 | 4,451,261 | ||||||
Turkey Government Bond | 6,750,000 | 2,797,116 | ||||||
|
| |||||||
15,060,839 | ||||||||
|
| |||||||
Ukraine 3.6% | ||||||||
¨Ukraine Government | ||||||||
7.75%, due 9/23/20 (a) | $ | 6,000,000 | 5,055,000 | |||||
7.80%, due 11/28/22 (a) | 5,800,000 | 4,864,750 | ||||||
|
| |||||||
9,919,750 | ||||||||
|
|
Principal Amount | Value | |||||||
Uruguay 1.8% | ||||||||
Republica Orient Uruguay | $ | U 104,763,851 | $ | 4,850,161 | ||||
|
| |||||||
Venezuela 3.2% |
| |||||||
¨Republic of Venezuela | $ | 11,095,000 | 8,820,525 | |||||
|
| |||||||
Vietnam 0.8% |
| |||||||
Socialist Republic of Vietnam | 2,000,000 | 2,255,000 | ||||||
|
| |||||||
Total Government & Federal Agencies | 116,712,991 | |||||||
|
| |||||||
Total Long-Term Bonds | 258,399,263 | |||||||
|
| |||||||
Short-Term Investment 2.9% | ||||||||
Repurchase Agreement 2.9% |
| |||||||
State Street Bank and Trust Co. | 7,892,129 | 7,892,129 | ||||||
|
| |||||||
Total Short-Term Investment | 7,892,129 | |||||||
|
| |||||||
Total Investments | 97.3 | % | 266,291,392 | |||||
Other Assets, Less Liabilities | 2.7 | 7,413,475 | ||||||
Net Assets | 100.0 | % | $ | 273,704,867 | ||||
Contracts Short | Unrealized Appreciation (Depreciation) (c) | |||||||
Futures Contracts (0.0%)‡ | ||||||||
United States Treasury Notes | (547 | ) | $ | (34,808 | ) | |||
|
| |||||||
Total Futures Contracts | $ | (34,808 | ) | |||||
|
|
‡ | 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. |
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 April 30, 2014 (Unaudited) (continued)
(b) | Floating rate—Rate shown was the rate in effect as of April 30, 2014. |
(c) | Represents the difference between the value of the contracts at the time they were opened and the value as of April 30, 2014. |
(d) | At April 30, 2014, cash in the amount of $169,570 is on deposit with a broker for futures transactions. |
(e) | As of April 30, 2014, cost was $260,775,941 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 14,770,037 | ||
Gross unrealized depreciation | (9,254,586 | ) | ||
|
| |||
Net unrealized appreciation | $ | 5,515,451 | ||
|
|
The following abbreviations are used in the above portfolio:
$U—Uruguayan Peso
€—Euro
A$—Australian Dollar
B$—Brazilian Real
C$—Colombian Peso
PLN—Polish Zloty
RUB—New Russian Ruble
TRY—Turkish Lira
As of April 30, 2014, 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) | |||||||||||||||||||||||||
Australian Dollar vs. U.S. Dollar | 5/7/14 | HSBC Bank USA | AUD | 3,150,000 | USD | 2,911,136 | USD | 14,213 | ||||||||||||||||||||||
Brazilian Real vs. U.S. Dollar | 5/7/14 | Barclays Bank PLC | BRL | 10,609,255 | 4,767,776 | (12,735 | ) | |||||||||||||||||||||||
Euro vs. U.S. Dollar | 5/7/14 | HSBC Bank USA | EUR | 10,500,000 | 14,547,225 | 19,875 | ||||||||||||||||||||||||
New Russian Ruble vs. U.S. Dollar | 5/7/14 | HSBC Bank USA | RUB | 196,300,000 | 5,558,151 | (50,880 | ) | |||||||||||||||||||||||
New Russian Ruble vs. U.S. Dollar | 9/18/14 | HSBC Bank USA | 196,300,000 | 5,268,384 | 49,024 | |||||||||||||||||||||||||
Polish Zloty vs. Euro | 5/7/14 | HSBC Bank USA | PLN | 11,200,000 | EUR | 2,648,505 | 24,381 | |||||||||||||||||||||||
Polish Zloty vs. Euro | 9/18/14 | HSBC Bank USA | 11,200,000 | 2,642,376 | 2,421 | |||||||||||||||||||||||||
Polish Zloty vs. U.S. Dollar | 5/7/14 | Barclays Bank PLC | 10,700,000 | USD | 3,461,103 | 72,539 | ||||||||||||||||||||||||
Pound Sterling vs. U.S. Dollar | 5/7/14 | HSBC Bank USA | GBP | 2,000,000 | 3,361,840 | 14,826 | ||||||||||||||||||||||||
South Korean Won vs. U.S. Dollar | 5/7/14 | HSBC Bank USA | KRW | 7,300,000,000 | 6,710,792 | 353,952 | ||||||||||||||||||||||||
South Korean Won vs. U.S. Dollar | 9/18/14 | HSBC Bank USA | 7,300,000,000 | 7,012,488 | 4,843 | |||||||||||||||||||||||||
Swiss Franc vs. Euro | 5/7/14 | JPMorgan Chase Bank | CHF | 9,300,000 | EUR | 7,629,204 | (17,170 | ) | ||||||||||||||||||||||
Foreign Currency Sales Contracts | Contract Amount Sold | Contract Amount Purchased | ||||||||||||||||||||||||||||
Australian Dollar vs. U.S. Dollar | 5/7/14 | HSBC Bank USA | AUD | 3,150,000 | USD | 2,736,720 | USD | (188,628 | ) | |||||||||||||||||||||
Australian Dollar vs. U.S. Dollar | 9/18/14 | HSBC Bank USA | 3,150,000 | 2,884,313 | (14,175 | ) | ||||||||||||||||||||||||
Brazilian Real vs. U.S. Dollar | 5/7/14 | Barclays Bank PLC | BRL | 10,609,255 | 4,282,415 | (472,626 | ) | |||||||||||||||||||||||
Brazilian Real vs. U.S. Dollar | 9/18/14 | Barclays Bank PLC | 10,000,000 | 4,324,324 | 10,596 | |||||||||||||||||||||||||
Euro vs. U.S. Dollar | 5/7/14 | HSBC Bank USA | EUR | 10,500,000 | 14,355,285 | (211,815 | ) | |||||||||||||||||||||||
Euro vs. U.S. Dollar | 9/18/14 | HSBC Bank USA | 10,500,000 | 14,542,500 | (21,436 | ) | ||||||||||||||||||||||||
New Russian Ruble vs. U.S. Dollar | 5/7/14 | HSBC Bank USA | RUB | 196,300,000 | 5,462,641 | (44,630 | ) | |||||||||||||||||||||||
Polish Zloty vs. Euro | 5/7/14 | HSBC Bank USA | PLN | 11,200,000 | EUR | 2,663,268 | (3,900 | ) | ||||||||||||||||||||||
Polish Zloty vs. U.S. Dollar | 5/7/14 | Barclays Bank PLC | 10,700,000 | USD | 3,521,359 | (12,284 | ) | |||||||||||||||||||||||
Pound Sterling vs. U.S. Dollar | 5/7/14 | HSBC Bank USA | GBP | 2,000,000 | 3,314,040 | (62,626 | ) | |||||||||||||||||||||||
Pound Sterling vs. U.S. Dollar | 9/18/14 | HSBC Bank USA | GBP | 2,000,000 | 3,358,220 | (14,792 | ) | |||||||||||||||||||||||
South Korean Won vs. U.S. Dollar | 5/7/14 | HSBC Bank USA | KRW | 7,300,000,000 | 7,056,549 | (8,195 | ) | |||||||||||||||||||||||
Swiss Franc vs. Euro | 5/7/14 | JPMorgan Chase Bank | CHF | 9,300,000 | EUR | 7,595,557 | (29,510 | ) | ||||||||||||||||||||||
Swiss Franc vs. Euro | 9/18/14 | JPMorgan Chase Bank | 9,300,000 | 7,639,545 | 17,024 | |||||||||||||||||||||||||
Net unrealized appreciation (depreciation) on foreign currency forward contracts | USD | (581,708 | ) |
14 | 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. |
The following is a summary of the fair valuations according to the inputs used as of April 30, 2014, 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 | $ | — | $ | 141,686,272 | $ | — | $ | 141,686,272 | ||||||||
Government & Federal Agencies | — | 116,712,991 | — | 116,712,991 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Long-Term Bonds | — | 258,399,263 | — | 258,399,263 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 7,892,129 | — | 7,892,129 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | — | 266,291,392 | — | 266,291,392 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other Financial Instruments | ||||||||||||||||
Foreign Currency Forward Contracts (b) | — | 583,694 | — | 583,694 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities and Other Financial Instruments | $ | — | $ | 266,875,086 | $ | — | $ | 266,875,086 | ||||||||
|
|
|
|
|
|
|
|
Liability Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Foreign Currency Forward Contracts (b) | $ | — | $ | (1,165,402 | ) | $ | — | $ | (1,165,402 | ) | ||||||
Futures Contracts Short (b) | (34,808 | ) | — | — | (34,808 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Other Financial Instruments | $ | (34,808 | ) | $ | (1,165,402 | ) | $ | — | $ | (1,200,210 | ) | |||||
|
|
|
|
|
|
|
|
(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 period ended April 30, 2014, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
As of April 30, 2014, 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 April 30, 2014 (Unaudited)
Assets | ||||
Investment in securities, at value | $ | 266,291,392 | ||
Cash denominated in foreign currencies | 4,282,139 | |||
Cash | 2,162,887 | |||
Cash collateral on deposit at broker | 169,570 | |||
Receivables: | ||||
Interest | 4,683,566 | |||
Fund shares sold | 519,179 | |||
Other assets | 42,835 | |||
Unrealized appreciation on foreign currency forward contracts | 583,694 | |||
|
| |||
Total assets | 278,735,262 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 2,405,263 | |||
Fund shares redeemed | 748,368 | |||
Manager (See Note 3) | 161,771 | |||
NYLIFE Distributors (See Note 3) | 93,673 | |||
Transfer agent (See Note 3) | 91,957 | |||
Variation margin on futures contracts | 51,281 | |||
Professional fees | 36,341 | |||
Shareholder communication | 35,214 | |||
Trustees | 956 | |||
Accrued expenses | 2,588 | |||
Dividend payable | 237,581 | |||
Unrealized depreciation on foreign currency forward contracts | 1,165,402 | |||
|
| |||
Total liabilities | 5,030,395 | |||
|
| |||
Net assets | $ | 273,704,867 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 239,108 | ||
Additional paid-in capital | 264,439,045 | |||
|
| |||
264,678,153 | ||||
Undistributed net investment income | 138,014 | |||
Accumulated net realized gain (loss) on investments, futures transactions and foreign currency transactions | 3,959,337 | |||
Net unrealized appreciation (depreciation) on investments and futures contracts | 5,480,643 | |||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (551,280 | ) | ||
|
| |||
Net assets | $ | 273,704,867 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 27,185,362 | ||
|
| |||
Shares of beneficial interest outstanding | 2,350,556 | |||
|
| |||
Net asset value per share outstanding | $ | 11.57 | ||
Maximum sales charge (4.50% of offering price) | 0.55 | |||
|
| |||
Maximum offering price per share outstanding | $ | 12.12 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 140,622,893 | ||
|
| |||
Shares of beneficial interest outstanding | 12,250,051 | |||
|
| |||
Net asset value per share outstanding | $ | 11.48 | ||
Maximum sales charge (4.50% of offering price) | 0.54 | |||
|
| |||
Maximum offering price per share outstanding | $ | 12.02 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 13,145,208 | ||
|
| |||
Shares of beneficial interest outstanding | 1,162,254 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 11.31 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 58,793,467 | ||
|
| |||
Shares of beneficial interest outstanding | 5,192,690 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 11.32 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 33,957,937 | ||
|
| |||
Shares of beneficial interest outstanding | 2,955,274 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 11.49 | ||
|
|
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 six months ended April 30, 2014 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 9,872,062 | ||
|
| |||
Expenses | ||||
Manager (See Note 3) | 991,589 | |||
Distribution/Service—Investor Class (See Note 3) | 33,305 | |||
Distribution/Service—Class A (See Note 3) | 173,878 | |||
Distribution/Service—Class B (See Note 3) | 68,310 | |||
Distribution/Service—Class C (See Note 3) | 306,625 | |||
Transfer agent (See Note 3) | 256,919 | |||
Registration | 43,759 | |||
Professional fees | 33,733 | |||
Custodian | 29,181 | |||
Shareholder communication | 24,959 | |||
Trustees | 2,912 | |||
Miscellaneous | 7,401 | |||
|
| |||
Total expenses | 1,972,571 | |||
|
| |||
Net investment income (loss) | 7,899,491 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 4,383,150 | |||
Futures transactions | (474,973 | ) | ||
Foreign currency transactions | (199,233 | ) | ||
|
| |||
Net realized gain (loss) on investments, futures transactions and foreign currency transactions | 3,708,944 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (4,780,928 | ) | ||
Futures contracts | 368,263 | |||
Translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (722,136 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on investments, futures contracts and foreign currency transactions | (5,134,801 | ) | ||
|
| |||
Net realized and unrealized gain (loss) on investments, futures transactions and foreign currency transactions | (1,425,857 | ) | ||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 6,473,634 | ||
|
|
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 six months ended April 30, 2014 (Unaudited) and the year ended October 31, 2013
2014 | 2013 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 7,899,491 | $ | 19,022,238 | ||||
Net realized gain (loss) on investments, futures transactions and foreign currency transactions | 3,708,944 | 1,180,610 | ||||||
Net change in unrealized appreciation (depreciation) on investments, futures contract and foreign currency transactions | (5,134,801 | ) | (29,279,461 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 6,473,634 | 9,076,613 | ||||||
|
| |||||||
Dividends and distributions to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (727,180 | ) | (1,921,312 | ) | ||||
Class A | (3,926,249 | ) | (12,129,709 | ) | ||||
Class B | (327,546 | ) | (1,174,107 | ) | ||||
Class C | (1,468,673 | ) | (5,282,302 | ) | ||||
Class I | (1,002,541 | ) | (3,851,086 | ) | ||||
|
| |||||||
(7,452,189 | ) | (24,358,516 | ) | |||||
|
| |||||||
From net realized gain on investments: | ||||||||
Investor Class | (73,982 | ) | — | |||||
Class A | (394,186 | ) | — | |||||
Class B | (39,130 | ) | — | |||||
Class C | (179,587 | ) | — | |||||
Class I | (97,969 | ) | — | |||||
|
| |||||||
(784,854 | ) | — | ||||||
|
| |||||||
Total dividends and distributions to shareholders | (8,237,043 | ) | (24,358,516 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 26,985,766 | 113,501,610 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 6,406,839 | 17,184,103 | ||||||
Cost of shares redeemed | (66,271,315 | ) | (155,453,579 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | (32,878,710 | ) | (24,767,866 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets | (34,642,119 | ) | (58,202,995 | ) | ||||
Net Assets | ||||||||
Beginning of period | 308,346,986 | 366,549,981 | ||||||
|
| |||||||
End of period | $ | 273,704,867 | $ | 308,346,986 | ||||
|
| |||||||
Undistributed (distributions in excess of) net investment income at end of period | $ | 138,014 | $ | (309,288 | ) | |||
|
|
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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Investor Class | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 11.60 | $ | 12.71 | $ | 11.90 | $ | 12.49 | $ | 11.16 | $ | 8.07 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.33 | 0.67 | 0.61 | 0.59 | 0.66 | 0.65 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.01 | ) | (0.94 | ) | 1.12 | (0.41 | ) | 1.33 | 3.00 | |||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.01 | 0.02 | 0.03 | 0.05 | 0.13 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.31 | (0.26 | ) | 1.75 | 0.21 | 2.04 | 3.78 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.31 | ) | (0.85 | ) | (0.62 | ) | (0.64 | ) | (0.71 | ) | (0.69 | ) | ||||||||||||||
From net realized gain on investments | (0.03 | ) | — | (0.32 | ) | (0.16 | ) | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.34 | ) | (0.85 | ) | (0.94 | ) | (0.80 | ) | (0.71 | ) | (0.69 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 11.57 | $ | 11.60 | $ | 12.71 | $ | 11.90 | $ | 12.49 | $ | 11.16 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 2.77 | %(c) | (2.18 | %) | 15.52 | % | 1.94 | % | 18.95 | % | 48.62 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 5.80 | %†† | 5.49 | % | 5.10 | % | 4.93 | % | 5.65 | % | 6.69 | % | ||||||||||||||
Net expenses | 1.37 | %†† | 1.30 | % | 1.29 | % | 1.32 | % | 1.37 | % | 1.49 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.37 | %†† | 1.30 | % | 1.29 | % | 1.32 | % | 1.37 | % | 1.57 | % | ||||||||||||||
Portfolio turnover rate | 7 | % | 36 | % | 31 | % | 65 | % | 92 | % | 133 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 27,185 | $ | 27,918 | $ | 27,165 | $ | 23,439 | $ | 21,834 | $ | 17,581 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class A | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 11.52 | $ | 12.62 | $ | 11.83 | $ | 12.42 | $ | 11.09 | $ | 8.02 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.33 | 0.68 | 0.62 | 0.60 | 0.67 | 0.66 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.01 | ) | (0.93 | ) | 1.11 | (0.41 | ) | 1.33 | 2.99 | |||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.01 | 0.02 | 0.03 | 0.05 | 0.12 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.31 | (0.24 | ) | 1.75 | 0.22 | 2.05 | 3.77 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.32 | ) | (0.86 | ) | (0.64 | ) | (0.65 | ) | (0.72 | ) | (0.70 | ) | ||||||||||||||
From net realized gain on investments | (0.03 | ) | — | (0.32 | ) | (0.16 | ) | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.35 | ) | (0.86 | ) | (0.96 | ) | (0.81 | ) | (0.72 | ) | (0.70 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 11.48 | $ | 11.52 | $ | 12.62 | $ | 11.83 | $ | 12.42 | $ | 11.09 | ||||||||||||||
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|
|
| |||||||||||||||
Total investment return (b) | 2.79 | %(c) | (1.98 | %) | 15.68 | % | 1.96 | % | 19.09 | % | 49.04 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 5.97 | %†† | 5.58 | % | 5.22 | % | 5.03 | % | 5.77 | % | 6.77 | % | ||||||||||||||
Net expenses | 1.20 | %†† | 1.16 | % | 1.17 | % | 1.22 | % | 1.25 | % | 1.32 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.20 | %†† | 1.16 | % | 1.17 | % | 1.22 | % | 1.25 | % | 1.40 | % | ||||||||||||||
Portfolio turnover rate | 7 | % | 36 | % | 31 | % | 65 | % | 92 | % | 133 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 140,623 | $ | 152,832 | $ | 179,430 | $ | 144,272 | $ | 159,834 | $ | 119,132 |
* | Unaudited. |
†† | 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. |
(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 | 19 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class B | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 11.35 | $ | 12.45 | $ | 11.68 | $ | 12.28 | $ | 10.97 | $ | 7.94 | ||||||||||||||
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| |||||||||||||||
Net investment income (loss) (a) | 0.28 | 0.56 | 0.51 | 0.49 | 0.56 | 0.57 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.01 | ) | (0.91 | ) | 1.09 | (0.41 | ) | 1.32 | 2.96 | |||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.01 | 0.02 | 0.03 | 0.05 | 0.12 | |||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.26 | (0.34 | ) | 1.62 | 0.11 | 1.93 | 3.65 | |||||||||||||||||||
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| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.27 | ) | (0.76 | ) | (0.53 | ) | (0.55 | ) | (0.62 | ) | (0.62 | ) | ||||||||||||||
From net realized gain on investments | (0.03 | ) | — | (0.32 | ) | (0.16 | ) | — | — | |||||||||||||||||
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|
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|
|
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| |||||||||||||||
Total dividends and distributions | (0.30 | ) | (0.76 | ) | (0.85 | ) | (0.71 | ) | (0.62 | ) | (0.62 | ) | ||||||||||||||
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| |||||||||||||||
Net asset value at end of period | $ | 11.31 | $ | 11.35 | $ | 12.45 | $ | 11.68 | $ | 12.28 | $ | 10.97 | ||||||||||||||
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| |||||||||||||||
Total investment return (b) | 2.36 | %(c) | (2.89 | %) | 14.60 | % | 1.13 | % | 18.11 | % | 47.69 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 5.05 | %†† | 4.70 | % | 4.35 | % | 4.18 | % | 4.90 | % | 5.98 | % | ||||||||||||||
Net expenses | 2.12 | %†† | 2.05 | % | 2.04 | % | 2.07 | % | 2.12 | % | 2.24 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 2.12 | %†† | 2.05 | % | 2.04 | % | 2.07 | % | 2.12 | % | 2.32 | % | ||||||||||||||
Portfolio turnover rate | 7 | % | 36 | % | 31 | % | 65 | % | 92 | % | 133 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 13,145 | $ | 15,290 | $ | 20,101 | $ | 21,961 | $ | 27,314 | $ | 25,651 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class C | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 11.37 | $ | 12.46 | $ | 11.69 | $ | 12.29 | $ | 10.98 | $ | 7.95 | ||||||||||||||
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|
| |||||||||||||||
Net investment income (loss) (a) | 0.28 | 0.56 | 0.51 | 0.49 | 0.56 | 0.56 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.01 | ) | (0.90 | ) | 1.09 | (0.41 | ) | 1.32 | 2.97 | |||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.02 | ) | 0.01 | 0.02 | 0.03 | 0.05 | 0.12 | |||||||||||||||||||
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| |||||||||||||||
Total from investment operations | 0.25 | (0.33 | ) | 1.62 | 0.11 | 1.93 | 3.65 | |||||||||||||||||||
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| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.27 | ) | (0.76 | ) | (0.53 | ) | (0.55 | ) | (0.62 | ) | (0.62 | ) | ||||||||||||||
From net realized gain on investments | (0.03 | ) | — | (0.32 | ) | (0.16 | ) | — | — | |||||||||||||||||
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|
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| |||||||||||||||
Total dividends and distributions | (0.30 | ) | (0.76 | ) | (0.85 | ) | (0.71 | ) | (0.62 | ) | (0.62 | ) | ||||||||||||||
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| |||||||||||||||
Net asset value at end of period | $ | 11.32 | $ | 11.37 | $ | 12.46 | $ | 11.69 | $ | 12.29 | $ | 10.98 | ||||||||||||||
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| |||||||||||||||
Total investment return (b) | 2.27 | %(c) | (2.80 | %) | 14.59 | % | 1.13 | % | 18.20 | % | 47.50 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 5.05 | %†† | 4.69 | % | 4.35 | % | 4.18 | % | 4.89 | % | 5.85 | % | ||||||||||||||
Net expenses | 2.12 | %†† | 2.05 | % | 2.04 | % | 2.07 | % | 2.12 | % | 2.23 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 2.12 | %†† | 2.05 | % | 2.04 | % | 2.07 | % | 2.12 | % | 2.31 | % | ||||||||||||||
Portfolio turnover rate | 7 | % | 36 | % | 31 | % | 65 | % | 92 | % | 133 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 58,793 | $ | 68,629 | $ | 91,002 | $ | 80,351 | $ | 87,597 | $ | 57,731 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class I | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 11.53 | $ | 12.63 | $ | 11.84 | $ | 12.43 | $ | 11.10 | $ | 8.02 | ||||||||||||||
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|
|
|
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|
|
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|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.35 | 0.71 | 0.66 | 0.63 | 0.69 | 0.66 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.01 | ) | (0.93 | ) | 1.10 | (0.41 | ) | 1.34 | 3.01 | |||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.02 | ) | 0.01 | 0.02 | 0.03 | 0.05 | 0.13 | |||||||||||||||||||
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|
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|
|
|
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|
| |||||||||||||||
Total from investment operations | 0.32 | (0.21 | ) | 1.78 | 0.25 | 2.08 | 3.80 | |||||||||||||||||||
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| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.33 | ) | (0.89 | ) | (0.67 | ) | (0.68 | ) | (0.75 | ) | (0.72 | ) | ||||||||||||||
From net realized gain on investments | (0.03 | ) | — | (0.32 | ) | (0.16 | ) | — | — | |||||||||||||||||
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|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.36 | ) | (0.89 | ) | (0.99 | ) | (0.84 | ) | (0.75 | ) | (0.72 | ) | ||||||||||||||
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| |||||||||||||||
Net asset value at end of period | $ | 11.49 | $ | 11.53 | $ | 12.63 | $ | 11.84 | $ | 12.43 | $ | 11.10 | ||||||||||||||
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| |||||||||||||||
Total investment return (b) | 2.91 | %(c) | (1.73 | %) | 15.95 | % | 2.22 | % | 19.48 | % | 49.31 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 6.21 | %†† | 5.86 | % | 5.47 | % | 5.31 | % | 5.89 | % | 6.32 | % | ||||||||||||||
Net expenses | 0.95 | %†† | 0.91 | % | 0.92 | % | 0.97 | % | 1.00 | % | 1.12 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 0.95 | %†† | 0.91 | % | 0.92 | % | 0.97 | % | 1.00 | % | 1.12 | % | ||||||||||||||
Portfolio turnover rate | 7 | % | 36 | % | 31 | % | 65 | % | 92 | % | 133 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 33,958 | $ | 43,678 | $ | 48,852 | $ | 36,027 | $ | 52,188 | $ | 3,972 |
* | Unaudited. |
†† | 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. |
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 (Unaudited)
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 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”) adopted procedures for the valuation of the Fund’s securities and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board 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 Sub-Committee deals in the first instance with such valuation and 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. Any action taken by the Sub-Committee with respect to the valuation of a portfolio security is submitted by the Valuation Committee to the Board for its review at its next regularly scheduled meeting immediately after such action.
“Fair value” is defined as the price that the Fund would receive upon selling an asset or liability in an orderly transaction to an independent buyer in the principal or most advantageous market for the asset or liability. Fair value measurements are determined within a framework that 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” refer 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 based on the information available. 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 below.
• | Level 1—quoted prices in active markets for an identical asset or liability |
22 | MainStay Global High Income Fund |
• | Level 2—other significant observable inputs (including quoted prices for a similar asset or liability in active markets, interest rates and yield curves, prepayment speeds, credit risk etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring fair value of an asset or liability) |
The aggregate value by input level, as of April 30, 2014, for the Fund’s assets or liabilities is included at the end of the Fund’s Portfolio of Investments.
The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs among others:
• 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 |
An asset or liability for which market values cannot be measured using the methodologies described above are valued by methods deemed reasonable and in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund generally 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 asset or liability are discounted to calculate fair value. Discounts may also be applied due to the nature and/or duration of any restrictions on the disposition of the asset or liability. Due to the inherent valuation uncertainty of such assets or liabilities, fair values may differ significantly from values that would have been used had an active market existed. For the six-month period ended April 30, 2014, there have been no material 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 readily available from a third party pricing source or, if so provided, does not, in the opinion of the Manager or Subadvisor reflect the security’s market value; (vi) a security subject to trading collars for which no or limited trading takes place; and (vii) 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 April 30, 2014, 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 primarily traded. Investments in other mutual funds are valued at their respective NAV(s) 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 Manager, in consultation with the Subadvisor. Those prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Manager, in consultation with the Subadvisor, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities purchased on a 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 at the time of purchase (“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.
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 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).
mainstayinvestments.com | 23 |
Notes to Financial Statements (Unaudited) (continued)
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. The Fund may be subject to foreign taxes on income and other transaction-based taxes imposed by certain countries in which they invest. A portion of the taxes on gains on investments or currency purchases/repatriation 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 from net investment income, if any, at least monthly and distributions from 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. The straight-line method approximates the effective interest method for short-term investments. 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.
(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 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 if 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 market 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
24 | MainStay Global High Income Fund |
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) 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 purchase and sell foreign currency forward contracts for purposes of seeking to enhance portfolio returns and manage portfolio risk more efficiently. Foreign currency forward contracts may also be used to gain exposure to a particular currency or to hedge against the risk of loss due to changing currency exchange rates. Foreign currency forward contracts to purchase or sell a foreign currency may also be used in anticipation of future purchases or sales of securities denominated in foreign currency, even if the specific investments have not yet been selected.
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) 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.
mainstayinvestments.com | 25 |
Notes to Financial Statements (Unaudited) (continued)
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 April 30, 2014.
(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 or 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. The amounts disclosed in the table represent the monthly average held during the six-month period ended April 30, 2014.
Fair value of derivatives instruments as of April 30, 2014:
Asset Derivatives
Statement of Location | Foreign Exchange Contracts Risk | Interest Rate Contracts Risk | Total | |||||||||||
Forward Contracts | Unrealized appreciation on foreign currency forward contracts | $ | 583,694 | $ | — | $ | 583,694 | |||||||
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Total Fair Value | $ | 583,694 | $ | — | $ | 583,694 | ||||||||
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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) | $ | — | $ | (34,808 | ) | $ | (34,808 | ) | |||||
Forward Contracts | Unrealized depreciation on foreign currency forward contracts | (1,165,402 | ) | — | (1,165,402 | ) | ||||||||
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Total Fair Value | $ | (1,165,402 | ) | $ | (34,808 | ) | $ | (1,200,210 | ) | |||||
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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 period ended April 30, 2014:
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 | $ | — | $ | (474,973 | ) | $ | (474,973 | ) | |||||
Forward Contracts | Net realized gain (loss) on foreign currency transactions | (90,754 | ) | — | (90,754 | ) | ||||||||
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| |||||||||||||
Total Realized Gain (Loss) | $ | (90,754 | ) | $ | (474,973 | ) | $ | (565,727 | ) | |||||
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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 | $ | — | $ | 368,263 | $ | 368,263 | |||||||
Forward Contracts | Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (734,127 | ) | — | (734,127 | ) | ||||||||
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| |||||||||||||
Total Change in Unrealized Appreciation (Depreciation) | $ | (734,127 | ) | $ | 368,263 | $ | (365,864 | ) | ||||||
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Number of Contracts, Notional Amounts or Shares/Units
Foreign Risk | Interest Rate Contracts Risk | Total | ||||||||||
Futures Contracts Short (Average number of contracts) | — | (547 | ) | (547 | ) | |||||||
Forward Contracts Long (Average notional amount) | $ | 52,658,698 | $ | — | $ | 52,658,698 | ||||||
Forward Contracts Short (Average notional amount) | $ | (62,131,518 | ) | $ | — | $ | (62,131,518 | ) | ||||
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The following table presents the Fund’s derivative assets by counterparty net of amounts available for offset under a master netting agreement, or similar agreement, and net of the related collateral received by the Fund as of April 30, 2014.
Counterparty | Gross Assets in Statement of Assets and Liabilities | Derivative assets/(liabilities) available for offset | Collateral Received | Net Amount of Derivative Assets* | ||||||||||||
JPMorgan Chase Bank | $ | 17,024 | $ | (17,024 | ) | $ | — | $ | — | |||||||
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The following table presents the Fund’s derivative liabilities by counterparty net of amounts available for offset under a master netting agreement, or similar agreement, and net of the related collateral pledged by the Fund as of April 30, 2014.
Counterparty | Gross Liabilities in Statement of Assets and Liabilities | Derivative assets/(liabilities) available for offset | Collateral Pledged | Net Amount of Derivative Liabilities† | ||||||||||||
JPMorgan Chase Bank | $ | 46,680 | $ | (17,024 | ) | $ | — | $ | 29,656 | |||||||
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* | Represents the net amount receivable from the counterparty in the event of default. |
† | Represents the net amount payable to the counterparty in the event of default. |
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
mainstayinvestments.com | 27 |
Notes to Financial Statements (Unaudited) (continued)
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 compensation 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 the 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 six-month period ended April 30, 2014, inclusive of a fee for fund accounting services of 0.02% of the Fund’s average daily net assets.
For the six-month period ended April 30, 2014, New York Life Investments earned fees from the Fund in the amount of $991,589.
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 $4,479 and $17,059, respectively, for the six-month period ended April 30, 2014. The Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Class B and Class C shares of $44, $22,629 and $6,948, respectively, for the six-month period ended April 30, 2014.
(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 six-month period ended April 30, 2014, were as follows:
Investor Class | $ | 39,182 | ||
Class A | 85,887 | |||
Class B | 20,102 | |||
Class C | 90,233 | |||
Class I | 21,515 |
(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 April 30, 2014, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class A | $ | 6,846,833 | 4.9 | % |
Note 4–Federal Income Tax
The tax character of distributions paid during the year ended October 31, 2013, shown in the Statements of Changes in Net Assets was as follows:
2013 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 24,358,516 |
Note 5–Custodian
State Street is the custodian of cash and securities held by the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities held by the Fund and the number of certain cash transactions incurred by the Fund.
28 | MainStay Global High Income 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, who serves as the agent 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. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the six-month period ended April 30, 2014.
Note 7–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2014, purchases and sales of securities, other than U.S. government securities and short-term securities, were $19,866 and $55,040, respectively.
Note 8–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 133,378 | $ | 1,515,342 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 69,438 | 787,048 | ||||||
Shares redeemed | (268,224 | ) | (3,049,059 | ) | ||||
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Net increase (decrease) in shares outstanding before conversion | (65,408 | ) | (746,669 | ) | ||||
Shares converted into Investor Class (See Note 1) | 54,519 | 616,375 | ||||||
Shares converted from Investor Class (See Note 1) | (44,660 | ) | (505,980 | ) | ||||
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Net increase (decrease) | (55,549 | ) | $ | (636,274 | ) | |||
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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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Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 1,373,805 | $ | 15,530,138 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 333,370 | 3,750,722 | ||||||
Shares redeemed | (2,792,828 | ) | (31,424,531 | ) | ||||
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Net increase (decrease) in shares outstanding before conversion | (1,085,653 | ) | (12,143,671 | ) | ||||
Shares converted into Class A (See Note 1) | 67,218 | 754,769 | ||||||
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Net increase (decrease) | (1,018,435 | ) | $ | (11,388,902 | ) | |||
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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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Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 46,831 | $ | 520,549 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 27,273 | 302,306 | ||||||
Shares redeemed | (180,266 | ) | (2,000,229 | ) | ||||
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Net increase (decrease) in shares outstanding before conversion | (106,162 | ) | (1,177,374 | ) | ||||
Shares converted from Class B (See Note 1) | (78,276 | ) | (865,164 | ) | ||||
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Net increase (decrease) | (184,438 | ) | $ | (2,042,538 | ) | |||
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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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Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 339,978 | $ | 3,791,899 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 110,752 | 1,228,773 | ||||||
Shares redeemed | (1,296,453 | ) | (14,407,126 | ) | ||||
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| |||||
Net increase (decrease) | (845,723 | ) | $ | (9,386,454 | ) | |||
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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 | ) | |||
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mainstayinvestments.com | 29 |
Notes to Financial Statements (Unaudited) (continued)
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 499,570 | $ | 5,627,838 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 30,023 | 337,990 | ||||||
Shares redeemed | (1,362,846 | ) | (15,390,370 | ) | ||||
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| |||||
Net increase (decrease) | (833,253 | ) | $ | (9,424,542 | ) | |||
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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 | ) | ||||
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Net increase (decrease) | (79,478 | ) | $ | 260,077 | ||||
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Note 9–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the six-month period ended April 30, 2014, events and transactions subsequent to April 30, 2014, 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 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”) requires that each mutual fund’s board of trustees, including a majority of the independent trustees, annually review and approve the fund’s investment advisory agreements. At its December 10-11, 2013 meeting, the Board of Trustees of the MainStay Group of Funds (“Board”) unanimously approved the Management Agreement with respect to the MainStay Global High Income Fund (“Fund”) and New York Life Investment Management LLC (“New York Life Investments”) and the Subadvisory Agreement between New York Life Investments and MacKay Shields LLC (“MacKay Shields”) with respect to the Fund.
In reaching its decision to approve the Agreements, the Board considered information furnished by New York Life Investments and MacKay Shields in connection with a contract review process that took place at various meetings of the Board and its Contracts Committee between September 2013 and December 2013 as well as other relevant information furnished to the Board throughout the year by New York Life Investments and MacKay Shields. Information requested by and furnished to the Board in connection with the contract review process included, among other items, reports on the Fund and “peer funds” prepared by Strategic Insight Mutual Fund Research and Consulting, LLC (“Strategic Insight”), an independent third-party service provider engaged by the Board to report objectively on the Fund’s investment performance, management and subadvisory fees and ordinary operating expenses. The Board also considered information provided by New York Life Investments and MacKay Shields on the fees charged to other investment advisory clients (including institutional separate accounts) that follow investment strategies similar to the Fund and the rationale for any differences in the Fund’s management and subadvisory fees and the fees charged to those other investment advisory clients. In addition, the Board requested and received information on the profitability of the Fund to New York Life Investments and its affiliates, including MacKay Shields as subadvisor to the Fund and responses from New York Life Investments and MacKay Shields to a series of questions encompassing a variety of topics prepared on behalf of the Board by independent legal counsel to the Board and its independent trustees (the “Independent Trustees”). Information provided to the Board at its meetings throughout the year included, among other items, detailed investment performance reports on the Fund prepared by the Investment Consulting Group at New York Life Investments. The structure and format for this regular reporting were developed in consultation with the Board. The Board also received from New York Life Investments throughout the year, among other items, periodic reports on legal and compliance matters, portfolio turnover, and sales and marketing activity.
In considering the Agreements, the members of the Board reviewed and evaluated all of the information and factors they believed to be relevant and appropriate in light of legal advice furnished to them by independent legal counsel and through the exercise of their own business judgment. The broad factors considered by the Board are discussed in greater detail below and included, among other items: (i) the nature, scope and quality of the services provided to the Fund by New York Life Investments and MacKay Shields; (ii) the investment performance of the Fund, New York Life Investments and MacKay Shields; (iii) the costs of the services provided, and profits realized, by New York Life Investments and MacKay Shields from their relationships with the Fund; (iv) the extent to which economies of scale may be realized as the
Fund grows and the extent to which economies of scale may benefit Fund investors; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to similar funds and accounts managed by New York Life Investments and MacKay Shields and peer funds identified by Strategic Insight.
While individual members of the Board may have weighed certain factors differently, the Board’s decision to approve the Agreements was based on a consideration of all the information provided to the Board, including information provided to the Board throughout the year and specifically in connection with the contract review process. The Board’s conclusions with respect to the Agreements also were based, in part, on the Board’s consideration of the Agreements in prior years. In addition to considering the above-referenced factors, the Board observed that in the marketplace there are a range of investment options available to shareholders of the Fund and that the Fund’s shareholders, having had the opportunity to consider other investment options, have chosen to invest in the Fund. A more detailed discussion of the factors that figured prominently in the Board’s decisions to approve the Agreements is provided below.
Nature, Scope and Quality of Services to Be Provided by New York Life Investments and MacKay Shields
The Board examined the nature, scope and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience in serving as manager of the Fund, noting that New York Life Investments manages other mutual funds, serves a variety of other investment advisory clients, including other pooled investment vehicles, and has experience with overseeing mutual fund service providers, including subadvisors. The Board considered the experience of senior personnel at New York Life Investments providing management and administrative services to the Fund as well as New York Life Investments’ reputation and financial condition. The Board also considered the full range of non-advisory services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and oversight services provided by New York Life Investments’ Fund Accounting and Administration Group; (ii) investment oversight and analytical services provided by New York Life Investments’ Investment Consulting Group; (iii) compliance services provided by the Fund’s Chief Compliance Officer as well as New York Life Investments’ compliance department, including oversight and implementation of the Fund’s compliance program; and (iv) legal services provided by New York Life Investments’ Office of the General Counsel. Additional information about the non-advisory services provided by New York Life Investments is set forth in the Fund’s Management Agreement. The Board also considered New York Life Investments’ willingness to invest in personnel and infrastructure that benefit the Fund and noted that New York Life Investments is responsible for compensating the Fund’s officers. The Board also considered benefits to shareholders of being part of the MainStay Group of Funds, including the privilege of exchanging investments between the same class of shares without the imposition of a sales charge, as described more fully in the Fund’s prospectus.
The Board also examined the nature, scope and quality of the advisory services that MacKay Shields provides to the Fund. The Board evaluated
mainstayinvestments.com | 31 |
Board Consideration and Approval of Management Agreement and
Subsidiary Agreement (Unaudited) (continued)
MacKay Shields’ experience in serving as subadvisor to the Fund and managing other portfolios. It examined MacKay Shields’ track record and experience in providing investment advisory services, the experience of investment advisory, senior management and administrative personnel at MacKay Shields, and MacKay Shields’ overall legal and compliance environment. The Board also reviewed MacKay Shields’ willingness to invest in personnel that benefit the Fund. In this regard, the Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers and the method for compensating portfolio managers.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund should continue to benefit from the nature, scope and quality of these services as a result of New York Life Investments’ and MacKay Shields’ experience, personnel, operations and resources.
Investment Performance
In evaluating the Fund’s investment performance, the Board considered investment performance results in light of the Fund’s investment objective, strategies and risks, as disclosed in the Fund’s prospectus. The Board particularly considered detailed investment reports on the Fund’s performance provided to the Board throughout the year by the Investment Consulting Group of New York Life Investments. These reports include, among other items, information on the Fund’s gross and net returns, the Fund’s investment performance relative to relevant investment categories and Fund benchmarks, the Fund’s risk-adjusted investment performance, and the Fund’s investment performance as compared to peer funds, as appropriate. The Board also considered information provided by Strategic Insight showing the investment performance of the Fund as compared to peer funds.
In considering the Fund’s investment performance, the Board focused principally on the Fund’s long-term performance track record. The Board also gave weight to its ongoing discussions with senior management at New York Life Investments concerning the Fund’s investment performance as well as discussions between the Fund’s portfolio managers and the Board that generally occur on an annual basis. In addition, the Board considered any specific actions that New York Life Investments or MacKay Shields had taken, or had agreed with the Board to take, to enhance Fund investment performance and the results of those actions.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the long-term investment performance of the Fund, along with ongoing efforts by New York Life Investments and MacKay Shields to enhance investment returns, supported a determination to approve the Agreements. The Fund discloses more information about investment performance in the Portfolio Management Discussion and Analysis, Investment and Performance Comparison and Financial Highlights sections of this Semiannual Report and in the Fund’s prospectus.
Costs of the Services Provided, and Profits Realized, by New York Life Investments and MacKay Shields
The Board considered the costs of the services provided by New York Life Investments and MacKay Shields under the Agreements and the
profits realized by New York Life Investments and its affiliates, including MacKay Shields, due to their relationships with the Fund. Because MacKay Shields is an affiliate of New York Life Investments whose subadvisory fees are paid directly by New York Life Investments, the Board considered cost and profitability information for New York Life Investments and MacKay Shields in the aggregate.
In evaluating the costs and profits of New York Life Investments and its affiliates, including MacKay Shields, the Board considered, among other factors, each party’s investments in personnel, systems, equipment and other resources necessary to manage the Fund, and that New York Life Investments is responsible for paying the subadvisory fees for the Fund. The Board acknowledged that New York Life Investments and MacKay Shields must be in a position to pay and retain experienced professional personnel to provide services to the Fund and that the ability to maintain a strong financial position is important in order for New York Life Investments and MacKay Shields to continue to provide high-quality services to the Fund. The Board also noted that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds.
In addition, the Board noted the difficulty in obtaining reliable comparative data about mutual fund managers’ profitability, since such information generally is not publicly available and may be impacted by numerous factors, including the structure of a fund manager’s organization, the types of funds it manages, the methodology used to allocate certain fixed costs to specific funds, and the manager’s capital structure and costs of capital. While recognizing the difficulty in evaluating a manager’s profitability with respect to the Fund and noting that other profitability methodologies may also be reasonable, the Board concluded that the profitability methodology presented by New York Life Investments to the Board, which was developed by New York Life Investments in consultation with an independent consultant, was reasonable in all material respects.
In considering the costs and profitability of the Fund, the Board also considered certain fall-out benefits that may be realized by New York Life Investments and its affiliates due to their relationships with the Fund.
The Board further considered that, in addition to fees earned by New York Life Investments for managing the Fund, New York Life Investments’ affiliates also earn revenues from serving the Fund in various other capacities, including as the Fund’s transfer agent and distributor. The Board observed that information about these other revenues, and their impact on the profitability of the Fund to New York Life Investments and its affiliates, was furnished to the Board as part of the 15(c) process. The Board noted that, although it assessed the overall profitability of the Fund to New York Life Investments and its affiliates as part of the contract review process, when considering the reasonableness of the fees to be paid to New York Life Investments and its affiliates under the Agreements, the Board considered the profitability of New York Life Investments’ relationship with the Fund on a pre-tax basis and without regard to distribution expenses.
After evaluating the information presented to the Board, the Board concluded, within the context of its overall determinations regarding the Agreements, that any profits realized by New York Life Investments and its affiliates, including MacKay Shields, due to their relationships with the Fund supported the Board’s decision to approve the Agreements.
32 | MainStay Global High Income Fund |
Extent to Which Economies of Scale May Be Realized as the Fund Grows
The Board considered whether the Fund’s expense structure permits economies of scale to be shared with Fund investors. The Board also considered a report from New York Life Investments, prepared at the request of the Board, that addressed economies of scale in the mutual fund business generally, the changing economics of the mutual fund business and the various ways in which the benefits of economies of scale may be shared with the MainStay Group of Funds. The Board reviewed information from New York Life Investments showing how the Fund’s management fee schedule compared to fee schedules of other funds and accounts managed by New York Life Investments. The Board also reviewed information from Strategic Insight showing how the Fund’s management fee schedule hypothetically would compare with fees paid for similar services by peer funds at varying asset levels. While recognizing the difficulty of determining economies of scale with precision, the Board acknowledged that economies of scale may be shared with the Fund in a number of ways, including, for example, through the imposition of management fee breakpoints and by initially setting relatively low management fees.
Based on this information, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund’s expense structure appropriately reflects economies of scale for the benefit of Fund investors. The Board noted, however, that it would continue to evaluate the reasonableness of the Fund’s expense structure as the Fund grows over time.
Management and Subadvisory Fees and Total Ordinary Operating Expenses
The Board evaluated the reasonableness of the fees to be paid under the Agreements and the Fund’s expected total ordinary operating expenses. The Board primarily considered the reasonableness of the management fee paid by the Fund to New York Life Investments, since the fees paid to MacKay Shields are paid by New York Life Investments, not the Fund.
In assessing the reasonableness of the Fund’s fees and expenses, the Board primarily considered comparative data provided by Strategic Insight on the fees and expenses charged by similar mutual funds managed by other investment advisers. In addition, the Board considered information provided by New York Life Investments and MacKay Shields on fees charged to other investment advisory clients, including institutional separate accounts and other funds with similar investment objectives as the Fund. The Board particularly considered differences in the contractual management fee schedules of the retail MainStay Funds and similarly-managed MainStay VP Portfolios, taking into account New York Life Investments’ rationale for any differences in fee schedules. The Board also took into account explanations provided by New York Life Investments about the different scope of services provided to mutual funds as compared with other investment advisory clients. Additionally, the Board considered the impact of any contractual breakpoints, voluntary waivers and expense limitation arrangements on the Fund’s net management fee and expenses.
The Board noted that, outside of the Fund’s management fee and the fees charged under a share class’s Rule 12b-1 and/or shareholder services plans, a share class’s most significant “other expenses” are transfer
agent fees. Transfer agent fees are charged to the Fund based on the number of shareholder accounts (a “per-account” fee) as compared with certain other fees (e.g., management fees), which are charged based on the Fund’s average net assets. The Board took into account information from New York Life Investments showing that the Fund’s transfer agent fee schedule is reasonable, including industry data showing that the per-account fees that NYLIM Service Company LLC, the Fund’s transfer agent, charges the Fund are within the range of per-account fees charged by transfer agents to other mutual funds. In addition, the Board considered NYLIM Service Company LLC’s profitability in connection with the transfer agent services it provides to the Fund.
The Board considered that, because the Fund’s transfer agent fees are billed on a per-account basis, the impact of transfer agent fees on a share class’s expense ratio may be more significant in cases where the share class has a high number of accounts with limited assets (i.e., small accounts). The Board observed that transfer agent fees are a significant portion of total expenses of many Funds in the MainStay Group of Funds. The impact of transfer agent fees on the expense ratios of these MainStay Funds tend to be greater than for other open-end retail funds, because the MainStay Group of Funds generally has a significant number of small accounts relative to competitor funds. The Board acknowledged the role that the MainStay Group of Funds historically has played in serving the investment needs of New York Life Insurance Company (“New York Life”) policyholders, who often maintain smaller account balances than other fund investors. The Board also acknowledged measures that it and New York Life Investments have taken in recent years to mitigate the effect of small accounts on the expense ratios of Fund share classes, including: (i) encouraging New York Life agents to consolidate multiple small accounts held by the same investor into one MainStay Asset Allocation Fund account; (ii) increasing investment minimums from $500 to $1,000 in 2003; (iii) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iv) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (v) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (vi) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vii) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. In addition, the Board acknowledged New York Life Investments’ efforts to encourage intermediaries to consolidate small accounts in multiple Funds held by the same investor into a single Asset Allocation Fund account, if appropriate under the circumstances, in an effort to mitigate the effect of small accounts on the Funds in the MainStay Group of Funds.
After considering all of the factors outlined above, the Board concluded that the Fund’s management and subadvisory fees and total ordinary operating expenses were within a range that is competitive and, within the context of the Board’s overall conclusions regarding the Agreements, support a conclusion that these fees and expenses are reasonable.
Conclusion
On the basis of the information provided to it and its evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the Agreements.
mainstayinvestments.com | 33 |
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).
34 | MainStay Global High Income 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 Fund
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 Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund1
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund2
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 LLC3
New York, New York
Cornerstone Capital Management LLC3
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC3
Chicago, Illinois
MacKay Shields LLC3
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC3
New York, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP4
PricewaterhouseCoopers LLP5
1. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
2. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
3. An affiliate of New York Life Investment Management LLC.
4. For all Funds listed above except MainStay Marketfield Fund.
5. For MainStay Marketfield Fund only.
Not part of the Semiannual 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.
©2014 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-34237 MS164-14 | MSGH10-06/14 NL020 |
MainStay International Equity Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2014
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Message from the President
Stocks and bonds generally advanced during the six months ended April 30, 2014, but results varied across different markets, asset classes and regions.
According to Russell data, mid-capitalization stocks tended to provide the strongest returns, outperforming large-cap stocks overall. As a group, small-cap stocks tended to underperform their larger-capitalization counterparts. Value outperformed growth at all capitalization levels as the 2013 market rally ended and investors moved from rapid-growth stocks toward utilities, real estate investment trusts (REITs) and other stocks that tend to be more defensive.
The reporting period opened with investors still reacting to the government shutdown and asking questions about the debt ceiling and the so-called fiscal cliff. Even so, U.S. stocks climbed relatively steadily through the end of 2013. After reaching a high point in January, the U.S. stock market tumbled to its low point for the reporting period in early February, hurt by weaker economic data and severe weather in the Northeast. From that point, domestic stocks generally recovered, advancing to new highs before the end of the reporting period.
International stocks benefited from the European Central Bank’s accommodative policies and an improving European economy, despite high levels of debt and unemployment. In Japan, a weaker currency and accommodative central bank policies had fueled a stock rally in 2013, but Japanese stocks began to decline in mid-January on concerns about the Prime Minister’s economic policies, including a substantial increase in the nation’s sales tax. International stocks also felt the effects of tensions in Ukraine and slowing growth in China.
Throughout the reporting period, the Federal Reserve held the federal funds target rate in a range close to zero. On December 18, 2013, the Federal Open Market Committee announced plans to begin tapering its direct security purchases (widely known as quantitative easing) in January of 2014. The announcement led investors to anticipate rising interest rates.
According to U.S. Department of the Treasury data, yields did rise through the early part of 2014. After peaking early in the year, however, U.S. Treasury yields generally trended downward. As of April 30, 2014, yields at the short and long ends of the U.S. Treasury yield curve1 were slightly lower than at the beginning of the reporting period, while yields on 1- to 10-year U.S. Treasury securities had moved slightly higher.
In harmony with these trends, extensive tax-loss harvesting in the municipal market tended to push municipal yields higher in November and December. Redemptions slowed as the new year progressed, and a scarcity of municipal supply pushed municipal bond prices higher—and yields lower—during the last four months of the reporting period.
Throughout the reporting period, our portfolio managers pursued the investment objectives of their respective Funds within the investment strategies outlined in the Prospectus. Using time-tested security-selection, portfolio-monitoring and risk-management techniques, they sought to maximize exposure to potential opportunities while seeking to minimize exposure to unnecessary risks.
The report that follows provides additional information about the decisions, securities and market forces that affected your MainStay Fund during the six months ended April 30, 2014. We encourage you to read this information carefully. It can help you evaluate your diversification and assess your asset allocation as you pursue your long-range financial goals.
We thank you for choosing MainStay Funds, and we look forward to a lasting and productive relationship.
Sincerely,
Stephen P. Fisher
1. | 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 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. Past performance is no guarantee of future results.
Not part of the Semiannual 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 Period Ended April 30, 2014
Class | Sales Charge | Six Months | One Year | Five Years | Ten Years | Gross Expense Ratio2 | ||||||||||||||||||
Investor Class Shares3 | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges |
| –0.97 4.79 | %
|
| 5.34 11.47 | %
|
| 8.16 9.39 | %
|
| 5.40 5.99 | %
|
| 1.71 1.71 | %
| |||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges | | –0.79 4.99 | | | 5.70 11.85 | | | 8.49 9.73 | | | 5.59 6.19 | | | 1.39 1.39 | | |||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges | | –0.60 4.40 | | | 5.63 10.63 | | | 8.27 8.56 | | | 5.19 5.19 | | | 2.46 2.46 | | |||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges | | 3.49 4.49 | | | 9.62 10.62 | | | 8.59 8.59 | | | 5.20 5.20 | | | 2.46 2.46 | | |||||||
Class I Shares | No Sales Charge | 5.16 | 12.16 | 10.00 | 6.60 | 1.13 | ||||||||||||||||||
Class R1 Shares | No Sales Charge | 5.05 | 12.00 | 9.91 | 6.47 | 1.24 | ||||||||||||||||||
Class R2 Shares | No Sales Charge | 4.91 | 11.66 | 9.62 | 6.25 | 1.48 | ||||||||||||||||||
Class R3 Shares4 | No Sales Charge | 4.87 | 11.46 | 9.35 | 5.90 | 1.73 |
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 6.17% for Class A, 5.16% for Class B, 5.17% for Class C, 6.58% for Class I, 6.45% for Class R1, and 6.22% for Class R2 for the ten-year period ended April 30, 2014. 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 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 | Six Months | One Year | Five Years | Ten Years | ||||||||||||
MSCI ACWI® Ex U.S.5 | 2.91% | 9.76% | 12.90% | 7.61 | % | |||||||||||
MSCI EAFE® Index6 | 4.44 | 13.35 | 13.58 | 6.93 | ||||||||||||
Average Lipper International Multi-Cap Growth Fund7 | 2.89 | 11.20 | 13.61 | 6.63 |
5. | 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 U.S. The Fund has selected the MSCI ACWI® Ex U.S. as its primary benchmark. Results assume reinvestment of all income and capital gains. An investment cannot be made directly in an index. |
6. | 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. |
7. | 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 November 1, 2013, to April 30, 2014, 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 November 1, 2013, to April 30, 2014.
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 April 30, 2014. 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 11/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/14 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/14 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,047.90 | $ | 8.53 | $ | 1,016.50 | $ | 8.40 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,049.90 | $ | 6.86 | $ | 1,018.10 | $ | 6.76 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,044.00 | $ | 12.32 | $ | 1,012.70 | $ | 12.13 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,044.90 | $ | 12.32 | $ | 1,012.70 | $ | 12.13 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,051.60 | $ | 5.60 | $ | 1,019.30 | $ | 5.51 | ||||||||||
Class R1 Shares | $ | 1,000.00 | $ | 1,050.50 | $ | 6.10 | $ | 1,018.80 | $ | 6.01 | ||||||||||
Class R2 Shares | $ | 1,000.00 | $ | 1,049.10 | $ | 7.37 | $ | 1,017.60 | $ | 7.25 | ||||||||||
Class R3 Shares | $ | 1,000.00 | $ | 1,048.70 | $ | 8.64 | $ | 1,016.40 | $ | 8.50 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.68% for Investor Class, 1.35% for Class A, 2.43% for Class B and Class C, 1.10% for Class I, 1.20% for Class R1, 1.45% for Class R2 and 1.70% for Class R3) multiplied by the average account value over the period, divided by 365 and multiplied by 181 (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 April 30, 2014 (Unaudited)
United Kingdom | 26.2 | % | ||
Germany | 14.9 | |||
France | 8.1 | |||
United States | 5.6 | |||
Ireland | 5.2 | |||
Switzerland | 5.0 | |||
Japan | 4.5 | |||
Spain | 4.4 | |||
Sweden | 4.3 | |||
Denmark | 4.1 | |||
China | 3.3 |
Brazil | 2.5 | % | ||
Hong Kong | 2.5 | |||
Thailand | 2.4 | |||
Israel | 2.2 | |||
India | 1.8 | |||
Indonesia | 1.1 | |||
Italy | 1.0 | |||
Mexico | 0.4 | |||
Other Assets, Less Liabilities | 0.5 | |||
|
| |||
100.0 | % | |||
|
|
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
Top Ten Holdings as of April 30, 2014 (excluding short-term investment) (Unaudited)
1. | Grifols S.A. |
2. | Svenska Handelsbanken AB Class A |
3. | SABMiller PLC |
4. | Shire PLC |
5. | Syngenta A.G. |
6. | Linde A.G. |
7. | Experian PLC |
8. | Standard Chartered PLC |
9. | Technip S.A. |
10. | Adidas A.G. |
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 benchmark and peers during the six months ended April 30, 2014?
Excluding all sales charges, MainStay International Equity Fund returned 4.79% for Investor Class shares, 4.99% for Class A shares, 4.40% for Class B shares and 4.49% for Class C shares for the six months ended April 30, 2014. Over the same period, the Fund’s Class I shares returned 5.16%, Class R1 shares returned 5.05%, Class R2 shares returned 4.91% and Class R3 shares returned 4.87%. For the six months ended April 30, 2014, all share classes outperformed the 2.91% return of the MSCI ACWI® Ex U.S.,1 which is the Fund’s broad-based securities-market index. For the six months ended April 30, 2014, all share classes outperformed the 2.89% return of the average Lipper2 international multi-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 adversely affected by stock selection, while the Fund benefited from its sector and country allocations during the reporting period. The negative impact from stock selection came largely from a single stock position in Japan. The positive impact from country allocation was driven by an underweight position relative to the MSCI ACWI® Ex U.S. in Japan and overweight positions in Germany and Denmark. The positive impact from sector allocation was driven by overweight positions relative to the Index in the health care and information technology sectors.
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 relative performance were information technology, health care and financials. (Contributions take weightings and total returns into account.) All three sectors benefited from favorable allocation effects as the Fund held overweight positions in the information technology and health care sectors, both of which outperformed the MSCI ACWI® Ex U.S., and an underweight position in financials, which underperformed the Index. The Fund’s positions in information technology and financials also benefited from favorable stock selection, which was only partially offset by unfavorable stock selection in the health care sector.
The sectors that detracted the most from the Fund’s relative performance were industrials, consumer discretionary and
energy. The Fund benefited from an overweight position in the industrials sector and from underweight positions in the consumer discretionary and energy sectors. Stock selection within all three sectors detracted from relative performance.
During the reporting period, which individual stocks made the strongest positive contributions to the Fund’s absolute performance and which stocks detracted the most?
During the reporting period, the stocks that made the strongest positive contributions to the Fund’s absolute performance were Spanish pharmaceutical plasma manufacturer Grifols, Sweden-based banking group Svenska Handelsbanken and Irish biopharmaceutical company Shire. Grifols and Shire continued to beat consensus earnings expectations while strongly executing their respective business plans. Svenska Handelsbanken benefited from ongoing growth in its core markets and from the announcement of a special dividend.
The biggest detractors from the Fund’s relative performance were Japanese media and entertainment company Avex, U.S.-based global producer of sleep apnea medical equipment ResMed and U.K.-based emerging-market bank Standard Chartered. Avex suffered because it relied on two major telecom operators for customer acquisition. ResMed was hurt by a challenging regulatory development on price reimbursement. Standard Chartered, which has sizeable exposure to Asia, faced difficulties as investors reevaluated growth potential and risk across Asian markets.
Did the Fund make any significant purchases or sales during the reporting period?
Notable purchases during the reporting period included U.K. diversified hospitality group Whitbread, U.K. engineering software developer Aveva Group and Chinese medical device manufacturer Mindray Medical International. Notable sales during the reporting period included Israeli generic pharmaceutical producer Teva Pharmaceutical Industries, Canadian enterprise information management software developer OpenText and Chinese Internet search engine operator Baidu.
How did the Fund’s sector weightings change during the reporting period?
During the reporting period, the Fund increased its exposure to the consumer discretionary, energy, consumer staples and financials sectors. The Fund reduced its exposure to the information technology, health care and industrials sectors.
1. | Please see footnote on page 6 for more information on the MSCI ACWI® Ex U.S. |
2. | Please see footnote on page 6 for more information on Lipper Inc. |
mainstayinvestments.com | 9 |
How was the Fund positioned at the end of the reporting period?
As of April 30, 2014, the Fund held overweight positions relative to the MSCI ACWI® Ex U.S. in the health care, industrials and information technology sectors. As of the same date, the Fund held underweight positions 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 April 30, 2014 (Unaudited)
Shares | Value | |||||||
Common Stocks 96.6%† | ||||||||
Brazil 2.5% | ||||||||
Cielo S.A. (IT Services) | 499,160 | $ | 8,842,615 | |||||
|
| |||||||
China 3.3% | ||||||||
China Shenhua Energy Co., Ltd. Class H (Oil, Gas & Consumable Fuels) | 2,439,200 | 6,591,200 | ||||||
Mindray Medical International, Ltd., ADR (Health Care Equipment & Supplies) | 154,174 | 5,096,992 | ||||||
|
| |||||||
11,688,192 | ||||||||
|
| |||||||
Denmark 4.1% | ||||||||
Coloplast A/S Class B (Health Care Equipment & Supplies) | 76,804 | 6,444,113 | ||||||
FLSmidth & Co. A/S (Construction & Engineering) | 153,200 | 8,186,803 | ||||||
|
| |||||||
14,630,916 | ||||||||
|
| |||||||
France 8.1% | ||||||||
Bureau Veritas S.A. (Professional Services) | 288,651 | 8,810,115 | ||||||
Essilor International S.A. (Health Care Equipment & Supplies) | 82,425 | 8,815,416 | ||||||
¨Technip S.A. (Energy Equipment & Services) | 101,146 | 11,380,344 | ||||||
|
| |||||||
29,005,875 | ||||||||
|
| |||||||
Germany 14.9% | ||||||||
¨Adidas A.G. (Textiles, Apparel & Luxury Goods) | 104,883 | 11,194,035 | ||||||
Brenntag A.G. (Trading Companies & Distributors) | 41,576 | 7,518,645 | ||||||
Fresenius Medical Care A.G. & Co. KGaA (Health Care Providers & Services) | 148,895 | 10,235,513 | ||||||
¨Linde A.G. (Chemicals) | 59,230 | 12,280,710 | ||||||
United Internet A.G. (Internet Software & Services) | 151,628 | 6,508,569 | ||||||
Wirecard A.G. (IT Services) | 129,615 | 5,433,300 | ||||||
|
| |||||||
53,170,772 | ||||||||
|
| |||||||
Hong Kong 2.5% | ||||||||
Samsonite International S.A. (Textiles, Apparel & Luxury Goods) | 2,790,000 | 8,870,623 | ||||||
|
| |||||||
India 1.8% | ||||||||
Housing Development Finance Corp. (Thrifts & Mortgage Finance) | 431,703 | 6,441,726 | ||||||
|
| |||||||
Indonesia 1.1% | ||||||||
Media Nusantara Citra Tbk PT (Media) | 17,566,601 | 4,125,184 | ||||||
|
|
Shares | Value | |||||||
Ireland 5.2% | ||||||||
ICON PLC (Life Sciences Tools & Services) (a) | 120,674 | $ | 4,678,531 | |||||
¨Shire PLC (Pharmaceuticals) | 242,922 | 13,854,844 | ||||||
|
| |||||||
18,533,375 | ||||||||
|
| |||||||
Israel 2.2% | ||||||||
Check Point Software Technologies, Ltd. (Software) (a) | 122,154 | 7,825,185 | ||||||
|
| |||||||
Italy 1.0% | ||||||||
DiaSorin S.p.A. (Health Care Equipment & Supplies) | 86,863 | 3,581,537 | ||||||
|
| |||||||
Japan 4.5% | ||||||||
Avex Group Holdings, Inc. (Media) | 329,400 | 6,083,114 | ||||||
Daito Trust Construction Co., Ltd. (Real Estate Management & Development) | 56,000 | 5,691,202 | ||||||
Sysmex Corp. (Health Care Equipment & Supplies) | 134,200 | 4,246,462 | ||||||
|
| |||||||
16,020,778 | ||||||||
|
| |||||||
Mexico 0.4% | ||||||||
Genomma Lab Internacional S.A.B. de C.V. Class B (Pharmaceuticals) (a) | 577,488 | 1,466,811 | ||||||
|
| |||||||
Spain 4.4% | ||||||||
¨Grifols S.A. (Biotechnology) | 297,497 | 15,890,192 | ||||||
|
| |||||||
Sweden 4.3% | ||||||||
¨Svenska Handelsbanken AB Class A (Banks) | 307,473 | 15,429,922 | ||||||
|
| |||||||
Switzerland 5.0% | ||||||||
DKSH Holding A.G. (Professional Services) | 60,032 | 4,945,256 | ||||||
¨Syngenta A.G. (Chemicals) | 32,415 | 12,839,301 | ||||||
|
| |||||||
17,784,557 | ||||||||
|
| |||||||
Thailand 2.4% | ||||||||
Kasikornbank PCL (Banks) | 1,435,400 | 8,716,196 | ||||||
|
| |||||||
United Kingdom 26.2% | ||||||||
Aggreko PLC (Commercial Services & Supplies) | 401,071 | 10,678,939 | ||||||
Aveva Group PLC (Software) | 106,551 | 3,792,305 | ||||||
¨Experian PLC (Professional Services) | 637,252 | 12,222,630 | ||||||
Intertek Group PLC (Professional Services) | 221,245 | 10,855,359 | ||||||
Johnson Matthey PLC (Chemicals) | 137,648 | 7,606,608 | ||||||
Petrofac, Ltd. (Energy Equipment & Services) | 449,584 | 11,029,393 | ||||||
¨SABMiller PLC (Beverages) | 271,621 | 14,769,364 | ||||||
¨Standard Chartered PLC (Banks) | 534,079 | 11,555,779 |
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings, as of April 30, 2014, 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 April 30, 2014 (Unaudited) (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
United Kingdom (continued) | ||||||||
Telecity Group PLC (Internet Software & Services) | 352,944 | $ | 4,272,677 | |||||
Whitbread PLC (Hotels, Restaurants & Leisure) | 100,395 | 6,915,879 | ||||||
|
| |||||||
93,698,933 | ||||||||
|
| |||||||
United States 2.7% | ||||||||
Accenture PLC Class A (IT Services) | 45,193 | 3,625,383 | ||||||
ResMed, Inc. (Health Care Equipment & Supplies) | 125,105 | 6,236,483 | ||||||
|
| |||||||
9,861,866 | ||||||||
|
| |||||||
Total Common Stocks | 345,585,255 | |||||||
|
| |||||||
Principal Amount | ||||||||
Short-Term Investment 2.9% | ||||||||
Repurchase Agreement 2.9% |
| |||||||
United States 2.9% |
| |||||||
State Street Bank and Trust Co. | $ | 10,431,242 | 10,431,242 | |||||
|
| |||||||
Total Short-Term Investment | 10,431,242 | |||||||
|
| |||||||
Total Investments | 99.5 | % | 356,016,497 | |||||
Other Assets, Less Liabilities | 0.5 | 1,786,398 | ||||||
Net Assets | 100.0 | % | $ | 357,802,895 |
(a) | Non-income producing security. |
(b) | As of April 30, 2014, cost was $285,538,029 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 79,915,215 | ||
Gross unrealized depreciation | (9,436,747 | ) | ||
|
| |||
Net unrealized appreciation | $ | 70,478,468 | ||
|
|
The following abbreviation is used in the above portfolio:
ADR—American Depositary Receipt
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 following is a summary of the fair valuations according to the inputs used as of April 30, 2014, for valuing the Fund’s assets.
Asset Valuation Inputs
Description | Quoted Prices in Active Markets for Assets (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Common Stocks | $ | 345,585,255 | $ | — | $ | — | $ | 345,585,255 | ||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 10,431,242 | — | 10,431,242 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | 345,585,255 | $ | 10,431,242 | $ | — | $ | 356,016,497 | ||||||||
|
|
|
|
|
|
|
|
(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 period ended April 30, 2014, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
As of April 30, 2014, 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 |
Portfolio of Investments April 30, 2014 (Unaudited) (continued)
The table below sets forth the diversification of MainStay International Equity Fund investments by industry.
Industry Diversification (Unaudited)
Value | Percent † | |||||||
Banks | $ | 35,701,897 | 10.0 | % | ||||
Beverages | 14,769,364 | 4.1 | ||||||
Biotechnology | 15,890,192 | 4.4 | ||||||
Capital Markets | 10,431,242 | 2.9 | ||||||
Chemicals | 32,726,619 | 9.1 | ||||||
Commercial Services & Supplies | 10,678,939 | 3.0 | ||||||
Construction & Engineering | 8,186,803 | 2.3 | ||||||
Energy Equipment & Services | 22,409,737 | 6.3 | ||||||
Health Care Equipment & Supplies | 34,421,003 | 9.6 | ||||||
Health Care Providers & Services | 10,235,513 | 2.9 | ||||||
Hotels, Restaurants & Leisure | 6,915,879 | 1.9 | ||||||
Internet Software & Services | 10,781,246 | 3.0 | ||||||
IT Services | 17,901,298 | 5.0 | ||||||
Life Sciences Tools & Services | 4,678,531 | 1.3 | ||||||
Media | 10,208,298 | 2.9 | ||||||
Oil, Gas & Consumable Fuels | 6,591,200 | 1.8 | ||||||
Pharmaceuticals | 15,321,655 | 4.3 | ||||||
Professional Services | 36,833,360 | 10.3 | ||||||
Real Estate Management & Development | 5,691,202 | 1.6 | ||||||
Software | 11,617,490 | 3.3 | ||||||
Textiles, Apparel & Luxury Goods | 20,064,658 | 5.6 | ||||||
Thrifts & Mortgage Finance | 6,441,726 | 1.8 | ||||||
Trading Companies & Distributors | 7,518,645 | 2.1 | �� | |||||
|
|
|
| |||||
356,016,497 | 99.5 | |||||||
Other Assets, Less Liabilities | 1,786,398 | 0.5 | ||||||
|
|
|
| |||||
Net Assets | $ | 357,802,895 | 100.0 | % | ||||
|
|
|
|
† | Percentages indicated are based on Fund net assets. |
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 Assets and Liabilities as of April 30, 2014 (Unaudited)
Assets | ||||
Investment in securities, at value | $ | 356,016,497 | ||
Cash denominated in foreign currencies | 782,104 | |||
Receivables: | ||||
Investment securities sold | 944,317 | |||
Dividends | 931,840 | |||
Fund shares sold | 428,086 | |||
Other assets | 69,462 | |||
|
| |||
Total assets | 359,172,306 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Foreign capital gains tax (See Note 2(C)) | 376,671 | |||
Investment securities purchased | 281,415 | |||
Manager (See Note 3) | 257,457 | |||
Fund shares redeemed | 229,989 | |||
Transfer agent (See Note 3) | 98,948 | |||
Shareholder communication | 49,304 | |||
NYLIFE Distributors (See Note 3) | 38,973 | |||
Professional fees | 34,492 | |||
Trustees | 544 | |||
Accrued expenses | 1,618 | |||
|
| |||
Total liabilities | 1,369,411 | |||
|
| |||
Net assets | $ | 357,802,895 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 256,150 | ||
Additional paid-in capital | 389,087,508 | |||
|
| |||
389,343,658 | ||||
Undistributed net investment income | 326,433 | |||
Accumulated net realized gain (loss) on investments and foreign currency transactions | (102,504,964 | ) | ||
Net unrealized appreciation (depreciation) on investments (a) | 70,625,923 | |||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies | 11,845 | |||
|
| |||
Net assets | $ | 357,802,895 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 38,179,565 | ||
|
| |||
Shares of beneficial interest outstanding | 2,728,863 | |||
|
| |||
Net asset value per share outstanding | $ | 13.99 | ||
Maximum sales charge (5.50% of offering price) | 0.81 | |||
|
| |||
Maximum offering price per share outstanding | $ | 14.80 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 55,173,889 | ||
|
| |||
Shares of beneficial interest outstanding | 3,937,899 | |||
|
| |||
Net asset value per share outstanding | $ | 14.01 | ||
Maximum sales charge (5.50% of offering price) | 0.82 | |||
|
| |||
Maximum offering price per share outstanding | $ | 14.83 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 13,275,641 | ||
|
| |||
Shares of beneficial interest outstanding | 1,036,832 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 12.80 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 9,849,796 | ||
|
| |||
Shares of beneficial interest outstanding | 769,072 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 12.81 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 231,449,133 | ||
|
| |||
Shares of beneficial interest outstanding | 16,438,202 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 14.08 | ||
|
| |||
Class R1 | ||||
Net assets applicable to outstanding shares | $ | 4,037,732 | ||
|
| |||
Shares of beneficial interest outstanding | 288,403 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 14.00 | ||
|
| |||
Class R2 | ||||
Net assets applicable to outstanding shares | $ | 4,356,979 | ||
|
| |||
Shares of beneficial interest outstanding | 310,004 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 14.05 | ||
|
| |||
Class R3 | ||||
Net assets applicable to outstanding shares | $ | 1,480,160 | ||
|
| |||
Shares of beneficial interest outstanding | 105,758 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 14.00 | ||
|
|
(a) | Unrealized appreciation (depreciation) on investments recorded net of foreign capital gains tax in the amount of $376,671. |
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 six months ended April 30, 2014 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Dividends (a) | $ | 2,499,151 | ||
|
| |||
Expenses | ||||
Manager (See Note 3) | 1,480,612 | |||
Transfer agent (See Note 3) | 279,025 | |||
Distribution/Service—Investor Class | 46,163 | |||
Distribution/Service—Class A (See Note 3) | 68,258 | |||
Distribution/Service—Class B (See Note 3) | 66,451 | |||
Distribution/Service—Class C (See Note 3) | 48,374 | |||
Distribution/Service—Class R2 (See Note 3) | 5,912 | |||
Distribution/Service—Class R3 (See Note 3) | 3,416 | |||
Registration | 44,881 | |||
Custodian | 36,934 | |||
Shareholder communication | 33,504 | |||
Professional fees | 33,246 | |||
Shareholder service (See Note 3) | 4,989 | |||
Trustees | 2,988 | |||
Miscellaneous | 12,351 | |||
|
| |||
Total expenses | 2,167,104 | |||
|
| |||
Net investment income (loss) | 332,047 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 12,603,642 | |||
Foreign currency transactions | (62,245 | ) | ||
|
| |||
Net realized gain (loss) on investments and foreign currency transactions | 12,541,397 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments (b) | 3,673,699 | |||
Translation of other assets and liabilities in foreign currencies | 19,798 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions | 3,693,497 | |||
|
| |||
Net realized and unrealized gain (loss) on investments and foreign currency transactions | 16,234,894 | |||
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| |||
Net increase (decrease) in net assets resulting from operations | $ | 16,566,941 | ||
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(a) | Dividends recorded net of foreign withholding taxes in the amount of $193,196. |
(b) | Unrealized appreciation (depreciation) on investments recorded net of foreign capital gains tax in the amount of $376,671. |
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. |
Statements of Changes in Net Assets
for the six months ended April 30, 2014 (Unaudited) and the year ended October 31, 2013
2014 | 2013 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 332,047 | $ | 1,249,552 | ||||
Net realized gain (loss) on investments, futures transactions and foreign currency transactions | 12,541,397 | 12,737,178 | ||||||
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions | 3,693,497 | 32,112,039 | ||||||
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| |||||||
Net increase (decrease) in net assets resulting from operations | 16,566,941 | 46,098,769 | ||||||
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| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | — | (176,467 | ) | |||||
Class A | (104,575 | ) | (498,406 | ) | ||||
Class I | (888,640 | ) | (1,910,002 | ) | ||||
Class R1 | (12,291 | ) | (43,128 | ) | ||||
Class R2 | (2,670 | ) | (57,790 | ) | ||||
Class R3 | — | (3,211 | ) | |||||
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| |||||||
Total dividends to shareholders | (1,008,176 | ) | (2,689,004 | ) | ||||
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| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 44,775,465 | 52,425,896 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 998,817 | 2,623,458 | ||||||
Cost of shares redeemed | (39,147,876 | ) | (80,429,479 | ) | ||||
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| |||||||
Increase (decrease) in net assets derived from capital share transactions | 6,626,406 | (25,380,125 | ) | |||||
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| |||||||
Net increase (decrease) in net assets | 22,185,171 | 18,029,640 | ||||||
Net Assets | ||||||||
Beginning of period | 335,617,724 | 317,588,084 | ||||||
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End of period | $ | 357,802,895 | $ | 335,617,724 | ||||
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Undistributed net investment income at end of period | $ | 326,433 | $ | 1,002,562 | ||||
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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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Investor Class | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 13.35 | $ | 11.66 | $ | 10.81 | $ | 12.66 | $ | 12.24 | $ | 10.96 | ||||||||||||||
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Net investment income (loss) (a) | (0.01 | ) | 0.01 | 0.06 | 0.21 | 0.22 | (b) | 0.23 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.65 | 1.75 | 1.07 | (1.62 | ) | 0.44 | 1.73 | |||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.01 | ) | 0.00 | ‡ | (0.09 | ) | 0.08 | 0.18 | ||||||||||||||||
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Total from investment operations | 0.64 | 1.75 | 1.13 | (1.50 | ) | 0.74 | 2.14 | |||||||||||||||||||
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Less dividends: | ||||||||||||||||||||||||||
From net investment income | — | (0.06 | ) | (0.28 | ) | (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 period | $ | 13.99 | $ | 13.35 | $ | 11.66 | $ | 10.81 | $ | 12.66 | $ | 12.24 | ||||||||||||||
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Total investment return (d) | 4.79 | % (e)(f) | 15.07 | % | 10.81 | % | (12.19 | %) | 6.11 | % | 21.20 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | (0.21 | %)†† | 0.05 | % | 0.54 | % | 1.77 | % | 1.82 | %(b) | 2.19 | % | ||||||||||||||
Net expenses | 1.68 | % †† | 1.72 | % | 1.77 | % | 1.71 | % | 1.75 | % | 1.71 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.68 | % †† | 1.72 | % | 1.77 | % | 1.71 | % | 1.75 | % | 1.86 | % | ||||||||||||||
Portfolio turnover rate | 13 | % | 29 | % | 43 | % | 80 | % | 54 | % | 88 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 38,180 | $ | 37,457 | $ | 34,822 | $ | 34,895 | $ | 39,843 | $ | 39,969 |
* | Unaudited. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the period. |
(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 is not annualized. |
(f) | Total investment return may reflect adjustments to conform to generally accepted accounting principles. |
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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class A | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 13.37 | $ | 11.68 | $ | 10.82 | $ | 12.66 | $ | 12.24 | $ | 10.97 | ||||||||||||||
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Net investment income (loss) (a) | 0.01 | 0.05 | 0.10 | 0.26 | 0.25 | (b) | 0.26 | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.66 | 1.75 | 1.07 | (1.63 | ) | 0.44 | 1.73 | |||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.01 | ) | 0.00 | ‡ | (0.09 | ) | 0.08 | 0.18 | ||||||||||||||||
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Total from investment operations | 0.67 | 1.79 | 1.17 | (1.46 | ) | 0.77 | 2.17 | |||||||||||||||||||
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Less dividends: | ||||||||||||||||||||||||||
From net investment income | (0.03 | ) | (0.10 | ) | (0.31 | ) | (0.38 | ) | (0.35 | ) | (0.90 | ) | ||||||||||||||
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Redemption fee (a)(c) | — | — | — | — | 0.00 | ‡ | 0.00 | ‡ | ||||||||||||||||||
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Net asset value at end of period | $ | 14.01 | $ | 13.37 | $ | 11.68 | $ | 10.82 | $ | 12.66 | $ | 12.24 | ||||||||||||||
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Total investment return (d) | 4.99 | %(e) | 15.43 | % | 11.27 | % | (11.96 | %) | 6.31 | % | 21.57 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 0.11 | %†† | 0.38 | % | 0.87 | % | 2.11 | % | 2.11 | %(b) | 2.40 | % | ||||||||||||||
Net expenses | 1.35 | %†† | 1.40 | % | 1.43 | % | 1.46 | % | 1.44 | % | 1.39 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.35 | %†† | 1.40 | % | 1.43 | % | 1.46 | % | 1.44 | % | 1.42 | % | ||||||||||||||
Portfolio turnover rate | 13 | % | 29 | % | 43 | % | 80 | % | 54 | % | 88 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 55,174 | $ | 57,948 | $ | 60,303 | $ | 72,699 | $ | 104,169 | $ | 117,023 |
* | Unaudited. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the period. |
(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 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 | 19 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class B | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 12.26 | $ | 10.73 | $ | 9.95 | $ | 11.67 | $ | 11.33 | $ | 10.17 | ||||||||||||||
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Net investment income (loss) (a) | (0.06 | ) | (0.08 | ) | (0.02 | ) | 0.11 | 0.12 | (b) | 0.14 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.60 | 1.62 | 0.99 | (1.49 | ) | 0.39 | 1.61 | |||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.01 | ) | 0.00 | ‡ | (0.08 | ) | 0.07 | 0.16 | ||||||||||||||||
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Total from investment operations | 0.54 | 1.53 | 0.97 | (1.46 | ) | 0.58 | 1.91 | |||||||||||||||||||
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Less dividends: | ||||||||||||||||||||||||||
From net investment income | — | — | (0.19 | ) | (0.26 | ) | (0.24 | ) | (0.75 | ) | ||||||||||||||||
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Redemption fee (a)(c) | — | — | — | — | 0.00 | ‡ | 0.00 | ‡ | ||||||||||||||||||
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Net asset value at end of period | $ | 12.80 | $ | 12.26 | $ | 10.73 | $ | 9.95 | $ | 11.67 | $ | 11.33 | ||||||||||||||
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Total investment return (d) | 4.40 | % (e)(f) | 14.26 | % (f) | 10.05 | % | (12.81 | %) | 5.17 | % | 20.31 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | (0.99 | %)†† | (0.73 | %) | (0.22 | %) | 1.02 | % | 1.04 | %(b) | 1.41 | % | ||||||||||||||
Net expenses | 2.43 | % †† | 2.47 | % | 2.52 | % | 2.46 | % | 2.50 | % | 2.46 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 2.43 | % †† | 2.47 | % | 2.52 | % | 2.46 | % | 2.50 | % | 2.62 | % | ||||||||||||||
Portfolio turnover rate | 13 | % | 29 | % | 43 | % | 80 | % | 54 | % | 88 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 13,276 | $ | 13,981 | $ | 16,186 | $ | 20,509 | $ | 31,314 | $ | 36,397 |
* | Unaudited. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the period. |
(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 is not annualized. |
(f) | Total investment returns may reflect adjustments to conform to generally accepted accounting principles. |
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. |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class C | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 12.26 | $ | 10.74 | $ | 9.96 | $ | 11.68 | $ | 11.32 | $ | 10.17 | ||||||||||||||
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Net investment income (loss) (a) | (0.06 | ) | (0.08 | ) | (0.02 | ) | 0.12 | 0.12 | (b) | 0.13 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.61 | 1.61 | 0.99 | (1.50 | ) | 0.41 | 1.61 | |||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.01 | ) | 0.00 | ‡ | (0.08 | ) | 0.07 | 0.16 | ||||||||||||||||
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Total from investment operations | 0.55 | 1.52 | 0.97 | (1.46 | ) | 0.60 | 1.90 | |||||||||||||||||||
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Less dividends: | ||||||||||||||||||||||||||
From net investment income | — | — | (0.19 | ) | (0.26 | ) | (0.24 | ) | (0.75 | ) | ||||||||||||||||
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Redemption fee (a)(c) | — | — | — | — | 0.00 | ‡ | 0.00 | ‡ | ||||||||||||||||||
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Net asset value at end of period | $ | 12.81 | $ | 12.26 | $ | 10.74 | $ | 9.96 | $ | 11.68 | $ | 11.32 | ||||||||||||||
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Total investment return (d) | 4.49 | % (e)(f) | 14.15 | % | 10.05 | % | (12.88 | %) | 5.23 | % | 20.32 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | (0.97 | %)†† | (0.71 | %) | (0.21 | %) | 1.07 | % | 1.09 | %(b) | 1.34 | % | ||||||||||||||
Net expenses | 2.43 | % †† | 2.47 | % | 2.52 | % | 2.46 | % | 2.50 | % | 2.46 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 2.43 | % †† | 2.47 | % | 2.52 | % | 2.46 | % | 2.50 | % | 2.60 | % | ||||||||||||||
Portfolio turnover rate | 13 | % | 29 | % | 43 | % | 80 | % | 54 | % | 88 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 9,850 | $ | 10,088 | $ | 11,111 | $ | 12,960 | $ | 19,242 | $ | 19,079 |
* | Unaudited. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the period. |
(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 is not annualized. |
(f) | Total investment returns 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 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class I | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 13.45 | $ | 11.75 | $ | 10.89 | $ | 12.75 | $ | 12.33 | $ | 11.05 | ||||||||||||||
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Net investment income (loss) (a) | 0.03 | 0.08 | 0.13 | 0.26 | 0.29 | (b) | 0.29 | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.66 | 1.76 | 1.07 | (1.62 | ) | 0.43 | 1.75 | |||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.01 | ) | 0.00 | ‡ | (0.09 | ) | 0.08 | 0.18 | ||||||||||||||||
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Total from investment operations | 0.69 | 1.83 | 1.20 | (1.45 | ) | 0.80 | 2.22 | |||||||||||||||||||
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Less dividends: | ||||||||||||||||||||||||||
From net investment income | (0.06 | ) | (0.13 | ) | (0.34 | ) | (0.41 | ) | (0.38 | ) | (0.94 | ) | ||||||||||||||
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Redemption fee (a)(c) | — | — | — | — | 0.00 | ‡ | 0.00 | ‡ | ||||||||||||||||||
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Net asset value at end of period | $ | 14.08 | $ | 13.45 | $ | 11.75 | $ | 10.89 | $ | 12.75 | $ | 12.33 | ||||||||||||||
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Total investment return (d) | 5.16 | %(e) | 15.72 | % | 11.45 | % | (11.73 | %) | 6.61 | % | 22.01 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 0.44 | %†† | 0.62 | % | 1.15 | % | 2.16 | % | 2.40 | %(b) | 2.70 | % | ||||||||||||||
Net expenses | 1.10 | %†† | 1.14 | % | 1.18 | % | 1.21 | % | 1.18 | % | 1.08 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.10 | %†† | 1.14 | % | 1.18 | % | 1.21 | % | 1.18 | % | 1.17 | % | ||||||||||||||
Portfolio turnover rate | 13 | % | 29 | % | 43 | % | 80 | % | 54 | % | 88 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 231,449 | $ | 202,289 | $ | 177,726 | $ | 184,373 | $ | 373,332 | $ | 387,245 |
* | Unaudited. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the period. |
(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. |
(e) | Total investment return is not annualized. |
22 | 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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class R1 | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 13.37 | $ | 11.67 | $ | 10.82 | $ | 12.67 | $ | 12.25 | $ | 10.98 | ||||||||||||||
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Net investment income (loss) (a) | 0.02 | 0.06 | 0.11 | 0.26 | 0.27 | (b) | 0.28 | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.65 | 1.76 | 1.07 | (1.62 | ) | 0.44 | 1.74 | |||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.01 | ) | 0.00 | ‡ | (0.09 | ) | 0.08 | 0.18 | ||||||||||||||||
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Total from investment operations | 0.67 | 1.81 | 1.18 | (1.45 | ) | 0.79 | 2.20 | |||||||||||||||||||
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Less dividends: | ||||||||||||||||||||||||||
From net investment income | (0.04 | ) | (0.11 | ) | (0.33 | ) | (0.40 | ) | (0.37 | ) | (0.93 | ) | ||||||||||||||
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Redemption fee (a)(c) | — | — | — | — | 0.00 | ‡ | 0.00 | ‡ | ||||||||||||||||||
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Net asset value at end of period | $ | 14.00 | $ | 13.37 | $ | 11.67 | $ | 10.82 | $ | 12.67 | $ | 12.25 | ||||||||||||||
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Total investment return (d) | 5.05 | %(e) | 15.68 | % | 11.41 | % | (11.89 | %) | 6.58 | % | 21.89 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 0.27 | %†† | 0.49 | % | 1.04 | % | 2.12 | % | 2.30 | %(b) | 2.58 | % | ||||||||||||||
Net expenses | 1.20 | %†† | 1.25 | % | 1.28 | % | 1.31 | % | 1.29 | % | 1.19 | % | ||||||||||||||
Expenses (before reimbursement/waiver) | 1.20 | %†† | 1.25 | % | 1.28 | % | 1.31 | % | 1.29 | % | 1.27 | % | ||||||||||||||
Portfolio turnover rate | 13 | % | 29 | % | 43 | % | 80 | % | 54 | % | 88 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 4,038 | $ | 4,003 | $ | 4,677 | $ | 4,760 | $ | 6,225 | $ | 5,348 |
* | Unaudited. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the period. |
(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. |
(e) | 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 | 23 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class R2 | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 13.40 | $ | 11.70 | $ | 10.84 | $ | 12.69 | $ | 12.27 | $ | 10.99 | ||||||||||||||
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Net investment income (loss) (a) | (0.01 | ) | 0.03 | 0.09 | 0.24 | 0.25 | (b) | 0.16 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.67 | 1.76 | 1.06 | (1.63 | ) | 0.43 | 1.82 | |||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.01 | ) | 0.00 | ‡ | (0.09 | ) | 0.08 | 0.19 | ||||||||||||||||
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Total from investment operations | 0.66 | 1.78 | 1.15 | (1.48 | ) | 0.76 | 2.17 | |||||||||||||||||||
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Less dividends: | ||||||||||||||||||||||||||
From net investment income | (0.01 | ) | (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 period | $ | 14.05 | $ | 13.40 | $ | 11.70 | $ | 10.84 | $ | 12.69 | $ | 12.27 | ||||||||||||||
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Total investment return (d) | 4.91 | % (e) | 15.34 | % | 11.12 | % | (12.09 | %) | 6.32 | % | 21.53 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | (0.08 | %)†† | 0.26 | % | 0.82 | % | 2.02 | % | 2.09 | %(b) | 1.39 | % | ||||||||||||||
Net expenses | 1.45 | % †† | 1.49 | % | 1.53 | % | 1.55 | % | 1.54 | % | 1.50 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.45 | % †† | 1.49 | % | 1.53 | % | 1.55 | % | 1.54 | % | 1.54 | % | ||||||||||||||
Portfolio turnover rate | 13 | % | 29 | % | 43 | % | 80 | % | 54 | % | 88 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 4,357 | $ | 8,487 | $ | 10,545 | $ | 12,176 | $ | 10,942 | $ | 7,826 |
* | Unaudited. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the period. |
(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. |
(e) | Total investment return is not annualized. |
24 | 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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class R3 | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 13.35 | $ | 11.64 | $ | 10.79 | $ | 12.64 | $ | 12.24 | $ | 10.95 | ||||||||||||||
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Net investment income (loss) (a) | (0.01 | ) | (0.01 | ) | 0.06 | 0.24 | 0.24 | (b) | 0.26 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.66 | 1.76 | 1.06 | (1.65 | ) | 0.41 | 1.72 | |||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.01 | ) | 0.00 | ‡ | (0.09 | ) | 0.07 | 0.17 | ||||||||||||||||
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Total from investment operations | 0.65 | 1.74 | 1.12 | (1.50 | ) | 0.72 | 2.15 | |||||||||||||||||||
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Less dividends: | ||||||||||||||||||||||||||
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 period | $ | 14.00 | $ | 13.35 | $ | 11.64 | $ | 10.79 | $ | 12.64 | $ | 12.24 | ||||||||||||||
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Total investment return (d) | 4.87 | % (e)(f) | 15.02 | % | 10.82 | % | (12.28 | %) | 5.99 | % | 21.31 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | (0.20 | %)†† | (0.05 | %) | 0.56 | % | 1.98 | % | 2.00 | %(b) | 2.45 | % | ||||||||||||||
Net expenses | 1.70 | % †† | 1.74 | % | 1.78 | % | 1.80 | % | 1.79 | % | 1.69 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.70 | % †† | 1.74 | % | 1.78 | % | 1.80 | % | 1.79 | % | 1.77 | % | ||||||||||||||
Portfolio turnover rate | 13 | % | 29 | % | 43 | % | 80 | % | 54 | % | 88 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 1,480 | $ | 1,365 | $ | 2,218 | $ | 1,592 | $ | 737 | $ | 322 |
* | Unaudited. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the period. |
(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. |
(e) | Total investment return is not annualized. |
(f) | 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 | 25 |
Notes to Financial Statements (Unaudited)
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 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”) adopted procedures for the valuation of the Fund’s securities and delegated the responsibility for valuation determinations under those procedures to the Valuation
Committee of the Fund (the “Valuation Committee”). The Board 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 Sub-Committee deals in the first instance with such valuation and 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. Any action taken by the Sub-Committee with respect to the valuation of a portfolio security is submitted by the Valuation Committee to the Board for its review at its next regularly scheduled meeting immediately after such action.
“Fair value” is defined as the price that the Fund would receive upon selling an asset or liability in an orderly transaction to an independent buyer in the principal or most advantageous market for the asset or liability. Fair value measurements are determined within a framework that 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” refer 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 based on the information available. 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 below.
• | Level 1—quoted prices in active markets for an identical asset or liability |
• | Level 2—other significant observable inputs (including quoted prices for a similar asset or liability in active markets, interest rates and yield curves, prepayment speeds, credit risk etc.) |
26 | MainStay International Equity Fund |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring fair value of an asset or liability) |
The aggregate value by input level, as of April 30, 2014, for the Fund’s assets or liabilities is included at the end of the Fund’s Portfolio of Investments.
The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs among others:
• 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 |
An asset or liability for which market values cannot be measured using the methodologies described above are valued by methods deemed reasonable and in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund generally 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 asset or liability are discounted to calculate fair value. Discounts may also be applied due to the nature and/or duration of any restrictions on the disposition of the asset or liability. Due to the inherent valuation uncertainty of such assets or liabilities, fair values may differ significantly from values that would have been used had an active market existed. For the six-month period ended April 30, 2014, there have been no material 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 readily available from a third party pricing source or, if so provided, does not, in the opinion of the Manager or Subadvisor reflect the security’s market value; (vi) a security subject to trading collars for which no or limited trading takes place; and (vii) 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 April 30, 2014, the Fund did not hold any securities that were fair valued in such a manner.
Certain securities held by the Fund principally trade in foreign markets. Events may occur between the time that foreign markets close 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 April 30, 2014, no foreign equity securities were fair valued in such a manner.
Equity securities and Exchange-Traded Funds are valued at the last 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 last quoted bid and ask prices. Prices are normally 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 primarily traded. Investments in other mutual funds are valued at their respective NAV(s) 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 at the time of purchase (“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
mainstayinvestments.com | 27 |
Notes to Financial Statements (Unaudited) (continued)
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. The Fund may be subject to foreign taxes on income and other transaction-based taxes imposed by certain countries in which they invest. A portion of the taxes on gains on investments or currency purchases/repatriation 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 six-month period ended April 30, 2014, 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 from net investment income and distributions from 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, net of any foreign tax withheld at the source, 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. The straight-line method approximates the effective interest method for short-term investments. 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 Subadvisor to be creditworthy, pursuant to guidelines established by the 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 if 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 April 30, 2014, the Fund did not hold any rights or warrants.
28 | MainStay International Equity Fund |
(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 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. 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 April 30, 2014, 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 April 30, 2014.
(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 or 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
mainstayinvestments.com | 29 |
Notes to Financial Statements (Unaudited) (continued)
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 compensation 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 Holdings, 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: 0.89% 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 0.89% for the six-month period ended April 30, 2014.
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 six-month period ended April 30, 2014, New York Life Investments earned fees from the Fund in the amount of $1,480,612.
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.
Shareholder service fees incurred by the Fund for the six-month period ended April 30, 2014, were as follows:
Class R1 | $ | 1,941 | ||
Class R2 | 2,365 | |||
Class R3 | 683 |
30 | MainStay International Equity Fund |
(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 $4,987 and $2,218, respectively, for the six-month period ended April 30, 2014. The Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Class B and Class C shares of $343, $8,469 and $511, respectively, for the six-month period ended April 30, 2014.
(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 six-month period ended April 30, 2014, were as follows:
Investor Class | $ | 80,982 | ||
Class A | 29,619 | |||
Class B | 29,152 | |||
Class C | 21,219 | |||
Class I | 112,632 | |||
Class R1 | 2,104 | |||
Class R2 | 2,578 | |||
Class R3 | 739 |
(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 April 30, 2014, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class I | $ | 73,593,606 | 31.8 | % |
Note 4–Federal Income Tax
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 | $ | — |
The tax character of distributions paid during the year ended October 31, 2013, shown in the Statements of Changes in Net Assets was as follows:
2013 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 2,689,004 |
Note 5–Custodian
State Street is the custodian of cash and securities held by the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities held by 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, who serves as the agent 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. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the six-month period ended April 30, 2014.
Note 7–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2014, purchases and sales of securities, other than short-term securities, were $47,813 and $44,040, respectively.
mainstayinvestments.com | 31 |
Notes to Financial Statements (Unaudited) (continued)
Note 8–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 100,495 | $ | 1,348,052 | |||||
Shares redeemed | (197,388 | ) | (2,648,863 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (96,893 | ) | (1,300,811 | ) | ||||
Shares converted into Investor Class (See Note 1) | 58,089 | 773,112 | ||||||
Shares converted from Investor Class (See Note 1) | (38,301 | ) | (511,897 | ) | ||||
|
| |||||||
Net increase (decrease) | (77,105 | ) | $ | (1,039,596 | ) | |||
|
| |||||||
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 | ) | |||
|
| |||||||
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 178,870 | $ | 2,388,612 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 7,789 | 102,186 | ||||||
Shares redeemed | (631,298 | ) | (8,437,252 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (444,639 | ) | (5,946,454 | ) | ||||
Shares converted into Class A (See Note 1) | 48,650 | 648,514 | ||||||
|
| |||||||
Net increase (decrease) | (395,989 | ) | $ | (5,297,940 | ) | |||
|
| |||||||
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 (See Note 1) | 172,336 | 2,184,729 | ||||||
Shares converted from Class A (See Note 1) | (24,864 | ) | (313,613 | ) | ||||
|
| |||||||
Net increase (decrease) | (829,597 | ) | $ | (10,203,030 | ) | |||
|
| |||||||
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 73,570 | $ | 902,185 | |||||
Shares redeemed | (102,319 | ) | (1,259,014 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (28,749 | ) | (356,829 | ) | ||||
Shares converted from Class B (See Note 1) | (74,665 | ) | (909,729 | ) | ||||
|
| |||||||
Net increase (decrease) | (103,414 | ) | $ | (1,266,558 | ) | |||
|
| |||||||
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 (See Note 1) | (242,881 | ) | (2,753,183 | ) | ||||
|
| |||||||
Net increase (decrease) | (367,519 | ) | $ | (4,148,531 | ) | |||
|
| |||||||
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 24,890 | $ | 306,117 | |||||
Shares redeemed | (78,368 | ) | (962,087 | ) | ||||
|
| |||||||
Net increase (decrease) | (53,478 | ) | $ | (655,970 | ) | |||
|
| |||||||
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 | ) | |||
|
| |||||||
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 2,891,948 | $ | 39,272,075 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 66,917 | 881,964 | ||||||
Shares redeemed | (1,555,228 | ) | (20,870,082 | ) | ||||
|
| |||||||
Net increase (decrease) | 1,403,637 | $ | 19,283,957 | |||||
|
| |||||||
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 | ) | |||
|
| |||||||
Class R1 | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 3,627 | $ | 48,408 | |||||
Shares issued to shareholders in reinvestment of dividends | 938 | 12,291 | ||||||
Shares redeemed | (15,588 | ) | (207,585 | ) | ||||
|
| |||||||
Net increase (decrease) | (11,023 | ) | $ | (146,886 | ) | |||
|
| |||||||
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 | ) | |||
|
| |||||||
32 | MainStay International Equity Fund |
Class R2 | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 28,275 | $ | 381,285 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 180 | 2,376 | ||||||
Shares redeemed | (351,825 | ) | (4,682,239 | ) | ||||
|
| |||||||
Net increase (decrease) | (323,370 | ) | $ | (4,298,578 | ) | |||
|
| |||||||
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 | ) | |||
|
| |||||||
Class R3 | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 9,603 | $ | 128,731 | |||||
Shares redeemed | (6,064 | ) | (80,754 | ) | ||||
|
| |||||||
Net increase (decrease) | 3,539 | $ | 47,977 | |||||
|
| |||||||
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 | ) | |||
|
|
Note 9–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the six-month period ended April 30, 2014, events and transactions subsequent to April 30, 2014, 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 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”) requires that each mutual fund’s board of trustees, including a majority of the independent trustees, annually review and approve the fund’s investment advisory agreements. At its December 10-11, 2013 meeting, the Board of Trustees of the MainStay Group of Funds (“Board”) unanimously approved the Management Agreement with respect to the MainStay International Equity Fund (“Fund”) and New York Life Investment Management LLC (“New York Life Investments”), and the Subadvisory Agreement between New York Life Investments and Cornerstone Capital Management Holdings LLC (“Cornerstone Holdings”) with respect to the Fund.
In reaching its decision to approve the Agreements, the Board considered information furnished by New York Life Investments and Cornerstone Holdings in connection with a contract review process that took place at various meetings of the Board and its Contracts Committee between September 2013 and December 2013, as well as other relevant information furnished to the Board throughout the year by New York Life Investments and Cornerstone Holdings. Information requested by and furnished to the Board in connection with the contract review process included, among other items, reports on the Fund and “peer funds” prepared by Strategic Insight Mutual Fund Research and Consulting, LLC (“Strategic Insight”), an independent third-party service provider engaged by the Board to report objectively on the Fund’s investment performance, management and subadvisory fees and ordinary operating expenses. The Board also considered information provided by New York Life Investments and Cornerstone Holdings on the fees charged to other investment advisory clients (including institutional separate accounts) that follow investment strategies similar to the Fund, and the rationale for any differences in the Fund’s management and subadvisory fees and the fees charged to those other investment advisory clients. In addition, the Board requested and received information on the profitability of the Fund to New York Life Investments and its affiliates, including Cornerstone Holdings as subadvisor to the Fund, and responses from New York Life Investments and Cornerstone Holdings to a series of questions encompassing a variety of topics prepared on behalf of the Board by independent legal counsel to the Board and its independent trustees (the “Independent Trustees”). Information provided to the Board at its meetings throughout the year included, among other items, detailed investment performance reports on the Fund prepared by the Investment Consulting Group at New York Life Investments. The structure and format for this regular reporting were developed in consultation with the Board. The Board also received from New York Life Investments throughout the year, among other items, periodic reports on legal and compliance matters, portfolio turnover, and sales and marketing activity.
In considering the Agreements, the members of the Board reviewed and evaluated all of the information and factors they believed to be relevant and appropriate in light of legal advice furnished to them by independent legal counsel and through the exercise of their own business judgment. The broad factors considered by the Board are discussed in greater detail below, and included, among other items: (i) the nature, scope and quality of the services provided to the Fund by New York Life Investments and Cornerstone Holdings; (ii) the investment performance of the Fund, New York Life Investments and Cornerstone Holdings; (iii) the costs of the services provided, and profits realized, by
New York Life Investments and Cornerstone Holdings from their relationships with the Fund; (iv) the extent to which economies of scale may be realized as the Fund grows, and the extent to which economies of scale may benefit Fund investors; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to similar funds and accounts managed by New York Life Investments and Cornerstone Holdings and peer funds identified by Strategic Insight.
While individual members of the Board may have weighed certain factors differently, the Board’s decision to approve the Agreements was based on a consideration of all the information provided to the Board, including information provided to the Board throughout the year and specifically in connection with the contract review process. The Board’s conclusions with respect to the Agreements also were based, in part, on the Board’s consideration of the Agreements in prior years. In addition to considering the above-referenced factors, the Board observed that in the marketplace there are a range of investment options available to shareholders of the Fund, and that the Fund’s shareholders, having had the opportunity to consider other investment options, have chosen to invest in the Fund. A more detailed discussion of the factors that figured prominently in the Board’s decisions to approve the Agreements is provided below.
Nature, Scope and Quality of Services to Be Provided by New York Life Investments and Cornerstone Holdings
The Board examined the nature, scope and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience in serving as manager of the Fund, noting that New York Life Investments manages other mutual funds, serves a variety of other investment advisory clients, including other pooled investment vehicles, and has experience with overseeing mutual fund service providers, including subadvisors. The Board considered the experience of senior personnel at New York Life Investments providing management and administrative services to the Fund, as well as New York Life Investments’ reputation and financial condition. The Board also considered the full range of non-advisory services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and oversight services provided by New York Life Investments’ Fund Accounting and Administration Group; (ii) investment oversight and analytical services provided by New York Life Investments’ Investment Consulting Group; (iii) compliance services provided by the Fund’s Chief Compliance Officer as well as New York Life Investments’ compliance department, including oversight and implementation of the Fund’s compliance program; and (iv) legal services provided by New York Life Investments’ Office of the General Counsel. Additional information about the non-advisory services provided by New York Life Investments is set forth in the Fund’s Management Agreement. The Board also considered New York Life Investments’ willingness to invest in personnel and infrastructure that benefit the Fund, and noted that New York Life Investments is responsible for compensating the Fund’s officers. The Board also considered benefits to shareholders of being part of the MainStay Group of Funds, including the privilege of exchanging investments between the same class of shares without the imposition of a sales charge, as described more fully in the Fund’s prospectus.
34 | MainStay International Equity Fund |
The Board also examined the nature, scope and quality of the advisory services that Cornerstone Holdings provides to the Fund. The Board evaluated Cornerstone Holdings’ experience in serving as subadvisor to the Fund and managing other portfolios. It examined Cornerstone Holdings’ track record and experience in providing investment advisory services, the experience of investment advisory, senior management and administrative personnel at Cornerstone Holdings, and Cornerstone Holdings’ overall legal and compliance environment. The Board also reviewed Cornerstone Holdings’ willingness to invest in personnel that benefit the Fund. In this regard, the Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers and the method for compensating portfolio managers.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund should continue to benefit from the nature, scope and quality of these services as a result of New York Life Investments’ and Cornerstone Holdings’ experience, personnel, operations and resources.
Investment Performance
In evaluating the Fund’s investment performance, the Board considered investment performance results in light of the Fund’s investment objective, strategies and risks, as disclosed in the Fund’s prospectus. The Board particularly considered detailed investment reports on the Fund’s performance provided to the Board throughout the year by the Investment Consulting Group of New York Life Investments. These reports include, among other items, information on the Fund’s gross and net returns, the Fund’s investment performance relative to relevant investment categories and Fund benchmarks, the Fund’s risk-adjusted investment performance, and the Fund’s investment performance as compared to peer funds, as appropriate. The Board also considered information provided by Strategic Insight showing the investment performance of the Fund as compared to peer funds.
In considering the Fund’s investment performance, the Board focused principally on the Fund’s long-term performance track record. The Board also gave weight to its ongoing discussions with senior management at New York Life Investments concerning the Fund’s investment performance, as well as discussions between the Fund’s portfolio managers and the Board that generally occur on an annual basis. In addition, the Board considered any specific actions that New York Life Investments or Cornerstone Holdings had taken, or had agreed with the Board to take, to enhance Fund investment performance, and the results of those actions. The Board noted the Fund had recently underperformed relative to peers, but acknowledged that the Fund’s investment strategy was likely to underperform in more recent market conditions. The Board also observed that the Fund had changed portfolio management teams in recent years and that it was important to allow sufficient time for the new management team to develop a meaningful performance track record.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the long-term investment performance of the Fund, along with ongoing efforts by New York Life Investments and Cornerstone Holdings to enhance investment returns, supported a determination to approve the Agreements. The Fund discloses more information about investment perform-
ance in the Portfolio Management Discussion and Analysis, Investment and Performance Comparison and Financial Highlights sections of this Semiannual Report and in the Fund’s prospectus.
Costs of the Services Provided, and Profits Realized, by New York Life Investments and Cornerstone Holdings
The Board considered the costs of the services provided by New York Life Investments and Cornerstone Holdings under the Agreements, and the profits realized by New York Life Investments and its affiliates, including Cornerstone Holdings, due to their relationships with the Fund. Because Cornerstone Holdings is an affiliate of New York Life Investments whose subadvisory fees are paid directly by New York Life Investments, the Board considered cost and profitability information for New York Life Investments and Cornerstone Holdings in the aggregate.
In evaluating the costs and profits of New York Life Investments and its affiliates, including Cornerstone Holdings, the Board considered, among other factors, each party’s investments in personnel, systems, equipment and other resources necessary to manage the Fund, and that New York Life Investments is responsible for paying the subadvisory fees for the Fund. The Board acknowledged that New York Life Investments and Cornerstone Holdings must be in a position to pay and retain experienced professional personnel to provide services to the Fund, and that the ability to maintain a strong financial position is important in order for New York Life Investments and Cornerstone Holdings to continue to provide high-quality services to the Fund. The Board also noted that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds.
In addition, the Board noted the difficulty in obtaining reliable comparative data about mutual fund managers’ profitability, since such information generally is not publicly available and may be impacted by numerous factors, including the structure of a fund manager’s organization, the types of funds it manages, the methodology used to allocate certain fixed costs to specific funds, and the manager’s capital structure and costs of capital. While recognizing the difficulty in evaluating a manager’s profitability with respect to the Fund, and noting that other profitability methodologies may also be reasonable, the Board concluded that the profitability methodology presented by New York Life Investments to the Board, which was developed by New York Life Investments in consultation with an independent consultant, was reasonable in all material respects.
In considering the costs and profitability of the Fund, the Board also considered certain fall-out benefits that may be realized by New York Life Investments and its affiliates due to their relationships with the Fund. The Board recognized, for example, the benefits to Cornerstone Holdings from legally permitted “soft-dollar” arrangements by which brokers provide research and other services to Cornerstone Holdings in exchange for commissions paid by the Fund with respect to trades on the Fund’s portfolio securities.
The Board further considered that, in addition to fees earned by New York Life Investments for managing the Fund, New York Life Investments’ affiliates also earn revenues from serving the Fund in various other capacities, including as the Fund’s transfer agent and distributor. The Board observed that information about these other revenues, and their impact on the profitability of the Fund to New York Life Investments
mainstayinvestments.com | 35 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
and its affiliates, was furnished to the Board as part of the 15(c) process. The Board noted that, although it assessed the overall profitability of the Fund to New York Life Investments and its affiliates as part of the contract review process, when considering the reasonableness of the fees to be paid to New York Life Investments and its affiliates under the Agreements, the Board considered the profitability of New York Life Investments’ relationship with the Fund on a pre-tax basis, and without regard to distribution expenses.
After evaluating the information presented to the Board, the Board concluded, within the context of its overall determinations regarding the Agreements, that any profits realized by New York Life Investments and its affiliates, including Cornerstone Holdings, due to their relationships with the Fund supported the Board’s decision to approve the Agreements.
Extent to Which Economies of Scale May Be Realized as the Fund Grows
The Board considered whether the Fund’s expense structure permits economies of scale to be shared with Fund investors. The Board also considered a report from New York Life Investments, prepared at the request of the Board, that addressed economies of scale in the mutual fund business generally, the changing economics of the mutual fund business and the various ways in which the benefits of economies of scale may be shared with the MainStay Group of Funds. The Board reviewed information from New York Life Investments showing how the Fund’s management fee schedule compared to fee schedules of other funds and accounts managed by New York Life Investments. The Board also reviewed information from Strategic Insight showing how the Fund’s management fee schedule hypothetically would compare with fees paid for similar services by peer funds at varying asset levels. While recognizing the difficulty of determining economies of scale with precision, the Board acknowledged that economies of scale may be shared with the Fund in a number of ways, including, for example, through the imposition of management fee breakpoints and by initially setting relatively low management fees.
Based on this information, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund’s expense structure appropriately reflects economies of scale for the benefit of Fund investors. The Board noted, however, that it would continue to evaluate the reasonableness of the Fund’s expense structure as the Fund grows over time.
Management and Subadvisory Fees and Total Ordinary Operating Expenses
The Board evaluated the reasonableness of the fees to be paid under the Agreements and the Fund’s expected total ordinary operating expenses. The Board primarily considered the reasonableness of the management fee paid by the Fund to New York Life Investments, since the fees paid to Cornerstone Holdings are paid by New York Life Investments, not the Fund.
In assessing the reasonableness of the Fund’s fees and expenses, the Board primarily considered comparative data provided by Strategic Insight on the fees and expenses charged by similar mutual funds managed by other investment advisers. In addition, the Board consid-
ered information provided by New York Life Investments and Cornerstone Holdings on fees charged to other investment advisory clients, including institutional separate accounts and other funds with similar investment objectives as the Fund. The Board particularly considered differences in the contractual management fee schedules of the retail MainStay Funds and similarly-managed MainStay VP Portfolios, taking into account New York Life Investments’ rationale for any differences in fee schedules. The Board also took into account explanations provided by New York Life Investments about the different scope of services provided to mutual funds as compared with other investment advisory clients. Additionally, the Board considered the impact of any contractual breakpoints, voluntary waivers and expense limitation arrangements on the Fund’s net management fee and expenses.
The Board noted that, outside of the Fund’s management fee and the fees charged under a share class’s Rule 12b-1 and/or shareholder services plans, a share class’s most significant “other expenses” are transfer agent fees. Transfer agent fees are charged to the Fund based on the number of shareholder accounts (a “per-account” fee) as compared with certain other fees (e.g., management fees), which are charged based on the Fund’s average net assets. The Board took into account information from New York Life Investments showing that the Fund’s transfer agent fee schedule is reasonable, including industry data showing that the per-account fees that NYLIM Service Company LLC, the Fund’s transfer agent, charges the Fund are within the range of per-account fees charged by transfer agents to other mutual funds. In addition, the Board considered NYLIM Service Company LLC’s profitability in connection with the transfer agent services it provides to the Fund.
The Board considered that, because the Fund’s transfer agent fees are billed on a per-account basis, the impact of transfer agent fees on a share class’s expense ratio may be more significant in cases where the share class has a high number of accounts with limited assets (i.e., small accounts). The Board observed that transfer agent fees are a significant portion of total expenses of many Funds in the MainStay Group of Funds. The impact of transfer agent fees on the expense ratios of these MainStay Funds tend to be greater than for other open-end retail funds, because the MainStay Group of Funds generally has a significant number of small accounts relative to competitor funds. The Board acknowledged the role that the MainStay Group of Funds historically has played in serving the investment needs of New York Life Insurance Company (“New York Life”) policyholders, who often maintain smaller account balances than other fund investors. The Board also acknowledged measures that it and New York Life Investments have taken in recent years to mitigate the effect of small accounts on the expense ratios of Fund share classes, including: (i) encouraging New York Life agents to consolidate multiple small accounts held by the same investor into one MainStay Asset Allocation Fund account; (ii) increasing investment minimums from $500 to $1,000 in 2003; (iii) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iv) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (v) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (vi) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vii) modifying the approach for billing transfer agent
36 | MainStay International Equity Fund |
expenses to reduce the degree of subsidization by large accounts of smaller accounts. In addition, the Board acknowledged New York Life Investments’ efforts to encourage intermediaries to consolidate small accounts in multiple Funds held by the same investor into a single Asset Allocation Fund account, if appropriate under the circumstances, in an effort to mitigate the effect of small accounts on the Funds in the MainStay Group of Funds.
After considering all of the factors outlined above, the Board concluded that the Fund’s management and subadvisory fees and total ordinary operating expenses were within a range that is competitive and, within the context of the Board’s overall conclusions regarding the Agreements, support a conclusion that these fees and expenses are reasonable.
Conclusion
On the basis of the information provided to it and its evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the Agreements.
mainstayinvestments.com | 37 |
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).
38 | 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 Fund
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 Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund1
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund2
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 LLC3
New York, New York
Cornerstone Capital Management LLC3
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC3
Chicago, Illinois
MacKay Shields LLC3
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC3
New York, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP4
PricewaterhouseCoopers LLP5
1. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
2. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
3. An affiliate of New York Life Investment Management LLC.
4. For all Funds listed above except MainStay Marketfield Fund.
5. For MainStay Marketfield Fund only.
Not part of the Semiannual 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.
©2014 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-34150 MS164-14 | MSIE10-06/14 NL010 |
MainStay Common Stock Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2014
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Message from the President
Stocks and bonds generally advanced during the six months ended April 30, 2014, but results varied across different markets, asset classes and regions.
According to Russell data, mid-capitalization stocks tended to provide the strongest returns, outperforming large-cap stocks overall. As a group, small-cap stocks tended to underperform their larger-capitalization counterparts. Value outperformed growth at all capitalization levels as the 2013 market rally ended and investors moved from rapid-growth stocks toward utilities, real estate investment trusts (REITs) and other stocks that tend to be more defensive.
The reporting period opened with investors still reacting to the government shutdown and asking questions about the debt ceiling and the so-called fiscal cliff. Even so, U.S. stocks climbed relatively steadily through the end of 2013. After reaching a high point in January, the U.S. stock market tumbled to its low point for the reporting period in early February, hurt by weaker economic data and severe weather in the Northeast. From that point, domestic stocks generally recovered, advancing to new highs before the end of the reporting period.
International stocks benefited from the European Central Bank’s accommodative policies and an improving European economy, despite high levels of debt and unemployment. In Japan, a weaker currency and accommodative central bank policies had fueled a stock rally in 2013, but Japanese stocks began to decline in mid-January on concerns about the Prime Minister’s economic policies, including a substantial increase in the nation’s sales tax. International stocks also felt the effects of tensions in Ukraine and slowing growth in China.
Throughout the reporting period, the Federal Reserve held the federal funds target rate in a range close to zero. On December 18, 2013, the Federal Open Market Committee announced plans to begin tapering its direct security purchases (widely known as quantitative easing) in January of 2014. The announcement led investors to anticipate rising interest rates.
According to U.S. Department of the Treasury data, yields did rise through the early part of 2014. After peaking early in the year, however, U.S. Treasury yields generally trended downward. As of April 30, 2014, yields at the short and long ends of the U.S. Treasury yield curve1 were slightly lower than at the beginning of the reporting period, while yields on 1- to 10-year U.S. Treasury securities had moved slightly higher.
In harmony with these trends, extensive tax-loss harvesting in the municipal market tended to push municipal yields higher in November and December. Redemptions slowed as the new year progressed, and a scarcity of municipal supply pushed municipal bond prices higher—and yields lower—during the last four months of the reporting period.
Throughout the reporting period, our portfolio managers pursued the investment objectives of their respective Funds within the investment strategies outlined in the Prospectus. Using time-tested security-selection, portfolio-monitoring and risk-management techniques, they sought to maximize exposure to potential opportunities while seeking to minimize exposure to unnecessary risks.
The report that follows provides additional information about the decisions, securities and market forces that affected your MainStay Fund during the six months ended April 30, 2014. We encourage you to read this information carefully. It can help you evaluate your diversification and assess your asset allocation as you pursue your long-range financial goals.
We thank you for choosing MainStay Funds, and we look forward to a lasting and productive relationship.
Sincerely,
Stephen P. Fisher
1. | 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 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. Past performance is no guarantee of future results.
Not part of the Semiannual 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 Period Ended April 30, 2014
Class | Sales Charge | Six Months | One Year | Five Years | Ten Years | Gross Expense Ratio2 | ||||||||||||||||||
Investor Class Shares3 | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges |
| 3.40 9.42 | %
|
| 16.62 23.41 | %
|
| 16.16 17.48 | %
|
| 5.96 6.56 | %
|
| 1.48 1.48 | %
| |||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges | | 3.55 9.58 | | | 17.02 23.83 | | | 16.73 18.06 | | | 6.27 6.88 | | | 1.07 1.07 | | |||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges | | 3.99 8.99 | | | 17.46 22.46 | | | 16.40 16.61 | | | 5.78 5.78 | | | 2.23 2.23 | | |||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges | | 7.99 8.99 | | | 21.48 22.48 | | | 16.59 16.59 | | | 5.77 5.77 | | | 2.23 2.23 | | |||||||
Class I Shares4 | No Sales Charge | 9.72 | 24.11 | 18.36 | 7.29 | 0.82 | ||||||||||||||||||
Class R2 Shares5 | No Sales Charge | 9.53 | 23.71 | 17.94 | 6.77 | 1.17 |
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 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 April 30, 2014, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Class R2 shares would likely have been different. As of April 30, 2014, 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 | Six Months | One Year | Five Years | Ten Years | ||||||||
S&P 500® Index6 | 8.36% | 20.44% | 19.14 | % | 7.67 | % | ||||||
Russell 1000® Index7 | 8.25 | 20.81 | 19.52 | 8.05 | ||||||||
Average Lipper Multi-Cap Core Fund8 | 6.90 | 20.10 | 17.86 | 7.45 |
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® 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 November 1, 2013, to April 30, 2014, 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 November 1, 2013, to April 30, 2014.
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 April 30, 2014. 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 11/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/14 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/14 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,094.20 | $ | 7.06 | $ | 1,018.10 | $ | 6.81 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,095.80 | $ | 5.35 | $ | 1,019.70 | $ | 5.16 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,089.90 | $ | 10.93 | $ | 1,014.30 | $ | 10.54 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,089.90 | $ | 10.93 | $ | 1,014.30 | $ | 10.54 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,097.20 | $ | 4.06 | $ | 1,020.90 | $ | 3.91 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.36% for Investor Class, 1.03% for Class A, 2.11% 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 181 (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 April 30, 2014 (Unaudited)
Pharmaceuticals | 7.7 | % | ||
Technology Hardware, Storage & Peripherals | 7.0 | |||
Oil, Gas & Consumable Fuels | 6.8 | |||
Banks | 5.3 | |||
Health Care Providers & Services | 4.7 | |||
Diversified Telecommunication Services | 4.0 | |||
Specialty Retail | 4.0 | |||
Media | 3.8 | |||
Software | 3.6 | |||
Exchange -Traded Fund | 3.5 | |||
Aerospace & Defense | 3.4 | |||
Energy Equipment & Services | 3.4 | |||
Semiconductors & Semiconductor Equipment | 3.2 | |||
IT Services | 2.9 | |||
Diversified Financial Services | 2.7 | |||
Food & Staples Retailing | 2.6 | |||
Chemicals | 2.5 | |||
Food Products | 2.4 | |||
Machinery | 2.3 | |||
Insurance | 2.2 | |||
Beverages | 1.9 | |||
Internet Software & Services | 1.8 | |||
Tobacco | 1.7 | |||
Internet & Catalog Retail | 1.6 | |||
Airlines | 1.4 |
Commercial Services & Supplies | 1.3 | % | ||
Communications Equipment | 1.3 | |||
Auto Components | 0.9 | |||
Hotels, Restaurants & Leisure | 0.9 | |||
Household Products | 0.9 | |||
Industrial Conglomerates | 0.9 | |||
Biotechnology | 0.7 | |||
Multiline Retail | 0.7 | |||
Textiles, Apparel & Luxury Goods | 0.7 | |||
Capital Markets | 0.6 | |||
Electronic Equipment, Instruments & Components | 0.6 | |||
Household Durables | 0.6 | |||
Metals & Mining | 0.6 | |||
Real Estate Investment Trusts | 0.6 | |||
Real Estate Management & Development | 0.6 | |||
Trading Companies & Distributors | 0.6 | |||
Consumer Finance | 0.4 | |||
Health Care Equipment & Supplies | 0.4 | |||
Containers & Packaging | 0.1 | |||
Independent Power & Renewable Electricity Producers | 0.1 | |||
Air Freight & Logistics | 0.0 | ‡ | ||
Short-Term Investment | 0.9 | |||
Other Assets, Less Liabilities | –0.8 | |||
|
| |||
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 April 30, 2014 (excluding short-term investment) (Unaudited)
1. | Apple, Inc. |
2. | S&P 500 Index—SPDR Trust Series 1 |
3. | Exxon Mobil Corp. |
4. | Berkshire Hathaway, Inc. Class B |
5. | JPMorgan Chase & Co. |
6. | Pfizer, Inc. |
7. | Microsoft Corp. |
8. | Verizon Communications, Inc. |
9. | Johnson & Johnson |
10. | Merck & Co., Inc. |
8 | MainStay Common Stock Fund |
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by Migene Kim, CFA, Andrew Ver Planck, CFA, and Mona Patni 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 six months ended April 30, 2014?
Excluding all sales charges, MainStay Common Stock Fund returned 9.42% for Investor Class shares, 9.58% for Class A shares and 8.99% for both Class B and Class C shares for the six months ended April 30, 2014. Over the same period, the Fund’s Class I shares returned 9.72% and Class R2 shares returned 9.53%.1 For the six months ended April 30, 2014, all share classes outperformed the 8.36% return of the S&P 500® Index,2 which is the Fund’s broad-based securities-market index. All share classes also outperformed the 6.90% return of the average Lipper3 multi-cap core fund for the same period. See page 5 for Fund returns with applicable sales charges.
Were there any changes to the Fund during the reporting period?
Effective February 28, 2014, Mona Patni was added as a portfolio manager of the Fund.
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. Momentum factors, which identify market trends, had a difficult time adjusting to a sentiment shift toward yield and quality. The balance between valuation and momentum, however, allowed the overall model to perform well, particularly in identifying stocks that would outperform the S&P 500® Index.
During the reporting period, which sectors were the strongest positive contributors to the Fund’s relative performance and which sectors were particularly weak?
The sector that made the strongest positive contribution to the Fund’s performance relative to the S&P 500® Index was information technology. (Contributions take weightings and total returns into account.) Stock selection was the primary driver, especially among semiconductor and software companies. In industrials, overweighting airlines proved beneficial, as did favorable stock selection among capital goods companies. The contribution from health care was also strong, because of positive stock selection in the health care providers & services industry.
The weakest sector contribution to the Fund’s relative performance came from consumer discretionary, because of unfavorable stock selection in specialty retail. The negative
impact was partially offset by strong stock selection among media companies. An underweight position in utilities—the best-performing S&P 500® Index sector for the first four months of 2014—detracted from relative performance. While the Fund made several successful stock selections in telecommunication services, holding more of these stocks than the Index hurt performance, particularly in November and December of 2013.
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 computer and mobile device company Apple, energy giant Exxon Mobil and computer company Hewlett-Packard. The Fund held overweight positions relative to the S&P 500® Index in each of these companies, and their share prices appreciated during the reporting period. Apple reported strong second quarter results in April 2014, while Exxon Mobil’s shares rallied with other energy stocks, especially since February 2014. Investors have rewarded Hewlett-Packard for its ongoing turnaround efforts and improving free-cash-flow outlook.
The stocks that detracted the most from the Fund’s absolute performance included leading Internet retailer Amazon.com, electronics retailer Best Buy and video-game specialty retailer GameStop. Shares of Amazon.com dropped after the company announced both fourth quarter 2013 and first quarter 2014 results, as investors demanded more discipline on the spending side. Best Buy and GameStop also had weak share performance, as both companies experienced slower sales.
Did the Fund make any significant purchases or sales during the reporting period?
The Fund purchased shares of Caterpillar, the largest global manufacturer of construction equipment, in December 2013. We based the purchase decision on attractive valuation, earnings quality and decreased shorting activities by the hedge fund community. As Caterpillar’s share price appreciated, price momentum also improved, and the Fund accumulated more shares. The Fund initiated a new position in independent refiner Valero Energy in January. We were attracted to Valero Energy because of its sales multiple and improving credit-quality trend and because of reduced hedge-fund shorting of the stock.
The Fund exited its position in biotechnology company Amgen in April. The company’s return potential had diminished because of poor momentum and sentiment readings. The Fund also sold shares of Internet search engine Google when the stock became less attractive in terms of valuation and share issuance.
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 |
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 began the reporting period significantly underweight relative to the S&P 500® Index in industrials, but we narrowed the underexposure through purchases of machinery and aerospace & defense companies. In the materials sector, the Fund moved from an underweight position relative to the S&P 500® Index to a more neutral position by accumulating positions in chemicals and metals stocks.
During the reporting period, the Fund’s most substantial weighting decrease relative to the S&P 500® Index was in the information technology sector. The Fund moved from an overweight to a neutral position relative to the S&P 500® Index,
as it reduced positions in systems software and information technology services. An overweight position in the health care sector was trimmed to neutral by reducing exposure to the biotechnology industry.
How was the Fund positioned at the end of the reporting period?
As of April 30, 2014, the Fund’s most substantially overweight sector positions relative to the S&P 500® Index were in telecommunication services, consumer discretionary and health care. 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 April 30, 2014 (Unaudited)
Shares | Value | |||||||
Common Stocks 96.4%† | ||||||||
Aerospace & Defense 3.4% |
| |||||||
Boeing Co. (The) | 11,158 | $ | 1,439,605 | |||||
L-3 Communications Holdings, Inc. | 7,316 | 844,047 | ||||||
Lockheed Martin Corp. | 6,333 | 1,039,499 | ||||||
Northrop Grumman Corp. | 7,639 | 928,215 | ||||||
|
| |||||||
4,251,366 | ||||||||
|
| |||||||
Air Freight & Logistics 0.0%‡ |
| |||||||
United Parcel Service, Inc. Class B | 287 | 28,269 | ||||||
|
| |||||||
Airlines 1.4% |
| |||||||
Alaska Air Group, Inc. | 8,418 | 791,966 | ||||||
Southwest Airlines Co. | 38,184 | 922,907 | ||||||
|
| |||||||
1,714,873 | ||||||||
|
| |||||||
Auto Components 0.9% |
| |||||||
Delphi Automotive PLC | 5,932 | 396,495 | ||||||
Goodyear Tire & Rubber Co. (The) | 31,494 | 793,649 | ||||||
|
| |||||||
1,190,144 | ||||||||
|
| |||||||
Banks 5.3% |
| |||||||
Bank of America Corp. | 121,438 | 1,838,572 | ||||||
Citigroup, Inc. | 22,786 | 1,091,677 | ||||||
¨JPMorgan Chase & Co. | 40,300 | 2,255,994 | ||||||
KeyCorp | 7,333 | 100,022 | ||||||
Prosperity Bancshares, Inc. | 8,979 | 529,761 | ||||||
Wells Fargo & Co. | 18,531 | 919,879 | ||||||
|
| |||||||
6,735,905 | ||||||||
|
| |||||||
Beverages 1.9% |
| |||||||
Coca-Cola Co. (The) | 14,953 | 609,933 | ||||||
Dr. Pepper Snapple Group, Inc. | 109 | 6,041 | ||||||
PepsiCo., Inc. | 20,262 | 1,740,303 | ||||||
|
| |||||||
2,356,277 | ||||||||
|
| |||||||
Biotechnology 0.7% |
| |||||||
Gilead Sciences, Inc. (a) | 158 | 12,401 | ||||||
United Therapeutics Corp. (a) | 8,094 | 809,481 | ||||||
|
| |||||||
821,882 | ||||||||
|
| |||||||
Capital Markets 0.6% |
| |||||||
Legg Mason, Inc. | 17,141 | 803,741 | ||||||
|
| |||||||
Chemicals 2.5% |
| |||||||
CF Industries Holdings, Inc. | 3,302 | 809,551 | ||||||
Dow Chemical Co. (The) | 24,525 | 1,223,797 | ||||||
LyondellBasell Industries, N.V. Class A | 11,819 | 1,093,258 | ||||||
|
| |||||||
3,126,606 | ||||||||
|
|
Shares | Value | |||||||
Commercial Services & Supplies 1.3% |
| |||||||
Pitney Bowes, Inc. | 31,506 | $ | 844,361 | |||||
R.R. Donnelley & Sons Co. | 43,123 | 758,965 | ||||||
|
| |||||||
1,603,326 | ||||||||
|
| |||||||
Communications Equipment 1.3% |
| |||||||
Cisco Systems, Inc. | 12,111 | 279,885 | ||||||
F5 Networks, Inc. (a) | 2,109 | 221,803 | ||||||
Harris Corp. | 9,167 | 673,958 | ||||||
Juniper Networks, Inc. (a) | 4,498 | 111,056 | ||||||
QUALCOMM, Inc. | 4,669 | 367,497 | ||||||
|
| |||||||
1,654,199 | ||||||||
|
| |||||||
Consumer Finance 0.4% |
| |||||||
American Express Co. | 1,031 | 90,141 | ||||||
Discover Financial Services | 6,367 | 355,915 | ||||||
|
| |||||||
446,056 | ||||||||
|
| |||||||
Containers & Packaging 0.1% |
| |||||||
Sealed Air Corp. | 5,329 | 182,838 | ||||||
|
| |||||||
Diversified Financial Services 2.7% |
| |||||||
¨Berkshire Hathaway, Inc. Class B (a) | 19,214 | 2,475,724 | ||||||
Leucadia National Corp. | 5,714 | 145,821 | ||||||
NASDAQ OMX Group, Inc. (The) | 22,026 | 812,760 | ||||||
|
| |||||||
3,434,305 | ||||||||
|
| |||||||
Diversified Telecommunication Services 4.0% |
| |||||||
AT&T, Inc. | 54,281 | �� | 1,937,832 | |||||
Frontier Communications Corp. | 148,922 | 886,086 | ||||||
¨Verizon Communications, Inc. | 46,124 | 2,155,374 | ||||||
|
| |||||||
4,979,292 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components 0.6% |
| |||||||
Corning, Inc. | 12,144 | 253,931 | ||||||
Ingram Micro, Inc. Class A (a) | 20,322 | 547,881 | ||||||
|
| |||||||
801,812 | ||||||||
|
| |||||||
Energy Equipment & Services 3.4% |
| |||||||
Baker Hughes, Inc. | 15,393 | 1,075,971 | ||||||
Halliburton Co. | 13,144 | 828,992 | ||||||
Nabors Industries, Ltd. | 34,227 | 873,473 | ||||||
Patterson-UTI Energy, Inc. | 25,038 | 814,486 | ||||||
Schlumberger, Ltd. | 7,334 | 744,768 | ||||||
|
| |||||||
4,337,690 | ||||||||
|
| |||||||
Food & Staples Retailing 2.6% |
| |||||||
CVS Caremark Corp. | 11,167 | 812,064 | ||||||
Kroger Co. (The) | 21,335 | 982,263 | ||||||
Wal-Mart Stores, Inc. | 19,212 | 1,531,389 | ||||||
|
| |||||||
3,325,716 | ||||||||
|
|
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings, as of April 30, 2014. 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 April 30, 2014 (Unaudited) (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Food Products 2.4% |
| |||||||
Archer-Daniels-Midland Co. | 22,553 | $ | 986,243 | |||||
Keurig Green Mountain, Inc. | 462 | 43,280 | ||||||
Mondelez International, Inc. Class A | 32,188 | 1,147,502 | ||||||
Tyson Foods, Inc. Class A | 20,359 | 854,467 | ||||||
|
| |||||||
3,031,492 | ||||||||
|
| |||||||
Health Care Equipment & Supplies 0.4% |
| |||||||
C.R. Bard, Inc. | 3,243 | 445,361 | ||||||
|
| |||||||
Health Care Providers & Services 4.7% |
| |||||||
Cardinal Health, Inc. | 13,701 | 952,357 | ||||||
DaVita HealthCare Partners, Inc. (a) | 12,572 | 871,240 | ||||||
Express Scripts Holding Co. (a) | 14,890 | 991,376 | ||||||
Humana, Inc. | 8,009 | 878,988 | ||||||
McKesson Corp. | 6,132 | 1,037,473 | ||||||
UnitedHealth Group, Inc. | 1,837 | 137,848 | ||||||
WellPoint, Inc. | 9,874 | 994,114 | ||||||
|
| |||||||
5,863,396 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure 0.9% |
| |||||||
Carnival Corp. | 4,038 | 158,734 | ||||||
McDonald’s Corp. | 357 | 36,192 | ||||||
Wyndham Worldwide Corp. | 8,288 | 591,266 | ||||||
Wynn Resorts, Ltd. | 1,939 | 395,343 | ||||||
|
| |||||||
1,181,535 | ||||||||
|
| |||||||
Household Durables 0.6% |
| |||||||
PulteGroup, Inc. | 26,839 | 493,569 | ||||||
Whirlpool Corp. | 1,801 | 276,238 | ||||||
|
| |||||||
769,807 | ||||||||
|
| |||||||
Household Products 0.9% |
| |||||||
Kimberly-Clark Corp. | 3,138 | 352,240 | ||||||
Procter & Gamble Co. (The) | 9,920 | 818,896 | ||||||
|
| |||||||
1,171,136 | ||||||||
|
| |||||||
Independent Power & Renewable Electricity Producers 0.1% |
| |||||||
AES Corp. (The) | 7,953 | 114,921 | ||||||
|
| |||||||
Industrial Conglomerates 0.9% |
| |||||||
General Electric Co. | 42,031 | 1,130,214 | ||||||
|
| |||||||
Insurance 2.2% |
| |||||||
ACE, Ltd. | 18 | 1,842 | ||||||
Aflac, Inc. | 601 | 37,694 | ||||||
American International Group, Inc. | 25,979 | 1,380,264 | ||||||
Chubb Corp. (The) | 125 | 11,510 | ||||||
Fidelity National Financial, Inc. Class A | 7,244 | 233,112 | ||||||
Lincoln National Corp. | 2,782 | 134,955 | ||||||
Progressive Corp. (The) | 415 | 10,064 | ||||||
Travelers Companies, Inc. (The) | 11,257 | 1,019,659 | ||||||
|
| |||||||
2,829,100 | ||||||||
|
|
Shares | Value | |||||||
Internet & Catalog Retail 1.6% |
| |||||||
Amazon.com, Inc. (a) | 3,824 | $ | 1,162,993 | |||||
Expedia, Inc. | 11,691 | 829,944 | ||||||
|
| |||||||
1,992,937 | ||||||||
|
| |||||||
Internet Software & Services 1.8% |
| |||||||
Facebook, Inc. Class A (a) | 12,302 | 735,413 | ||||||
Google, Inc. Class A (a) | 1,318 | 704,972 | ||||||
Google, Inc. Class C (a) | 1,483 | 781,037 | ||||||
|
| |||||||
2,221,422 | ||||||||
|
| |||||||
IT Services 2.9% |
| |||||||
Computer Sciences Corp. | 13,792 | 816,211 | ||||||
Global Payments, Inc. | 5,170 | 345,511 | ||||||
International Business Machines Corp. | 7,815 | 1,535,413 | ||||||
Visa, Inc. Class A | 64 | 12,967 | ||||||
Xerox Corp. | 76,261 | 921,995 | ||||||
|
| |||||||
3,632,097 | ||||||||
|
| |||||||
Machinery 2.3% |
| |||||||
Caterpillar, Inc. | 12,330 | 1,299,582 | ||||||
Oshkosh Corp. | 13,381 | 742,779 | ||||||
Trinity Industries, Inc. | 10,816 | 811,849 | ||||||
|
| |||||||
2,854,210 | ||||||||
|
| |||||||
Media 3.8% |
| |||||||
Cablevision Systems Corp. Class A | 19,925 | 332,748 | ||||||
Comcast Corp. Class A | 34,044 | 1,762,117 | ||||||
DIRECTV (a) | 13,581 | 1,053,886 | ||||||
Interpublic Group of Cos., Inc. (The) | 49,153 | 856,245 | ||||||
Twenty-First Century Fox, Inc. Class A | 13,978 | 447,576 | ||||||
Walt Disney Co. (The) | 3,439 | 272,850 | ||||||
|
| |||||||
4,725,422 | ||||||||
|
| |||||||
Metals & Mining 0.6% |
| |||||||
Alcoa, Inc. | 55,518 | 747,827 | ||||||
|
| |||||||
Multiline Retail 0.7% |
| |||||||
Macy’s, Inc. | 15,883 | 912,161 | ||||||
Target Corp. | 455 | 28,096 | ||||||
|
| |||||||
940,257 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels 6.8% |
| |||||||
Chesapeake Energy Corp. | 19,342 | 556,082 | ||||||
Chevron Corp. | 13,390 | 1,680,713 | ||||||
ConocoPhillips | 5,843 | 434,193 | ||||||
¨Exxon Mobil Corp. | 25,561 | 2,617,702 | ||||||
Marathon Petroleum Corp. | 10,980 | 1,020,591 | ||||||
Phillips 66 | 14,236 | 1,184,720 | ||||||
Tesoro Corp. | 1,354 | 76,217 | ||||||
Valero Energy Corp. | 18,375 | 1,050,499 | ||||||
|
| |||||||
8,620,717 | ||||||||
|
|
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) | ||||||||
Pharmaceuticals 7.7% |
| |||||||
AbbVie, Inc. | 27,089 | $ | 1,410,795 | |||||
Eli Lilly & Co. | 20,000 | 1,182,000 | ||||||
¨Johnson & Johnson | 20,906 | 2,117,569 | ||||||
¨Merck & Co., Inc. | 33,288 | 1,949,345 | ||||||
¨Pfizer, Inc. | 70,793 | 2,214,405 | ||||||
Salix Pharmaceuticals, Ltd. (a) | 7,496 | 824,560 | ||||||
|
| |||||||
9,698,674 | ||||||||
|
| |||||||
Real Estate Investment Trusts 0.6% |
| |||||||
Hospitality Properties Trust | 6,939 | 208,517 | ||||||
Host Hotels & Resorts, Inc. | 15,304 | 328,271 | ||||||
Simon Property Group, Inc. | 1,458 | 252,525 | ||||||
|
| |||||||
789,313 | ||||||||
|
| |||||||
Real Estate Management & Development 0.6% |
| |||||||
CBRE Group, Inc. Class A (a) | 30,564 | 814,225 | ||||||
|
| |||||||
Semiconductors & Semiconductor Equipment 3.2% |
| |||||||
First Solar, Inc. (a) | 7,538 | 508,740 | ||||||
Intel Corp. | 65,688 | 1,753,213 | ||||||
Micron Technology, Inc. (a) | 41,856 | 1,093,279 | ||||||
NVIDIA Corp. | 20,252 | 374,054 | ||||||
Skyworks Solutions, Inc. (a) | 8,503 | 349,048 | ||||||
|
| |||||||
4,078,334 | ||||||||
|
| |||||||
Software 3.6% |
| |||||||
Electronic Arts, Inc. (a) | 18,519 | 524,088 | ||||||
¨Microsoft Corp. | 54,686 | 2,209,314 | ||||||
Oracle Corp. | 44,682 | 1,826,600 | ||||||
|
| |||||||
4,560,002 | ||||||||
|
| |||||||
Specialty Retail 4.0% |
| |||||||
Advance Auto Parts, Inc. | 2,149 | 260,652 | ||||||
AutoZone, Inc. (a) | 1,615 | 862,232 | ||||||
Bed Bath & Beyond, Inc. (a) | 6,353 | 394,712 | ||||||
Gap, Inc. (The) | 21,127 | 830,291 | ||||||
Home Depot, Inc. (The) | 19,509 | 1,551,161 | ||||||
Lowe’s Companies, Inc. | 23,601 | 1,083,522 | ||||||
|
| |||||||
4,982,570 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals 7.0% |
| |||||||
¨Apple, Inc. | 7,871 | 4,644,598 | ||||||
Hewlett-Packard Co. | 37,553 | 1,241,502 | ||||||
NetApp, Inc. | 23,486 | 836,337 | ||||||
SanDisk Corp. | 6,410 | 544,658 | ||||||
Seagate Technology PLC | 16,761 | 881,293 | ||||||
Western Digital Corp. | 7,189 | 633,567 | ||||||
|
| |||||||
8,781,955 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods 0.7% |
| |||||||
Hanesbrands, Inc. | 10,385 | 852,505 | ||||||
|
|
Shares | Value | |||||||
Tobacco 1.7% |
| |||||||
Altria Group, Inc. | 1,191 | $ | 47,771 | |||||
Lorillard, Inc. | 8,975 | 533,295 | ||||||
Philip Morris International, Inc. | 17,838 | 1,523,900 | ||||||
|
| |||||||
2,104,966 | ||||||||
|
| |||||||
Trading Companies & Distributors 0.6% |
| |||||||
United Rentals, Inc. (a) | 8,530 | 800,370 | ||||||
|
| |||||||
Total Common Stocks |
| 121,529,062 | ||||||
|
| |||||||
Exchange-Traded Fund 3.5% (b) | ||||||||
¨S&P 500 Index—SPDR Trust Series 1 | 23,611 | 4,449,021 | ||||||
|
| |||||||
Total Exchange-Traded Fund |
| 4,449,021 | ||||||
|
| |||||||
Principal Amount | ||||||||
Short-Term Investment 0.9% | ||||||||
Repurchase Agreement 0.9% |
| |||||||
State Street Bank and Trust Co. | $ | 1,137,867 | 1,137,867 | |||||
|
| |||||||
Total Short-Term Investment |
| 1,137,867 | ||||||
|
| |||||||
Total Investments | 100.8 | % | 127,115,950 | |||||
Other Assets, Less Liabilities | (0.8 | ) | (975,284 | ) | ||||
Net Assets | 100.0 | % | $ | 126,140,666 |
‡ | 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 April 30, 2014, cost was $111,327,490 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 17,005,651 | ||
Gross unrealized depreciation | (1,217,191 | ) | ||
|
| |||
Net unrealized appreciation | $ | 15,788,460 | ||
|
|
The following abbreviation is used in the above portfolio:
SPDR—Standard & Poor's Depositary Receipt
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 April 30, 2014 (Unaudited) (continued)
The following is a summary of the fair valuations according to the inputs used as of April 30, 2014, 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 | $ | 121,529,062 | $ | — | $ | — | $ | 121,529,062 | ||||||||
Exchange-Traded Fund | 4,449,021 | — | — | 4,449,021 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 1,137,867 | — | 1,137,867 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | 125,978,083 | $ | 1,137,867 | $ | — | $ | 127,115,950 | ||||||||
|
|
|
|
|
|
|
|
(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 period ended April 30, 2014, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
As of April 30, 2014, 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 April 30, 2014 (Unaudited)
Assets | ||||
Investment in securities, at value | $ | 127,115,950 | ||
Cash | 849 | |||
Receivables: | ||||
Fund shares sold | 190,761 | |||
Dividends | 87,200 | |||
Investment securities sold | 20,532 | |||
Other assets | 42,893 | |||
|
| |||
Total assets | 127,458,185 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 1,094,962 | |||
Fund shares redeemed | 65,408 | |||
Manager (See Note 3) | 54,836 | |||
Transfer agent (See Note 3) | 31,006 | |||
Shareholder communication | 25,979 | |||
Professional fees | 24,905 | |||
NYLIFE Distributors (See Note 3) | 18,464 | |||
Custodian | 700 | |||
Trustees | 224 | |||
Accrued expenses | 1,035 | |||
|
| |||
Total liabilities | 1,317,519 | |||
|
| |||
Net assets | $ | 126,140,666 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 70,785 | ||
Additional paid-in capital | 163,283,510 | |||
|
| |||
163,354,295 | ||||
Undistributed net investment income | 448,480 | |||
Accumulated net realized gain (loss) on investments | (53,968,410 | ) | ||
Net unrealized appreciation (depreciation) on investments | 16,306,301 | |||
|
| |||
Net assets | $ | 126,140,666 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 19,678,319 | ||
|
| |||
Shares of beneficial interest outstanding | 1,094,609 | |||
|
| |||
Net asset value per share outstanding | $ | 17.98 | ||
Maximum sales charge (5.50% of offering price) | 1.05 | |||
|
| |||
Maximum offering price per share outstanding | $ | 19.03 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 22,609,020 | ||
|
| |||
Shares of beneficial interest outstanding | 1,258,771 | |||
|
| |||
Net asset value per share outstanding | $ | 17.96 | ||
Maximum sales charge (5.50% of offering price) | 1.05 | |||
|
| |||
Maximum offering price per share outstanding | $ | 19.01 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 6,850,806 | ||
|
| |||
Shares of beneficial interest outstanding | 412,992 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 16.59 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 7,263,906 | ||
|
| |||
Shares of beneficial interest outstanding | 438,110 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 16.58 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 69,738,615 | ||
|
| |||
Shares of beneficial interest outstanding | 3,874,031 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 18.00 | ||
|
|
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 six months ended April 30, 2014 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Dividends | $ | 1,173,411 | ||
|
| |||
Expenses | ||||
Manager (See Note 3) | 323,106 | |||
Distribution/Service—Investor Class (See Note 3) | 23,786 | |||
Distribution/Service—Class A (See Note 3) | 25,962 | |||
Distribution/Service—Class B (See Note 3) | 33,951 | |||
Distribution/Service—Class C (See Note 3) | 20,332 | |||
Transfer agent (See Note 3) | 92,566 | |||
Registration | 38,786 | |||
Professional fees | 25,058 | |||
Shareholder communication | 14,300 | |||
Custodian | 7,381 | |||
Trustees | 1,104 | |||
Miscellaneous | 5,199 | |||
|
| |||
Total expenses | 611,531 | |||
|
| |||
Net investment income (loss) | 561,880 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments | 12,067,429 | |||
Net change in unrealized appreciation (depreciation) on investments | (1,631,516 | ) | ||
|
| |||
Net realized and unrealized gain (loss) on investments | 10,435,913 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 10,997,793 | ||
|
|
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 six months ended April 30, 2014 (Unaudited) and the year ended October 31, 2013
2014 | 2013 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 561,880 | $ | 1,346,273 | ||||
Net realized gain (loss) on investments | 12,067,429 | 19,932,214 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (1,631,516 | ) | 9,631,770 | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 10,997,793 | 30,910,257 | ||||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (172,898 | ) | (130,443 | ) | ||||
Class A | (246,164 | ) | (166,969 | ) | ||||
Class B | (21,616 | ) | (10,313 | ) | ||||
Class C | (11,954 | ) | (2,697 | ) | ||||
Class I | (853,508 | ) | (1,174,580 | ) | ||||
|
| |||||||
Total dividends to shareholders | (1,306,140 | ) | (1,485,002 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 16,752,445 | 29,255,750 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 1,290,929 | 1,465,253 | ||||||
Cost of shares redeemed | (26,718,488 | ) | (45,912,553 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | (8,675,114 | ) | (15,191,550 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets | 1,016,539 | 14,233,705 | ||||||
Net Assets | ||||||||
Beginning of period | 125,124,127 | 110,890,422 | ||||||
|
| |||||||
End of period | $ | 126,140,666 | $ | 125,124,127 | ||||
|
| |||||||
Undistributed net investment income at end of period | $ | 448,480 | $ | 1,192,740 | ||||
|
|
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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Investor Class | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 16.58 | $ | 12.89 | $ | 11.32 | $ | 10.77 | $ | 9.69 | $ | 9.27 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.05 | 0.10 | 0.09 | 0.06 | 0.03 | 0.07 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.50 | 3.70 | 1.61 | 0.53 | 1.13 | 0.40 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 1.55 | 3.80 | 1.70 | 0.59 | 1.16 | 0.47 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends: | ||||||||||||||||||||||||||
From net investment income | (0.15 | ) | (0.11 | ) | (0.13 | ) | (0.04 | ) | (0.08 | ) | (0.05 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 17.98 | $ | 16.58 | $ | 12.89 | $ | 11.32 | $ | 10.77 | $ | 9.69 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 9.42 | %(c) | 29.75 | % | 15.15 | % | 5.47 | % | 11.99 | % | 5.12 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 0.63 | %†† | 0.72 | % | 0.72 | % | 0.56 | % | 0.25 | % | 0.81 | % | ||||||||||||||
Net expenses | 1.36 | %†† | 1.46 | % | 1.56 | % | 1.52 | % | 1.61 | % | 1.46 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.36 | %†† | 1.46 | % | 1.56 | % | 1.52 | % | 1.61 | % | 1.73 | % | ||||||||||||||
Portfolio turnover rate | 73 | % | 150 | % | 182 | % | 139 | % | 152 | % | 138 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 19,678 | $ | 18,436 | $ | 15,093 | $ | 13,917 | $ | 13,661 | $ | 12,752 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class A | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 16.59 | $ | 12.90 | $ | 11.34 | $ | 10.79 | $ | 9.70 | $ | 9.28 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.08 | 0.16 | 0.15 | 0.13 | 0.09 | 0.12 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.50 | 3.71 | 1.60 | 0.53 | 1.13 | 0.40 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 1.58 | 3.87 | 1.75 | 0.66 | 1.22 | 0.52 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends: | ||||||||||||||||||||||||||
From net investment income | (0.21 | ) | (0.18 | ) | (0.19 | ) | (0.11 | ) | (0.13 | ) | (0.10 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 17.96 | $ | 16.59 | $ | 12.90 | $ | 11.34 | $ | 10.79 | $ | 9.70 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 9.58 | %(c) | 30.35 | % | 15.64 | % | 6.10 | % | 12.64 | % | 5.80 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 0.94 | %†† | 1.11 | % | 1.22 | % | 1.12 | % | 0.90 | % | 1.38 | % | ||||||||||||||
Net expenses | 1.03 | %†† | 1.05 | % | 1.06 | % | 0.97 | % | 0.96 | % | 0.94 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.03 | %†† | 1.05 | % | 1.06 | % | 0.97 | % | 0.96 | % | 0.98 | % | ||||||||||||||
Portfolio turnover rate | 73 | % | 150 | % | 182 | % | 139 | % | 152 | % | 138 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 22,609 | $ | 19,011 | $ | 12,402 | $ | 10,662 | $ | 12,140 | $ | 11,579 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class B | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 15.27 | $ | 11.87 | $ | 10.43 | $ | 9.96 | $ | 8.97 | $ | 8.60 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | (0.01 | ) | (0.00 | )‡ | (0.00 | )‡ | (0.02 | ) | (0.05 | ) | 0.01 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.38 | 3.42 | 1.48 | 0.49 | 1.05 | 0.36 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 1.37 | 3.42 | 1.48 | 0.47 | 1.00 | 0.37 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends: | ||||||||||||||||||||||||||
From net investment income | (0.05 | ) | (0.02 | ) | (0.04 | ) | (0.00 | )‡ | (0.01 | ) | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 16.59 | $ | 15.27 | $ | 11.87 | $ | 10.43 | $ | 9.96 | $ | 8.97 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 8.99 | % (c) | 28.87 | % | 14.23 | % | 4.75 | % | 11.14 | % | 4.30 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | (0.11 | %)†† | (0.03 | %) | (0.02 | %) | (0.17 | %) | (0.49 | %) | 0.14 | % | ||||||||||||||
Net expenses | 2.11 | % †† | 2.21 | % | 2.31 | % | 2.27 | % | 2.36 | % | 2.20 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 2.11 | % †† | 2.21 | % | 2.31 | % | 2.27 | % | 2.36 | % | 2.49 | % | ||||||||||||||
Portfolio turnover rate | 73 | % | 150 | % | 182 | % | 139 | % | 152 | % | 138 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 6,851 | $ | 6,760 | $ | 5,836 | $ | 6,762 | $ | 8,466 | $ | 10,371 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class C | 2014* | 2013 | 2012 | �� | 2011 | 2010 | 2009 | |||||||||||||||||||
Net asset value at beginning of period | $ | 15.26 | $ | 11.87 | $ | 10.43 | $ | 9.96 | $ | 8.97 | $ | 8.59 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | (0.02 | ) | (0.01 | ) | (0.00 | )‡ | (0.02 | ) | (0.05 | ) | 0.01 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.39 | 3.42 | 1.48 | 0.49 | 1.05 | 0.37 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 1.37 | 3.41 | 1.48 | 0.47 | 1.00 | 0.38 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends: | ||||||||||||||||||||||||||
From net investment income | (0.05 | ) | (0.02 | ) | (0.04 | ) | (0.00 | )‡ | (0.01 | ) | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 16.58 | $ | 15.26 | $ | 11.87 | $ | 10.43 | $ | 9.96 | $ | 8.97 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 8.99 | % (c) | 28.78 | % | 14.23 | % | 4.75 | % | 11.12 | % | 4.42 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | (0.19 | %)†† | (0.10 | %) | (0.02 | %) | (0.18 | %) | (0.49 | %) | 0.12 | % | ||||||||||||||
Net expenses | 2.11 | % †† | 2.21 | % | 2.31 | % | 2.27 | % | 2.36 | % | 2.21 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 2.11 | % †† | 2.21 | % | 2.31 | % | 2.27 | % | 2.36 | % | 2.49 | % | ||||||||||||||
Portfolio turnover rate | 73 | % | 150 | % | 182 | % | 139 | % | 152 | % | 138 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 7,264 | $ | 3,441 | $ | 1,575 | $ | 1,221 | $ | 1,352 | $ | 1,357 |
* | Unaudited. |
†† | 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. |
(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 | 19 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class I | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 16.64 | $ | 12.94 | $ | 11.38 | $ | 10.82 | $ | 9.72 | $ | 9.32 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.11 | 0.20 | 0.18 | 0.16 | 0.12 | 0.15 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.49 | 3.71 | 1.60 | 0.53 | 1.14 | 0.39 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 1.60 | 3.91 | 1.78 | 0.69 | 1.26 | 0.54 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends: | ||||||||||||||||||||||||||
From net investment income | (0.24 | ) | (0.21 | ) | (0.22 | ) | (0.13 | ) | (0.16 | ) | (0.14 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
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| |||||||||||||||
Net asset value at end of period | $ | 18.00 | $ | 16.64 | $ | 12.94 | $ | 11.38 | $ | 10.82 | $ | 9.72 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 9.72 | %(c) | 30.65 | % | 15.89 | % | 6.43 | % | 13.00 | % | 5.99 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 1.23 | %†† | 1.40 | % | 1.48 | % | 1.39 | % | 1.16 | % | 1.69 | % | ||||||||||||||
Net expenses | 0.78 | %†† | 0.80 | % | 0.81 | % | 0.72 | % | 0.71 | % | 0.65 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 0.78 | %†† | 0.80 | % | 0.81 | % | 0.72 | % | 0.71 | % | 0.73 | % | ||||||||||||||
Portfolio turnover rate | 73 | % | 150 | % | 182 | % | 139 | % | 152 | % | 138 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 69,739 | $ | 77,476 | $ | 75,985 | $ | 112,148 | $ | 230,246 | $ | 260,081 |
* | Unaudited. |
†† | 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. |
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. |
Notes to Financial Statements (Unaudited)
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 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 six-month period ended April 30, 2014.
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”) adopted procedures for the valuation of the Fund’s securities and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board
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 Sub-Committee deals in the first instance with such valuation and 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. Any action taken by the Sub-Committee with respect to the valuation of a portfolio security is submitted by the Valuation Committee to the Board for its review at its next regularly scheduled meeting immediately after such action.
“Fair value” is defined as the price that the Fund would receive upon selling an asset or liability in an orderly transaction to an independent buyer in the principal or most advantageous market for the asset or liability. Fair value measurements are determined within a framework that 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” refer 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 based on the information available. 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 below.
• | Level 1—quoted prices in active markets for an identical asset or liability |
• | Level 2—other significant observable inputs (including quoted prices for a similar asset or liability in active markets, interest rates and yield curves, prepayment speeds, credit risk etc.) |
mainstayinvestments.com | 21 |
Notes to Financial Statements (Unaudited) (continued)
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring fair value of an asset or liability) |
The aggregate value by input level, as of April 30, 2014, for the Fund’s assets or liabilities is included at the end of the Fund’s Portfolio of Investments.
The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs among others:
• 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 |
An asset or liability for which market values cannot be measured using the methodologies described above are valued by methods deemed reasonable and in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund generally 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 asset or liability are discounted to calculate fair value. Discounts may also be applied due to the nature and/or duration of any restrictions on the disposition of the asset or liability. Due to the inherent valuation uncertainty of such assets or liabilities, fair values may differ significantly from values that would have been used had an active market existed. For the six-month period ended April 30, 2014, there have been no material 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 readily available from a third party pricing source or, if so provided, does not, in the opinion of the Manager or Subadvisor reflect the security’s market value; (vi) a security subject to trading collars for which no or limited trading takes place; and (vii) 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 April 30, 2014, 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 last 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 last quoted bid and ask prices. Prices are normally taken from the principal market in which each secu-
rity 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 at the time of purchase (“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 from net investment income and distributions from 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, net of any foreign tax withheld at the source, 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. The straight-line method approximates the effective interest method for short-term investments.
22 | MainStay Common Stock Fund |
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.
(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 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 if 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 April 30, 2014.
(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 compensation 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 Holdings, 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: 0.55% up to $500 million; 0.525% from $500 million to $1 billion; and 0.50% on assets in excess of $1 billion.
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%.
mainstayinvestments.com | 23 |
Notes to Financial Statements (Unaudited) (continued)
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 six-month period ended April 30, 2014, New York Life Investments earned fees from the Fund in the amount of $323,106.
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 $4,787 and $3,802, respectively, for the six-month period ended April 30, 2014. 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, $171, $4,142 and $684, respectively, for the six-month period ended April 30, 2014.
(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 six-month period ended April 30, 2014, were as follows:
Investor Class | $ | 37,948 | ||
Class A | 7,889 | |||
Class B | 13,546 | |||
Class C | 8,085 | |||
Class I | 25,098 |
(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
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 | Short-Term Capital Loss Amounts (000’s) | Long-Term Capital Loss Amounts (000’s) | ||||||
2017 | $ | 65,518 | $ | — |
The tax character of distributions paid during the year ended October 31, 2013, shown in the Statements of Changes in Net Assets was as follows:
2013 | ||||
Distributions paid from: | $ | 1,485,002 |
24 | MainStay Common Stock Fund |
Note 5–Custodian
State Street is the custodian of cash and securities held by the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities held by 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, who serves as the agent 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. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the six-month period ended April 30, 2014.
Note 7–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2014, purchases and sales of securities, other than short-term securities, were $86,507 and $95,885, respectively.
Note 8–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 66,603 | $ | 1,149,846 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 9,823 | 168,174 | ||||||
Shares redeemed | (70,555 | ) | (1,218,016 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 5,871 | 100,004 | ||||||
Shares converted into Investor Class (See Note 1) | 22,135 | 385,472 | ||||||
Shares converted from Investor Class (See Note 1) | (45,188 | ) | (785,928 | ) | ||||
|
| |||||||
Net increase (decrease) | (17,182 | ) | $ | (300,452 | ) | |||
|
| |||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 113,078 | $ | 1,670,004 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 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 (See Note 1) | 66,768 | 963,577 | ||||||
Shares converted from Investor Class (See Note 1) | (59,954 | ) | (897,653 | ) | ||||
|
| |||||||
Net increase (decrease) | (59,413 | ) | $ | (818,538 | ) | |||
|
|
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 179,397 | $ | 3,091,507 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 13,981 | 238,787 | ||||||
Shares redeemed | (129,156 | ) | (2,215,225 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 64,222 | 1,115,069 | ||||||
Shares converted into Class A (See Note 1) | 48,808 | 846,706 | ||||||
|
| |||||||
Net increase (decrease) | 113,030 | $ | 1,961,775 | |||||
|
| |||||||
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 | |||||
|
| |||||||
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 35,551 | $ | 570,232 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,333 | 21,115 | ||||||
Shares redeemed | (38,839 | ) | (620,858 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (1,955 | ) | (29,511 | ) | ||||
Shares converted from Class B (See Note 1) | (27,855 | ) | (446,250 | ) | ||||
|
| |||||||
Net increase (decrease) | (29,810 | ) | $ | (475,761 | ) | |||
|
| |||||||
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 | ) | |||
|
| |||||||
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 233,317 | $ | 3,800,979 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 686 | 10,859 | ||||||
Shares redeemed | (21,383 | ) | (341,146 | ) | ||||
|
| |||||||
Net increase (decrease) | 212,620 | $ | 3,470,692 | |||||
|
|
|
| |||||
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 | |||||
|
| |||||||
mainstayinvestments.com | 25 |
Notes to Financial Statements (Unaudited) (continued)
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 461,671 | $ | 8,139,881 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 49,795 | 851,994 | ||||||
Shares redeemed | (1,292,586 | ) | (22,323,243 | ) | ||||
|
| |||||||
Net increase (decrease) | (781,120 | ) | $ | (13,331,368 | ) | |||
|
| |||||||
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 | ) | |||
|
|
Note 9–Litigation
The Fund has been named as a defendant in the case 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, the plaintiff asserts claims against certain insiders, shareholders, professional advisers, and others involved in the LBO. Separately, the complaint also seeks to obtain from former Tribune shareholders, including the Fund, any proceeds they received in connection with the LBO. The sole claim and cause of action brought against the Fund 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 MainStay Funds 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 September 23, 2013, the District Court granted the defendants’ motion to dismiss the 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 April 24, 2014, the District Court issued a “Phase Two Motion Protocol” in the FitzSimons action that directed the liaison counsel for the shareholder defendants to file a global motion to dismiss, i.e., a motion that applies to the claim against all shareholder defendants, with respect to Count I of the FitzSimons action, which is the claim brought against former Tribune shareholders for intentional fraudulent conveyance under U.S. federal law.
On May 23, 2014, the defendants filed motions to dismiss the FitzSimons action, including a global motion to dismiss Count I. The Court has not yet issued a decision on any of these motions.
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 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 six-month period ended April 30, 2014, events and transactions subsequent to April 30, 2014, 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 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”) requires that each mutual fund’s board of trustees, including a majority of the independent trustees, annually review and approve the fund’s investment advisory agreements. At its December 10-11, 2013 meeting, the Board of Trustees of the MainStay Group of Funds (“Board”) unanimously approved the Management Agreement with respect to the MainStay Common Stock Fund (“Fund”) and New York Life Investment Management LLC (“New York Life Investments”), and the Subadvisory Agreement between New York Life Investments and Cornerstone Capital Management Holdings LLC (“Cornerstone Holdings”) with respect to the Fund.
In reaching its decision to approve the Agreements, the Board considered information furnished by New York Life Investments and Cornerstone Holdings in connection with a contract review process that took place at various meetings of the Board and its Contracts Committee between September 2013 and December 2013, as well as other relevant information furnished to the Board throughout the year by New York Life Investments and Cornerstone Holdings. Information requested by and furnished to the Board in connection with the contract review process included, among other items, reports on the Fund and “peer funds” prepared by Strategic Insight Mutual Fund Research and Consulting, LLC (“Strategic Insight”), an independent third-party service provider engaged by the Board to report objectively on the Fund’s investment performance, management and subadvisory fees and ordinary operating expenses. The Board also considered information provided by New York Life Investments and Cornerstone Holdings on the fees charged to other investment advisory clients (including institutional separate accounts) that follow investment strategies similar to the Fund, and the rationale for any differences in the Fund’s management and subadvisory fees and the fees charged to those other investment advisory clients. In addition, the Board requested and received information on the profitability of the Fund to New York Life Investments and its affiliates, including Cornerstone Holdings as subadvisor to the Fund, and responses from New York Life Investments and Cornerstone Holdings to a series of questions encompassing a variety of topics prepared on behalf of the Board by independent legal counsel to the Board and its independent trustees (the “Independent Trustees”). Information provided to the Board at its meetings throughout the year included, among other items, detailed investment performance reports on the Fund prepared by the Investment Consulting Group at New York Life Investments. The structure and format for this regular reporting were developed in consultation with the Board. The Board also received from New York Life Investments throughout the year, among other items, periodic reports on legal and compliance matters, portfolio turnover, and sales and marketing activity.
In considering the Agreements, the members of the Board reviewed and evaluated all of the information and factors they believed to be relevant and appropriate in light of legal advice furnished to them by independent legal counsel and through the exercise of their own business judgment. The broad factors considered by the Board are discussed in greater detail below, and included, among other items: (i) the nature, scope and quality of the services provided to the Fund by New York Life Investments and Cornerstone Holdings; (ii) the investment performance of the Fund, New York Life Investments and Cornerstone Holdings; (iii) the costs of the services provided, and profits realized, by New York Life Investments and Cornerstone Holdings from their
relationships with the Fund; (iv) the extent to which economies of scale may be realized as the Fund grows, and the extent to which economies of scale may benefit Fund investors; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to similar funds and accounts managed by New York Life Investments and Cornerstone Holdings and peer funds identified by Strategic Insight.
While individual members of the Board may have weighed certain factors differently, the Board’s decision to approve the Agreements was based on a consideration of all the information provided to the Board, including information provided to the Board throughout the year and specifically in connection with the contract review process. The Board’s conclusions with respect to the Agreements also were based, in part, on the Board’s consideration of the Agreements in prior years. In addition to considering the above-referenced factors, the Board observed that in the marketplace there are a range of investment options available to shareholders of the Fund, and that the Fund’s shareholders, having had the opportunity to consider other investment options, have chosen to invest in the Fund. A more detailed discussion of the factors that figured prominently in the Board’s decisions to approve the Agreements is provided below.
Nature, Scope and Quality of Services to Be Provided by New York Life Investments and Cornerstone Holdings
The Board examined the nature, scope and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience in serving as manager of the Fund, noting that New York Life Investments manages other mutual funds, serves a variety of other investment advisory clients, including other pooled investment vehicles, and has experience with overseeing mutual fund service providers, including subadvisors. The Board considered the experience of senior personnel at New York Life Investments providing management and administrative services to the Fund, as well as New York Life Investments’ reputation and financial condition. The Board also considered the full range of non-advisory services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and oversight services provided by New York Life Investments’ Fund Accounting and Administration Group; (ii) investment oversight and analytical services provided by New York Life Investments’ Investment Consulting Group; (iii) compliance services provided by the Fund’s Chief Compliance Officer as well as New York Life Investments’ compliance department, including oversight and implementation of the Fund’s compliance program; and (iv) legal services provided by New York Life Investments’ Office of the General Counsel. Additional information about the non-advisory services provided by New York Life Investments is set forth in the Fund’s Management Agreement. The Board also considered New York Life Investments’ willingness to invest in personnel and infrastructure that benefit the Fund, and noted that New York Life Investments is responsible for compensating the Fund’s officers. The Board also considered benefits to shareholders of being part of the MainStay Group of Funds, including the privilege of exchanging investments between the same class of shares without the imposition of a sales charge, as described more fully in the Fund’s prospectus.
The Board also examined the nature, scope and quality of the advisory services that Cornerstone Holdings provides to the Fund. The Board
mainstayinvestments.com | 27 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
evaluated Cornerstone Holdings’ experience in serving as subadvisor to the Fund and managing other portfolios. It examined Cornerstone Holdings’ track record and experience in providing investment advisory services, the experience of investment advisory, senior management and administrative personnel at Cornerstone Holdings, and Cornerstone Holdings’ overall legal and compliance environment. The Board also reviewed Cornerstone Holdings’ willingness to invest in personnel that benefit the Fund. In this regard, the Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers and the method for compensating portfolio managers.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund should continue to benefit from the nature, scope and quality of these services as a result of New York Life Investments’ and Cornerstone Holdings’ experience, personnel, operations and resources.
Investment Performance
In evaluating the Fund’s investment performance, the Board considered investment performance results in light of the Fund’s investment objective, strategies and risks, as disclosed in the Fund’s prospectus. The Board particularly considered detailed investment reports on the Fund’s performance provided to the Board throughout the year by the Investment Consulting Group of New York Life Investments. These reports include, among other items, information on the Fund’s gross and net returns, the Fund’s investment performance relative to relevant investment categories and Fund benchmarks, the Fund’s risk-adjusted investment performance, and the Fund’s investment performance as compared to peer funds, as appropriate. The Board also considered information provided by Strategic Insight showing the investment performance of the Fund as compared to peer funds.
In considering the Fund’s investment performance, the Board focused principally on the Fund’s long-term performance track record. The Board also gave weight to its ongoing discussions with senior management at New York Life Investments concerning the Fund’s investment performance, as well as discussions between the Fund’s portfolio managers and the Board that generally occur on an annual basis. In addition, the Board considered any specific actions that New York Life Investments or Cornerstone Holdings had taken, or had agreed with the Board to take, to enhance Fund investment performance, and the results of those actions.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the long-term investment performance of the Fund, along with ongoing efforts by New York Life Investments and Cornerstone Holdings to enhance investment returns, supported a determination to approve the Agreements. The Fund discloses more information about investment performance in the Portfolio Management Discussion and Analysis, Investment and Performance Comparison and Financial Highlights sections of this Semiannual Report and in the Fund’s prospectus.
Costs of the Services Provided, and Profits Realized, by New York Life Investments and Cornerstone Holdings
The Board considered the costs of the services provided by New York Life Investments and Cornerstone Holdings under the Agreements, and
the profits realized by New York Life Investments and its affiliates, including Cornerstone Holdings, due to their relationships with the Fund. Because Cornerstone Holdings is an affiliate of New York Life Investments whose subadvisory fees are paid directly by New York Life Investments, the Board considered cost and profitability information for New York Life Investments and Cornerstone Holdings in the aggregate.
In evaluating the costs and profits of New York Life Investments and its affiliates, including Cornerstone Holdings, the Board considered, among other factors, each party’s investments in personnel, systems, equipment and other resources necessary to manage the Fund, and that New York Life Investments is responsible for paying the subadvisory fees for the Fund. The Board acknowledged that New York Life Investments and Cornerstone Holdings must be in a position to pay and retain experienced professional personnel to provide services to the Fund, and that the ability to maintain a strong financial position is important in order for New York Life Investments and Cornerstone Holdings to continue to provide high-quality services to the Fund. The Board also noted that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds.
In addition, the Board noted the difficulty in obtaining reliable comparative data about mutual fund managers’ profitability, since such information generally is not publicly available and may be impacted by numerous factors, including the structure of a fund manager’s organization, the types of funds it manages, the methodology used to allocate certain fixed costs to specific funds, and the manager’s capital structure and costs of capital. While recognizing the difficulty in evaluating a manager’s profitability with respect to the Fund, and noting that other profitability methodologies may also be reasonable, the Board concluded that the profitability methodology presented by New York Life Investments to the Board, which was developed by New York Life Investments in consultation with an independent consultant, was reasonable in all material respects.
In considering the costs and profitability of the Fund, the Board also considered certain fall-out benefits that may be realized by New York Life Investments and its affiliates due to their relationships with the Fund. The Board recognized, for example, the benefits to Cornerstone Holdings from legally permitted “soft-dollar” arrangements by which brokers provide research and other services to Cornerstone Holdings in exchange for commissions paid by the Fund with respect to trades on the Fund’s portfolio securities.
The Board further considered that, in addition to fees earned by New York Life Investments for managing the Fund, New York Life Investments’ affiliates also earn revenues from serving the Fund in various other capacities, including as the Fund’s transfer agent and distributor. The Board observed that information about these other revenues, and their impact on the profitability of the Fund to New York Life Investments and its affiliates, was furnished to the Board as part of the 15(c) process. The Board noted that, although it assessed the overall profitability of the Fund to New York Life Investments and its affiliates as part of the contract review process, when considering the reasonableness of the fees to be paid to New York Life Investments and its affiliates under the Agreements, the Board considered the profitability of New York Life Investments’ relationship with the Fund on a pre-tax basis, and without regard to distribution expenses.
28 | MainStay Common Stock Fund |
After evaluating the information presented to the Board, the Board concluded, within the context of its overall determinations regarding the Agreements, that any profits realized by New York Life Investments and its affiliates, including Cornerstone Holdings, due to their relationships with the Fund supported the Board’s decision to approve the Agreements.
Extent to Which Economies of Scale May Be Realized as the Fund Grows
The Board considered whether the Fund’s expense structure permits economies of scale to be shared with Fund investors. The Board also considered a report from New York Life Investments, prepared at the request of the Board, that addressed economies of scale in the mutual fund business generally, the changing economics of the mutual fund business and the various ways in which the benefits of economies of scale may be shared with the MainStay Group of Funds. The Board reviewed information from New York Life Investments showing how the Fund’s management fee schedule compared to fee schedules of other funds and accounts managed by New York Life Investments. The Board also reviewed information from Strategic Insight showing how the Fund’s management fee schedule hypothetically would compare with fees paid for similar services by peer funds at varying asset levels. The Board noted the Fund’s relatively low assets, and following discussion, accepted New York Life Investments’ viewpoint that the Fund would need to achieve more meaningful asset growth in order to take advantage of economies of scale.
Based on this information, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund’s expense structure appropriately reflects economies of scale for the benefit of Fund investors. The Board noted, however, that it would continue to evaluate the reasonableness of the Fund’s expense structure as the Fund grows over time.
Management and Subadvisory Fees and Total Ordinary Operating Expenses
The Board evaluated the reasonableness of the fees to be paid under the Agreements and the Fund’s expected total ordinary operating expenses. The Board primarily considered the reasonableness of the management fee paid by the Fund to New York Life Investments, since the fees paid to Cornerstone Holdings are paid by New York Life Investments, not the Fund.
In assessing the reasonableness of the Fund’s fees and expenses, the Board primarily considered comparative data provided by Strategic Insight on the fees and expenses charged by similar mutual funds managed by other investment advisers. In addition, the Board considered information provided by New York Life Investments and Cornerstone Holdings on fees charged to other investment advisory clients, including institutional separate accounts and other funds with similar investment objectives as the Fund. The Board particularly considered differences in the contractual management fee schedules of the retail MainStay Funds and similarly-managed MainStay VP Portfolios, taking into account New York Life Investments’ rationale for any differences in fee schedules. The Board also took into account explanations provided by New York Life Investments about the different scope of services provided to mutual funds as compared with other investment advisory
clients. Additionally, the Board considered the impact of any contractual breakpoints, voluntary waivers and expense limitation arrangements on the Fund’s net management fee and expenses.
The Board noted that, outside of the Fund’s management fee and the fees charged under a share class’s Rule 12b-1 and/or shareholder services plans, a share class’s most significant “other expenses” are transfer agent fees. Transfer agent fees are charged to the Fund based on the number of shareholder accounts (a “per-account” fee) as compared with certain other fees (e.g., management fees), which are charged based on the Fund’s average net assets. The Board took into account information from New York Life Investments showing that the Fund’s transfer agent fee schedule is reasonable, including industry data showing that the per-account fees that NYLIM Service Company LLC, the Fund’s transfer agent, charges the Fund are within the range of per- account fees charged by transfer agents to other mutual funds. In addition, the Board considered NYLIM Service Company LLC’s profitability in connection with the transfer agent services it provides to the Fund.
The Board considered that, because the Fund’s transfer agent fees are billed on a per-account basis, the impact of transfer agent fees on a share class’s expense ratio may be more significant in cases where the share class has a high number of accounts with limited assets (i.e., small accounts). The Board observed that transfer agent fees are a significant portion of total expenses of many Funds in the MainStay Group of Funds. The impact of transfer agent fees on the expense ratios of these MainStay Funds tend to be greater than for other open-end retail funds, because the MainStay Group of Funds generally has a significant number of small accounts relative to competitor funds. The Board acknowledged the role that the MainStay Group of Funds historically has played in serving the investment needs of New York Life Insurance Company (“New York Life”) policyholders, who often maintain smaller account balances than other fund investors. The Board also acknowledged measures that it and New York Life Investments have taken in recent years to mitigate the effect of small accounts on the expense ratios of Fund share classes, including: (i) encouraging New York Life agents to consolidate multiple small accounts held by the same investor into one MainStay Asset Allocation Fund account; (ii) increasing investment minimums from $500 to $1,000 in 2003; (iii) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iv) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (v) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (vi) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vii) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. In addition, the Board acknowledged New York Life Investments’ efforts to encourage intermediaries to consolidate small accounts in multiple Funds held by the same investor into a single Asset Allocation Fund account, if appropriate under the circumstances, in an effort to mitigate the effect of small accounts on the Funds in the MainStay Group of Funds.
After considering all of the factors outlined above, the Board concluded that the Fund’s management and subadvisory fees and total ordinary
mainstayinvestments.com | 29 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
operating expenses were within a range that is competitive and, within the context of the Board’s overall conclusions regarding the Agreements, support a conclusion that these fees and expenses are reasonable.
Conclusion
On the basis of the information provided to it and its evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the Agreements.
30 | MainStay Common Stock Fund |
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 |
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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 Fund
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 Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund1
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund2
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 LLC3
New York, New York
Cornerstone Capital Management LLC3
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC3
Chicago, Illinois
MacKay Shields LLC3
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC3
New York, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP4
PricewaterhouseCoopers LLP5
1. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
2. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
3. An affiliate of New York Life Investment Management LLC.
4. For all Funds listed above except MainStay Marketfield Fund.
5. For MainStay Marketfield Fund only.
Not part of the Semiannual 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.
©2014 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-34039 MS164-14 | MSCS10-06/14 NL021 |
MainStay Large Cap Growth Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2014
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Message from the President
Stocks and bonds generally advanced during the six months ended April 30, 2014, but results varied across different markets, asset classes and regions.
According to Russell data, mid-capitalization stocks tended to provide the strongest returns, outperforming large-cap stocks overall. As a group, small-cap stocks tended to underperform their larger-capitalization counterparts. Value outperformed growth at all capitalization levels as the 2013 market rally ended and investors moved from rapid-growth stocks toward utilities, real estate investment trusts (REITs) and other stocks that tend to be more defensive.
The reporting period opened with investors still reacting to the government shutdown and asking questions about the debt ceiling and the so-called fiscal cliff. Even so, U.S. stocks climbed relatively steadily through the end of 2013. After reaching a high point in January, the U.S. stock market tumbled to its low point for the reporting period in early February, hurt by weaker economic data and severe weather in the Northeast. From that point, domestic stocks generally recovered, advancing to new highs before the end of the reporting period.
International stocks benefited from the European Central Bank’s accommodative policies and an improving European economy, despite high levels of debt and unemployment. In Japan, a weaker currency and accommodative central bank policies had fueled a stock rally in 2013, but Japanese stocks began to decline in mid-January on concerns about the Prime Minister’s economic policies, including a substantial increase in the nation’s sales tax. International stocks also felt the effects of tensions in Ukraine and slowing growth in China.
Throughout the reporting period, the Federal Reserve held the federal funds target rate in a range close to zero. On December 18, 2013, the Federal Open Market Committee announced plans to begin tapering its direct security purchases (widely known as quantitative easing) in January of 2014. The announcement led investors to anticipate rising interest rates.
According to U.S. Department of the Treasury data, yields did rise through the early part of 2014. After peaking early in the year, however, U.S. Treasury yields generally trended downward. As of April 30, 2014, yields at the short and long ends of the U.S. Treasury yield curve1 were slightly lower than at the beginning of the reporting period, while yields on 1- to 10-year U.S. Treasury securities had moved slightly higher.
In harmony with these trends, extensive tax-loss harvesting in the municipal market tended to push municipal yields higher in November and December. Redemptions slowed as the new year progressed, and a scarcity of municipal supply pushed municipal bond prices higher—and yields lower—during the last four months of the reporting period.
Throughout the reporting period, our portfolio managers pursued the investment objectives of their respective Funds within the investment strategies outlined in the Prospectus. Using time-tested security-selection, portfolio-monitoring and risk-management techniques, they sought to maximize exposure to potential opportunities while seeking to minimize exposure to unnecessary risks.
The report that follows provides additional information about the decisions, securities and market forces that affected your MainStay Fund during the six months ended April 30, 2014. We encourage you to read this information carefully. It can help you evaluate your diversification and assess your asset allocation as you pursue your long-range financial goals.
We thank you for choosing MainStay Funds, and we look forward to a lasting and productive relationship.
Sincerely,
Stephen P. Fisher
1. | 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 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. Past performance is no guarantee of future results.
Not part of the Semiannual 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 Period Ended April 30, 2014
Class | Sales Charge | Six Months | One Year | Five Years | Ten Years | Gross Expense Ratio2 | ||||||||||||||||||
Investor Class Shares3 | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges |
| –3.81 1.79 | %
|
| 12.38 18.92 | %
|
| 15.43 16.75 | %
|
| 7.91 8.52 | %
|
| 1.08 1.08 | %
| |||||||
Class A Shares4 | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges |
| –3.82 1.78 |
|
| 12.27 18.80 |
|
| 15.49 16.81 |
|
| 7.96 8.57 |
|
| 1.02 1.02 |
| |||||||
Class B Shares5 | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges |
| –3.34 1.47 |
|
| 12.97 17.97 |
|
| 15.62 15.84 |
|
| 7.70 7.70 |
|
| 1.83 1.83 |
| |||||||
Class C Shares5 | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges |
| 0.39 1.35 |
|
| 16.99 17.99 |
|
| 15.87 15.87 |
|
| 7.69 7.69 |
|
| 1.83 1.83 |
| |||||||
Class I Shares5 | No Sales Charge | 1.92 | 19.14 | 17.16 | 8.98 | 0.77 | ||||||||||||||||||
Class R1 Shares5 | No Sales Charge | 1.94 | 19.13 | 17.02 | 8.84 | 0.87 | ||||||||||||||||||
Class R2 Shares5 | No Sales Charge | 1.78 | 18.78 | 16.73 | 8.57 | 1.12 | ||||||||||||||||||
Class R3 Shares6 | No Sales Charge | 1.59 | 18.39 | 16.40 | 8.28 | 1.37 | ||||||||||||||||||
Class R6 Shares7 | No Sales Charge | 2.02 | 19.26 | 17.18 | 8.99 | 0.62 |
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 through June 16, 2013. 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 | Six Months | One Year | Five Years | Ten Years | ||||||||||||
Russell 1000® Growth Index8 | 6.95 | % | 20.66 | % | 19.47 | % | 7.99 | % | ||||||||
S&P 500® Index9 | 8.36 | 20.44 | 19.14 | 7.67 | ||||||||||||
Average Lipper Large-Cap Growth Fund10 | 4.73 | 20.17 | 17.26 | 7.20 |
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 November 1, 2013, to April 30, 2014, 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 November 1, 2013, to April 30, 2014.
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 April 30, 2014. 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 11/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/14 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/14 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,017.90 | $ | 5.20 | $ | 1,019.60 | $ | 5.21 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,017.80 | $ | 5.00 | $ | 1,019.80 | $ | 5.01 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,014.70 | $ | 8.94 | $ | 1,015.90 | $ | 8.95 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,013.50 | $ | 8.94 | $ | 1,015.90 | $ | 8.95 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,019.20 | $ | 3.75 | $ | 1,021.10 | $ | 3.76 | ||||||||||
Class R1 Shares | $ | 1,000.00 | $ | 1,019.40 | $ | 4.26 | $ | 1,020.60 | $ | 4.26 | ||||||||||
Class R2 Shares | $ | 1,000.00 | $ | 1.017.80 | $ | 5.50 | $ | 1,019.30 | $ | 5.51 | ||||||||||
Class R3 Shares | $ | 1,000.00 | $ | 1,015.90 | $ | 6.75 | $ | 1,018.10 | $ | 6.76 | ||||||||||
Class R6 Shares | $ | 1,000.00 | $ | 1,020.20 | $ | 3.11 | $ | 1,021.70 | $ | 3.11 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.04% for Investor Class, 1.00% for Class A, 1.79% for Class B and C, 0.75% for Class I, 0.85% for Class R1, 1.10% for Class R2, 1.35% for Class R3 and 0.62% for Class R6) multiplied by the average account value over the period, divided by 365 and multiplied by 181 (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 April 30, 2014 (Unaudited)
Biotechnology | 8.8 | % | ||
Internet Software & Services | 8.7 | |||
IT Services | 6.7 | |||
Media | 6.4 | |||
Internet & Catalog Retail | 5.1 | |||
Software | 4.7 | |||
Capital Markets | 4.4 | |||
Road & Rail | 4.4 | |||
Chemicals | 4.3 | |||
Hotels, Restaurants & Leisure | 3.5 | |||
Technology Hardware, Storage & Peripherals | 3.4 | |||
Oil, Gas & Consumable Fuels | 3.3 | |||
Health Care Providers & Services | 3.1 | |||
Aerospace & Defense | 2.9 | |||
Industrial Conglomerates | 2.7 | |||
Textiles, Apparel & Luxury Goods | 2.7 | |||
Food & Staples Retailing | 2.4 |
Pharmaceuticals | 2.2 | % | ||
Semiconductors & Semiconductor Equipment | 2.2 | |||
Specialty Retail | 2.1 | |||
Multiline Retail | 2.0 | |||
Real Estate Investment Trusts | 2.0 | |||
Energy Equipment & Services | 1.7 | |||
Communications Equipment | 1.5 | |||
Health Care Technology | 1.5 | |||
Wireless Telecommunication Services | 1.5 | |||
Auto Components | 1.3 | |||
Consumer Finance | 1.3 | |||
Professional Services | 1.3 | |||
Airlines | 1.0 | |||
Short-Term Investment | 1.1 | |||
Other Assets, Less Liabilities | –0.2 | |||
|
| |||
100.0 | % | |||
|
|
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
Top Ten Holdings as of April 30, 2014 (excluding short-term investment) (Unaudited)
1. | Union Pacific Corp. |
2. | Visa, Inc. Class A |
3. | Apple, Inc. |
4. | Monsanto Co. |
5. | priceline.com, Inc. |
6. | Danaher Corp. |
7. | Starbucks Corp. |
8. | Celgene Corp. |
9. | Twenty-First Century Fox, Inc. Class A |
10. | Salesforce.com, Inc. |
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 six months ended April 30, 2014?
Excluding all sales charges, MainStay Large Cap Growth Fund returned 1.79% for Investor Class shares, 1.78% for Class A shares, 1.47% for Class B shares and 1.35% for Class C shares for the six months ended April 30, 2014. Over the same period, the Fund returned 1.92% for Class I shares, 1.94% for Class R1 shares, 1.78% for Class R2 shares, 1.59% for Class R3 shares and 2.02% for Class R6 shares. For the six months ended April 30, 2014, all share classes underperformed the 6.95% return of the Russell 1000® Growth Index,1 which is the Fund’s broad-based securities-market index, and the 4.73% return of the average Lipper2 large-cap growth fund. See page 5 for Fund returns with applicable sales charges.
Were there any changes to the Fund during the reporting period?
Effective January 15, 2014, MainStay Large Cap Growth Fund reopened to new investors subject to applicable investment minimums and eligibility requirements.
What factors affected the Fund’s relative performance during the reporting period?
The Fund’s performance relative to the Russell 1000® Growth Index was primarily driven by stock selection, which contributed positively in three sectors but detracted in six sectors. (Contributions take weightings and total returns into account.)
Returns dropped sharply in the last six weeks of the reporting period, as the broad equity market saw a dramatic sentiment shift. Highly valued, high-growth companies experienced a quick and indiscriminate sell-off. Because our investment discipline includes careful analysis of valuation, the Fund was not skewed toward companies with the highest valuations. In fact, of the three types of earnings growth we strive to maintain in the Fund, the newer and faster-growth category was at the low end of our range at 27% of total assets, followed by quality cyclicals at 33% and consistent growers at nearly 40%. This positioning should have steadied performance during the mar- ket dislocation at the end of the reporting period. Unfortunately, as so often occurs over the short term, the market became indiscriminate, and many Fund holdings that we believe have reasonable valuations sold off, including American Tower, Visa, Liberty Global, Monsanto and Cognizant Technology. We added to the Fund’s positions in several of these stocks in light of the disconnect between their strong fundamentals and their recent price declines. In addition, we believe that the U.S. economy is likely to rebound following the weather-related slowdown in the first quarter of 2014. We have also added to Fund holdings that
we believe are positioned to benefit from improving consumer and capital spending, such as Oracle, Dollar General, Twenty-First Century Fox and Delta.
During the reporting period, which sectors were the strongest positive contributors to the Fund’s relative performance and which sectors were particularly weak?
The industrials and telecommunications services sectors made the strongest positive contributions to the Fund’s performance relative to the Russell 1000® Growth Index, with stock selection as the primary driver. Consumer staples was also a positive contributor to relative performance because the Fund held a significantly underweight position in the sector.
The biggest detractors from the Fund’s performance relative to the Index were consumer discretionary, information technology and health care. Stock selection drove underperformance in each of these sectors. An overweight position in consumer discretionary also contributed to that sector’s underperformance.
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 transportation company Union Pacific. The company executed well in recent quarters, despite weather disruptions that affected the rails. Freight volumes were ahead of expectations, and Union Pacific’s cost controls led to margin expansion. Biopharmaceutical company Alexion Pharmaceuticals was also a strong contributor. The company’s revenues and earnings exceeded expectations, driven by strong demand for Soliris, the company’s treatment for certain rare diseases. Personal computing company Apple was another strong contributor. The company beat consensus iPhone volume expectations and committed to returning $30 billion more to shareholders than previously announced share repurchases and dividend payments.
Beauty retailer Ulta Salons was the most substantial detractor from the Fund’s absolute performance. Management guided new store growth downward and indicated near-term margin pressure from other retailers of cosmetics. In our view, however, even with the revised guidance, Ulta Salons remains a high growth specialty retailer. Online retail shopping provider Amazon.com also detracted. The company’s revenue growth remained strong at about 20%, but near-term margins faced pressure as the company continued to invest in its growth.
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 |
Coffee and tea seller Starbucks also detracted from the Fund’s absolute performance. The company’s same-store sales were consistently strong, and new food offerings were well received. The company’s near-term operating margins, however, faced pressure because of a spike in coffee bean prices toward the end of the reporting period.
Did the Fund make any significant purchases or sales during the reporting period?
We initiated a Fund position in hospitality service provider Hilton Worldwide when the company returned to the public markets in December 2013. The company benefited from better room prices resulting from increased demand while the supply of new hotel rooms remained limited. We also initiated a Fund position in audience measurement and analytics company Nielsen Holdings, which has a near monopoly in its businesses and also benefited from increased usage of its services by Internet companies such as Google and Facebook.
We sold the Fund’s position in health care software company Athena Health because the stock posted strong returns and we viewed it as fully valued. We also sold the Fund’s position in athletic apparel maker Lululemon ahead of its two most recently announced earnings periods, as our research had indicated weakening demand for the company’s products.
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 health care and financials sectors. We increased the Fund’s weighting in the industrials sector, moving from an underweight position to one that was nearly in line with the Russell 1000® Growth Index.
We reduced the Fund’s allocation to the consumer discretionary sector but still maintained an overweight position relative to the Russell 1000® Growth Index. We decreased the Fund’s position in the energy sector, moving from an overweight to a nearly neutral position relative to the Index. We also reduced the Fund’s allocation to consumer staples, where the Fund already had a long-standing substantially underweight position relative Russell 1000® Growth Index.
How was the Fund positioned at the end of the reporting period?
As of April 30, 2014, the Fund held overweight positions relative to the Russell 1000® Growth Index in the consumer discretionary, financials and health care sectors. As of the same date, the Fund held underweight positions relative to the Russell 1000® Growth Index in the consumer staples, telecommunication services and materials 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 Large Cap Growth Fund |
Portfolio of Investments April 30, 2014 (Unaudited)
Shares | Value | |||||||
Common Stocks 99.1%† | ||||||||
Aerospace & Defense 2.9% |
| |||||||
Precision Castparts Corp. | 1,322,800 | $ | 334,787,452 | |||||
United Technologies Corp. | 1,873,400 | 221,679,422 | ||||||
|
| |||||||
556,466,874 | ||||||||
|
| |||||||
Airlines 1.0% |
| |||||||
Delta Air Lines, Inc. | 5,180,900 | 190,812,547 | ||||||
|
| |||||||
Auto Components 1.3% |
| |||||||
BorgWarner, Inc. | 3,968,400 | 246,596,376 | ||||||
|
| |||||||
Biotechnology 8.8% |
| |||||||
Alexion Pharmaceuticals, Inc. (a) | 1,763,900 | 279,048,980 | ||||||
Amgen, Inc. | 2,588,400 | 289,253,700 | ||||||
Biogen Idec, Inc. (a) | 721,040 | 207,025,005 | ||||||
BioMarin Pharmaceutical, Inc. (a) | 2,927,350 | 170,459,590 | ||||||
¨Celgene Corp. (a) | 3,303,600 | 485,662,236 | ||||||
Gilead Sciences, Inc. (a) | 3,003,100 | 235,713,319 | ||||||
|
| |||||||
1,667,162,830 | ||||||||
|
| |||||||
Capital Markets 4.4% |
| |||||||
BlackRock, Inc. | 1,130,500 | 340,280,500 | ||||||
Charles Schwab Corp. (The) | 8,047,700 | 213,666,435 | ||||||
Morgan Stanley | 8,765,000 | 271,101,450 | ||||||
|
| |||||||
825,048,385 | ||||||||
|
| |||||||
Chemicals 4.3% |
| |||||||
Ecolab, Inc. | 1,994,900 | 208,746,336 | ||||||
¨Monsanto Co. | 5,410,000 | 598,887,000 | ||||||
|
| |||||||
807,633,336 | ||||||||
|
| |||||||
Communications Equipment 1.5% |
| |||||||
QUALCOMM, Inc. | 3,639,500 | 286,465,045 | ||||||
|
| |||||||
Consumer Finance 1.3% |
| |||||||
American Express Co. | 2,731,400 | 238,806,302 | ||||||
|
| |||||||
Energy Equipment & Services 1.7% |
| |||||||
Schlumberger, Ltd. | 3,103,200 | 315,129,960 | ||||||
|
| |||||||
Food & Staples Retailing 2.4% |
| |||||||
Costco Wholesale Corp. | 2,036,000 | 235,524,480 | ||||||
CVS Caremark Corp. | 2,938,700 | 213,702,264 | ||||||
|
| |||||||
449,226,744 | ||||||||
|
| |||||||
Health Care Providers & Services 3.1% |
| |||||||
Express Scripts Holding Co. (a) | 3,052,400 | 203,228,792 | ||||||
McKesson Corp. | 1,361,700 | 230,386,023 | ||||||
UnitedHealth Group, Inc. | 2,071,300 | 155,430,352 | ||||||
|
| |||||||
589,045,167 | ||||||||
|
|
Shares | Value | |||||||
Health Care Technology 1.5% |
| |||||||
Cerner Corp. (a) | 4,090,000 | $ | 209,817,000 | |||||
IMS Health Holdings, Inc. (a) | 3,189,000 | 75,706,860 | ||||||
|
| |||||||
285,523,860 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure 3.5% |
| |||||||
Hilton Worldwide Holdings, Inc. (a) | 8,008,200 | 174,819,006 | ||||||
¨Starbucks Corp. | 6,996,000 | 494,057,520 | ||||||
|
| |||||||
668,876,526 | ||||||||
|
| |||||||
Industrial Conglomerates 2.7% |
| |||||||
¨Danaher Corp. | 6,892,800 | 505,793,664 | ||||||
|
| |||||||
Internet & Catalog Retail 5.1% |
| |||||||
Amazon.com, Inc. (a) | 800,565 | 243,475,833 | ||||||
¨priceline.com, Inc. (a) | 507,600 | 587,673,900 | ||||||
TripAdvisor, Inc. (a) | 1,557,500 | 125,752,550 | ||||||
|
| |||||||
956,902,283 | ||||||||
|
| |||||||
Internet Software & Services 8.7% |
| |||||||
Baidu, Inc., Sponsored ADR (a) | 2,039,450 | 313,769,383 | ||||||
eBay, Inc. (a) | 2,662,400 | 137,992,192 | ||||||
Facebook, Inc. Class A (a) | 6,575,600 | 393,089,368 | ||||||
Google, Inc. Class A (a) | 748,500 | 400,357,680 | ||||||
Google, Inc. Class C (a) | 748,500 | 394,205,010 | ||||||
|
| |||||||
1,639,413,633 | ||||||||
|
| |||||||
IT Services 6.7% |
| |||||||
Cognizant Technology Solutions Corp. Class A (a) | 4,685,800 | 224,473,249 | ||||||
MasterCard, Inc. Class A | 4,944,400 | 363,660,620 | ||||||
¨Visa, Inc. Class A | 3,367,700 | 682,329,697 | ||||||
|
| |||||||
1,270,463,566 | ||||||||
|
| |||||||
Media 6.4% |
| |||||||
CBS Corp. Class B | 4,569,000 | 263,905,440 | ||||||
Liberty Global PLC Class C (a) | 7,150,200 | 274,782,186 | ||||||
¨Twenty-First Century Fox, Inc. Class A | 13,532,000 | 433,294,640 | ||||||
Walt Disney Co. (The) | 3,003,100 | 238,265,954 | ||||||
|
| |||||||
1,210,248,220 | ||||||||
|
| |||||||
Multiline Retail 2.0% |
| |||||||
Dollar General Corp. (a) | 6,798,900 | 383,729,916 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels 3.3% |
| |||||||
Noble Energy, Inc. | 3,389,200 | 243,276,776 | ||||||
Pioneer Natural Resources Co. | 1,044,230 | 201,818,332 | ||||||
Range Resources Corp. | 2,026,900 | 183,333,105 | ||||||
|
| |||||||
628,428,213 | ||||||||
|
| |||||||
Pharmaceuticals 2.2% |
| |||||||
AbbVie, Inc. | 1,853,400 | 96,525,072 |
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings, as of April 30, 2014, 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 April 30, 2014 (Unaudited) (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Pharmaceuticals (continued) |
| |||||||
Valeant Pharmaceuticals International, Inc. (a) | 635,100 | $ | 84,919,221 | |||||
Zoetis, Inc. | 7,507,700 | 227,183,002 | ||||||
|
| |||||||
408,627,295 | ||||||||
|
| |||||||
Professional Services 1.3% |
| |||||||
Nielsen Holdings N.V. | 5,353,650 | 251,353,868 | ||||||
|
| |||||||
Real Estate Investment Trusts 2.0% |
| |||||||
American Tower Corp. | 4,504,600 | 376,224,192 | ||||||
|
| |||||||
Road & Rail 4.4% |
| |||||||
¨Union Pacific Corp. | 4,418,800 | 841,472,084 | ||||||
|
| |||||||
Semiconductors & Semiconductor Equipment 2.2% |
| |||||||
Applied Materials, Inc. | 9,988,800 | 190,386,528 | ||||||
Arm Holdings PLC, Sponsored ADR | 5,112,400 | 232,716,448 | ||||||
|
| |||||||
423,102,976 | ||||||||
|
| |||||||
Software 4.7% |
| |||||||
Oracle Corp. | 7,830,600 | 320,114,928 | ||||||
¨Salesforce.com, Inc. (a) | 7,858,100 | 405,870,865 | ||||||
Workday, Inc. Class A (a) | 2,188,940 | 159,945,846 | ||||||
|
| |||||||
885,931,639 | ||||||||
|
| |||||||
Specialty Retail 2.1% |
| |||||||
Lowe’s Companies, Inc. | 4,676,200 | 214,684,342 | ||||||
Ulta Salon Cosmetics & Fragrance, Inc. (a) | 2,145,100 | 188,146,721 | ||||||
|
| |||||||
402,831,063 | ||||||||
|
| |||||||
Technology, Hardware, Storage & Peripherals 3.4% |
| |||||||
¨Apple, Inc. | 1,090,470 | 643,475,442 | ||||||
|
| |||||||
Textiles, Apparel & Luxury Goods 2.7% |
| |||||||
Michael Kors Holdings, Ltd. (a) | 2,657,700 | 242,382,240 | ||||||
NIKE, Inc. Class B | 3,825,400 | 279,062,930 | ||||||
|
| |||||||
521,445,170 | ||||||||
|
| |||||||
Wireless Telecommunication Services 1.5% |
| |||||||
SBA Communications Corp. Class A (a) | 3,135,200 | 281,415,552 | ||||||
|
| |||||||
Total Common Stocks |
| 18,757,652,728 | ||||||
|
| |||||||
Principal Amount | Value | |||||||
Short-Term Investment 1.1% | ||||||||
Repurchase Agreement 1.1% |
| |||||||
State Street Bank and Trust Co. 0.00%, dated 4/30/14 | $ | 205,860,141 | $ | 205,860,141 | ||||
|
| |||||||
Total Short-Term Investment |
| 205,860,141 | ||||||
|
| |||||||
Total Investments (Cost $13,451,067,916) (b) | 100.2 | % | 18,963,512,869 | |||||
Other Assets, Less Liabilities | (0.2 | ) | (35,189,597 | ) | ||||
Net Assets | 100.0 | % | $ | 18,928,323,272 |
(a) | Non-income producing security. |
(b) | As of April 30, 2014, cost was $13,469,172,191 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 5,706,322,590 | ||
Gross unrealized depreciation | (211,981,912 | ) | ||
|
| |||
Net unrealized appreciation | $ | 5,494,340,678 | ||
|
|
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 April 30, 2014, 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 | $ | 18,757,652,728 | $ | — | $ | — | $ | 18,757,652,728 | ||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 205,860,141 | — | 205,860,141 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | 18,757,652,728 | $ | 205,860,141 | $ | — | $ | 18,963,512,869 | ||||||||
|
|
|
|
|
|
|
|
(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 period ended April 30, 2014, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
As of April 30, 2014, 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 April 30, 2014 (Unaudited)
Assets | ||||
Investment in securities, at value (identified cost $13,451,067,916) | $ | 18,963,512,869 | ||
Receivables: | ||||
Investment securities sold | 226,473,534 | |||
Fund shares sold | 38,218,820 | |||
Dividends | 5,518,041 | |||
Other assets | 229,891 | |||
|
| |||
Total assets | 19,233,953,155 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 228,314,408 | |||
Fund shares redeemed | 61,648,281 | |||
Manager (See Note 3) | 9,747,268 | |||
Transfer agent (See Note 3) | 4,158,851 | |||
NYLIFE Distributors (See Note 3) | 994,448 | |||
Shareholder communication | 476,780 | |||
Professional fees | 128,600 | |||
Custodian | 32,252 | |||
Trustees | 24,596 | |||
Accrued expenses | 104,399 | |||
|
| |||
Total liabilities | 305,629,883 | |||
|
| |||
Net assets | $ | 18,928,323,272 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 19,095,583 | ||
Additional paid-in capital | 12,398,116,207 | |||
|
| |||
12,417,211,790 | ||||
Net investment loss | (1,774,631 | ) | ||
Accumulated net realized gain (loss) on investments | 1,000,441,160 | |||
Net unrealized appreciation (depreciation) on investments | 5,512,444,953 | |||
|
| |||
Net assets | $ | 18,928,323,272 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 179,528,800 | ||
|
| |||
Shares of beneficial interest outstanding | 18,690,446 | |||
|
| |||
Net asset value per share outstanding | $ | 9.61 | ||
Maximum sales charge (5.50% of offering price) | 0.56 | |||
|
| |||
Maximum offering price per share outstanding | $ | 10.17 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 1,522,954,233 | ||
|
| |||
Shares of beneficial interest outstanding | 157,625,812 | |||
|
| |||
Net asset value per share outstanding | $ | 9.66 | ||
Maximum sales charge (5.50% of offering price) | 0.56 | |||
|
| |||
Maximum offering price per share outstanding | $ | 10.22 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 53,045,747 | ||
|
| |||
Shares of beneficial interest outstanding | 5,941,525 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 8.93 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 389,128,646 | ||
|
| |||
Shares of beneficial interest outstanding | 43,625,120 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 8.92 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 13,008,849,008 | ||
|
| |||
Shares of beneficial interest outstanding | 1,299,603,082 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 10.01 | ||
|
| |||
Class R1 | ||||
Net assets applicable to outstanding shares | $ | 2,141,341,449 | ||
|
| |||
Shares of beneficial interest outstanding | 216,555,936 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.89 | ||
|
| |||
Class R2 | ||||
Net assets applicable to outstanding shares | $ | 960,113,863 | ||
|
| |||
Shares of beneficial interest outstanding | 99,270,211 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.67 | ||
|
| |||
Class R3 | ||||
Net assets applicable to outstanding shares | $ | 175,303,220 | ||
|
| |||
Shares of beneficial interest outstanding | 18,522,421 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.46 | ||
|
| |||
Class R6 | ||||
Net assets applicable to outstanding shares | $ | 498,058,306 | ||
|
| |||
Shares of beneficial interest outstanding | 49,723,790 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 10.02 | ||
|
|
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 six months ended April 30, 2014 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Dividends | $ | 78,952,537 | ||
|
| |||
Expenses | ||||
Manager (See Note 3) | 58,761,422 | |||
Transfer agent (See Note 3) | 12,433,525 | |||
Distribution/Service—Investor Class (See Note 3) | 245,112 | |||
Distribution/Service—Class A (See Note 3) | 2,001,053 | |||
Distribution/Service—Class B (See Note 3) | 289,136 | |||
Distribution/Service—Class C (See Note 3) | 2,026,387 | |||
Distribution/Service—Class R2 (See Note 3) | 1,257,937 | |||
Distribution/Service—Class R3 (See Note 3) | 500,766 | |||
Shareholder service (See Note 3) | 1,726,338 | |||
Shareholder communication | 565,494 | |||
Professional fees | 348,669 | |||
Trustees | 173,518 | |||
Registration | 107,456 | |||
Custodian | 46,256 | |||
Miscellaneous | 244,099 | |||
|
| |||
Total expenses | 80,727,168 | |||
|
| |||
Net investment income (loss) | (1,774,631 | ) | ||
|
| |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments | 1,021,246,850 | |||
Net change in unrealized appreciation (depreciation) on investments | (645,866,488 | ) | ||
|
| |||
Net realized and unrealized gain (loss) on investments | 375,380,362 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 373,605,731 | ||
|
|
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 six months ended April 30, 2014 (Unaudited) and the year ended October 31, 2013
2014 | 2013 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | (1,774,631 | ) | $ | 52,579,772 | |||
Net realized gain (loss) on investments (a) | 1,021,246,850 | 1,477,017,481 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (645,866,488 | ) | 3,488,600,418 | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 373,605,731 | 5,018,197,671 | ||||||
|
| |||||||
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 | (10,240,865 | ) | — | |||||
Class A | (79,083,265 | ) | — | |||||
Class B | (3,166,489 | ) | — | |||||
Class C | (21,440,854 | ) | — | |||||
Class I | (633,346,919 | ) | — | |||||
Class R1 | (109,832,339 | ) | — | |||||
Class R2 | (50,218,864 | ) | — | |||||
Class R3 | (11,049,456 | ) | — | |||||
Class R6 | (15,500,740 | ) | — | |||||
|
| |||||||
(933,879,791 | ) | — | ||||||
|
| |||||||
Total dividends and distributions to shareholders | (933,879,791 | ) | (40,289,124 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 2,467,189,196 | 3,626,295,650 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 732,634,409 | 30,730,710 | ||||||
Cost of shares redeemed (b) | (2,924,882,825 | ) | (5,890,648,167 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | 274,940,780 | (2,233,621,807 | ) | |||||
|
| |||||||
Net increase (decrease) in net assets | (285,333,280 | ) | 2,744,286,740 |
2014 | 2013 | |||||||
Net Assets | ||||||||
Beginning of period | $ | 19,213,656,552 | $ | 16,469,369,812 | ||||
|
| |||||||
End of period | $ | 18,928,323,272 | $ | 19,213,656,552 | ||||
|
| |||||||
Undistributed (distributions in excess of) net investment income at end of period | $ | (1,774,631 | ) | $ | — | |||
|
|
(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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Investor Class | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||
Net asset value at beginning of period | $ | 9.93 | $ | 7.52 | $ | 7.21 | $ | 6.55 | $ | 5.53 | $ | 4.70 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | (0.01 | ) | 0.01 | (0.02 | ) | (0.03 | ) | (0.04 | ) | (0.03 | ) | |||||||||||||
Net realized and unrealized gain (loss) on investments | 0.19 | 2.40 | 0.49 | 0.69 | 1.06 | 0.86 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 0.18 | 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 | (0.50 | ) | — | (0.16 | ) | — | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total dividends and distributions | (0.50 | ) | (0.00 | )‡ | (0.16 | ) | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 9.61 | $ | 9.93 | $ | 7.52 | $ | 7.21 | $ | 6.55 | $ | 5.53 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 1.79 | % (c) | 32.13 | % | 6.68 | % | 10.08 | % | 18.44 | % | 17.66 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | (0.23 | %)†† | 0.09 | % | (0.28 | %) | (0.43 | %) | (0.64 | %) | (0.62 | %) | ||||||||||||
Net expenses | 1.04 | % †† | 1.08 | % | 1.10 | % | 1.15 | % | 1.27 | % | 1.45 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.04 | % †† | 1.08 | % | 1.10 | % | 1.15 | % | 1.28 | % | 1.45 | % | ||||||||||||
Portfolio turnover rate | 31 | % | 74 | % | 60 | % | 52 | % | 91 | % | 62 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 179,529 | $ | 211,111 | $ | 199,156 | $ | 130,140 | $ | 93,733 | $ | 59,499 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Class A | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||
Net asset value at beginning of period | $ | 9.98 | $ | 7.55 | $ | 7.24 | $ | 6.58 | $ | 5.54 | $ | 4.70 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | (0.01 | ) | 0.01 | (0.02 | ) | (0.02 | ) | (0.03 | ) | (0.02 | ) | |||||||||||||
Net realized and unrealized gain (loss) on investments | 0.19 | 2.42 | 0.49 | 0.68 | 1.07 | 0.86 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 0.18 | 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 | (0.50 | ) | — | (0.16 | ) | — | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total dividends and distributions | (0.50 | ) | (0.00 | )‡ | (0.16 | ) | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 9.66 | $ | 9.98 | $ | 7.55 | $ | 7.24 | $ | 6.58 | $ | 5.54 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 1.78 | % (c) | 32.09 | % | 6.79 | % | 10.03 | % | 18.77 | % | 17.87 | % (d) | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | (0.18 | %)†† | 0.17 | % | (0.20 | %) | (0.35 | %) | (0.52 | %) | (0.43 | %) | ||||||||||||
Net expenses | 1.00 | % †† | 1.02 | % | 1.04 | % | 1.06 | % | 1.17 | % | 1.21 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.00 | % †† | 1.02 | % | 1.04 | % | 1.07 | % | 1.18 | % | 1.24 | % | ||||||||||||
Portfolio turnover rate | 31 | % | 74 | % | 60 | % | 52 | % | 91 | % | 62 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 1,522,954 | $ | 1,615,768 | $ | 1,611,374 | $ | 1,887,326 | $ | 1,131,968 | $ | 1,662,622 |
* | Unaudited. |
†† | 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. |
(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 | 17 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Class B | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||
Net asset value at beginning of period | $ | 9.29 | $ | 7.09 | $ | 6.86 | $ | 6.28 | $ | 5.34 | $ | 4.57 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | (0.04 | ) | (0.05 | ) | (0.07 | ) | (0.08 | ) | (0.08 | ) | (0.06 | ) | ||||||||||||
Net realized and unrealized gain (loss) on investments | 0.18 | 2.25 | 0.46 | 0.66 | 1.02 | 0.83 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 0.14 | 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 | (0.50 | ) | — | (0.16 | ) | — | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total dividends and distributions | (0.50 | ) | (0.00 | )‡ | (0.16 | ) | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 8.93 | $ | 9.29 | $ | 7.09 | $ | 6.86 | $ | 6.28 | $ | 5.34 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 1.47 | % (c) | 30.93 | % | 5.98 | % | 9.24 | % (d) | 17.60 | % (d) | 16.85 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | (0.98 | %)†† | (0.65 | %) | (1.01 | %) | (1.18 | %) | (1.38 | %) | (1.35 | %) | ||||||||||||
Net expenses | 1.79 | % †† | 1.83 | % | 1.84 | % | 1.90 | % | 2.02 | % | 2.20 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.79 | % †† | 1.83 | % | 1.85 | % | 1.90 | % | 2.03 | % | 2.21 | % | ||||||||||||
Portfolio turnover rate | 31 | % | 74 | % | 60 | % | 52 | % | 91 | % | 62 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 53,046 | $ | 59,671 | $ | 58,392 | $ | 72,591 | $ | 82,590 | $ | 63,327 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
(d) | Total investment returns may reflect adjustments to conform to generally accepted accounting principles. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Class C | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||
Net asset value at beginning of period | $ | 9.29 | $ | 7.09 | $ | 6.85 | $ | 6.28 | $ | 5.33 | $ | 4.57 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | (0.05 | ) | (0.05 | ) | (0.07 | ) | (0.08 | ) | (0.08 | ) | (0.07 | ) | ||||||||||||
Net realized and unrealized gain (loss) on investments | 0.18 | 2.25 | 0.47 | 0.65 | 1.03 | 0.83 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 0.13 | 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 | (0.50 | ) | — | (0.16 | ) | — | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total dividends and distributions | (0.50 | ) | (0.00 | )‡ | (0.16 | ) | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 8.92 | $ | 9.29 | $ | 7.09 | $ | 6.85 | $ | 6.28 | $ | 5.33 | ||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 1.35 | % (c) | 31.12 | % | 5.99 | % | 9.08 | % | 17.82 | % (d) | 16.63 | % (d) | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | (0.98 | %)†† | (0.66 | %) | (1.02 | %) | (1.18 | %) | (1.39 | %) | (1.38 | %) | ||||||||||||
Net expenses | 1.79 | % †† | 1.83 | % | 1.85 | % | 1.89 | % | 2.02 | % | 2.19 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.79 | % †† | 1.83 | % | 1.85 | % | 1.90 | % | 2.03 | % | 2.20 | % | ||||||||||||
Portfolio turnover rate | 31 | % | 74 | % | 60 | % | 52 | % | 91 | % | 62 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 389,129 | $ | 403,968 | $ | 375,521 | $ | 380,186 | $ | 262,799 | $ | 174,955 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
(d) | 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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Class I | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||
Net asset value at beginning of period | $ | 10.31 | $ | 7.80 | $ | 7.45 | $ | 6.75 | $ | 5.67 | $ | 4.79 | ||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | 0.00 | ‡ | 0.03 | 0.00 | ‡ | (0.01 | ) | (0.01 | ) | 0.00 | ‡ | |||||||||||||
Net realized and unrealized gain (loss) on investments | 0.20 | 2.50 | 0.51 | 0.71 | 1.09 | 0.88 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 0.20 | 2.53 | 0.51 | 0.70 | 1.08 | 0.88 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||
From net investment income | — | (0.02 | ) | — | — | — | — | |||||||||||||||||
From net realized gain on investments | (0.50 | ) | — | (0.16 | ) | — | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total dividends and distributions | (0.50 | ) | (0.02 | ) | (0.16 | ) | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 10.01 | $ | 10.31 | $ | 7.80 | $ | 7.45 | $ | 6.75 | $ | 5.67 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 1.92 | %(c) | 32.41 | % | 7.15 | % | 10.37 | % (d) | 19.05 | % (d) | 18.37 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | 0.06 | %†† | 0.38 | % | 0.03 | % | (0.09 | %) | (0.23 | %) | 0.00 | %(e) | ||||||||||||
Net expenses | 0.75 | %†† | 0.77 | % | 0.79 | % | 0.81 | % | 0.85 | % | 0.82 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 0.75 | %†† | 0.77 | % | 0.79 | % | 0.82 | % | 0.94 | % | 0.99 | % | ||||||||||||
Portfolio turnover rate | 31 | % | 74 | % | 60 | % | 52 | % | 91 | % | 62 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 13,008,849 | $ | 13,254,459 | $ | 11,215,464 | $ | 8,465,658 | $ | 3,497,859 | $ | 1,341,715 |
* | Unaudited. |
†† | 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 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. |
(e) | Less than one-hundredth of a percent. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Class R1 | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||
Net asset value at beginning of period | $ | 10.19 | $ | 7.72 | $ | 7.38 | $ | 6.70 | $ | 5.63 | $ | 4.76 | ||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | (0.00 | )‡ | 0.02 | (0.01 | ) | (0.02 | ) | (0.02 | ) | (0.01 | ) | |||||||||||||
Net realized and unrealized gain (loss) on investments | 0.20 | 2.47 | 0.51 | 0.70 | 1.09 | 0.88 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 0.20 | 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 | (0.50 | ) | — | (0.16 | ) | — | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total dividends and distributions | (0.50 | ) | (0.02 | ) | (0.16 | ) | — | — | — | |||||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 9.89 | $ | 10.19 | $ | 7.72 | $ | 7.38 | $ | 6.70 | $ | 5.63 | ||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 1.94 | % (c) | 32.27 | % | 6.94 | % | 10.15 | % | 19.01 | % | 18.28 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | (0.03 | %)†† | 0.28 | % | (0.08 | %) | (0.21 | %) | (0.35 | %) | (0.19 | %) | ||||||||||||
Net expenses | 0.85 | % †† | 0.87 | % | 0.89 | % | 0.91 | % | 0.97 | % | 0.98 | % | ||||||||||||
Expenses (before reimbursement/waiver) | 0.85 | % †† | 0.87 | % | 0.89 | % | 0.92 | % | 1.04 | % | 1.09 | % | ||||||||||||
Portfolio turnover rate | 31 | % | 74 | % | 60 | % | 52 | % | 91 | % | 62 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 2,141,341 | $ | 2,287,242 | $ | 1,950,015 | $ | 1,140,164 | $ | 418,253 | $ | 161,642 |
* | Unaudited. |
†† | 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. |
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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Class R2 | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||
Net asset value at beginning of period | $ | 9.99 | $ | 7.57 | $ | 7.26 | $ | 6.61 | $ | 5.57 | $ | 4.72 | ||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | (0.01 | ) | 0.00 | ‡ | (0.02 | ) | (0.03 | ) | (0.04 | ) | (0.02 | ) | ||||||||||||
Net realized and unrealized gain (loss) on investments | 0.19 | 2.42 | 0.49 | 0.68 | 1.08 | 0.87 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 0.18 | 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 | (0.50 | ) | — | (0.16 | ) | — | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total dividends and distributions | (0.50 | ) | (0.00 | )‡ | (0.16 | ) | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 9.67 | $ | 9.99 | $ | 7.57 | $ | 7.26 | $ | 6.61 | $ | 5.57 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 1.78 | % (c) | 31.88 | % | 6.77 | % | 9.83 | % | 18.67 | % | 18.01 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | (0.28 | %)†† | 0.03 | % | (0.32 | %) | (0.46 | %) | (0.66 | %) | (0.45 | %) | ||||||||||||
Net expenses | 1.10 | % †† | 1.12 | % | 1.14 | % | 1.16 | % | 1.28 | % | 1.24 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.10 | % †† | 1.12 | % | 1.14 | % | 1.17 | % | 1.29 | % | 1.35 | % | ||||||||||||
Portfolio turnover rate | 31 | % | 74 | % | 60 | % | 52 | % | 91 | % | 62 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 960,114 | $ | 1,014,655 | $ | 854,119 | $ | 701,183 | $ | 217,002 | $ | 113,942 |
* | Unaudited. |
†† | 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 R2 shares are not subject to sales charges. |
(c) | Total investment return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Class R3 | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||
Net asset value at beginning of period | $ | 9.80 | $ | 7.45 | $ | 7.16 | $ | 6.53 | $ | 5.52 | $ | 4.69 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | (0.03 | ) | (0.02 | ) | (0.04 | ) | (0.05 | ) | (0.06 | ) | (0.03 | ) | ||||||||||||
Net realized and unrealized gain (loss) on investments | 0.19 | 2.37 | 0.49 | 0.68 | 1.07 | 0.86 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 0.16 | 2.35 | 0.45 | 0.63 | 1.01 | 0.83 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||
From net investment income | — | (0.00 | )‡ | — | — | — | — | |||||||||||||||||
From net realized gain on investments | (0.50 | ) | — | (0.16 | ) | — | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total dividends and distributions | (0.50 | ) | (0.00 | )‡ | (0.16 | ) | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 9.46 | $ | 9.80 | $ | 7.45 | $ | 7.16 | $ | 6.53 | $ | 5.52 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 1.59 | % (c) | 31.63 | % | 6.44 | % | 9.65 | % | 18.30 | % | 17.70 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | (0.53 | %)†† | (0.20 | %) | (0.57 | %) | (0.70 | %) | (0.92 | %) | (0.70 | %) | ||||||||||||
Net expenses | 1.35 | % †† | 1.37 | % | 1.39 | % | 1.41 | % | 1.53 | % | 1.49 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.35 | % †† | 1.37 | % | 1.39 | % | 1.42 | % | 1.54 | % | 1.59 | % | ||||||||||||
Portfolio turnover rate | 31 | % | 74 | % | 60 | % | 52 | % | 91 | % | 62 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 175,303 | $ | 219,158 | $ | 205,329 | $ | 138,883 | $ | 49,395 | $ | 13,436 |
* | Unaudited. |
†† | 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 R3 shares are not subject to sales charges. |
(c) | Total investment return is not annualized. |
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
Class R6 | Six months ended April 30, 2014* | June 17, 2013** through October 31, 2013 | ||||||
Net asset value at beginning of period | $ | 10.31 | $ | 9.02 | ||||
|
|
|
| |||||
Net investment income (loss) (a) | 0.01 | 0.00 | ‡ | |||||
Net realized and unrealized gain (loss) on investments | 0.20 | 1.29 | ||||||
|
|
|
| |||||
Total from investment operations | 0.21 | 1.29 | ||||||
|
|
|
| |||||
Less distributions: | ||||||||
From net realized gain on investments | (0.50 | ) | — | |||||
|
|
|
| |||||
Net asset value at end of period | $ | 10.02 | $ | 10.31 | ||||
|
|
|
| |||||
Total investment return (b) | 2.02 | %(c) | 14.30 | %(c) | ||||
Ratios (to average net assets)/Supplemental Data: | ||||||||
Net investment income (loss) | 0.14 | %†† | 0.04 | %†† | ||||
Net expenses | 0.62 | %†† | 0.62 | %†† | ||||
Portfolio turnover rate | 31 | % | 74 | % | ||||
Net assets at end of period (in 000’s) | $ | 498,058 | $ | 147,625 |
* | Unaudited. |
** | 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 |
Notes to Financial Statements (Unaudited)
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 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.
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”) adopted procedures for the valuation of the Fund’s securities and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board
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 Sub-Committee deals in the first instance with such valuation and 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. Any action taken by the Sub-Committee with respect to the valuation of a portfolio security is submitted by the Valuation Committee to the Board for its review at its next regularly scheduled meeting immediately after such action.
“Fair value” is defined as the price that the Fund would receive upon selling an asset or liability in an orderly transaction to an independent buyer in the principal or most advantageous market for the asset or liability. Fair value measurements are determined within a framework that 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” refer 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 based on the information available. 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 below.
• | Level 1—quoted prices in active markets for an identical asset or liability |
• | Level 2—other significant observable inputs (including quoted prices for a similar asset or liability in active markets, interest rates and yield curves, prepayment speeds, credit risk 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 fair value of an asset or liability) |
The aggregate value by input level, as of April 30, 2014, for the Fund’s assets or liabilities is included at the end of the Fund’s Portfolio of Investments.
The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs among others:
• 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 |
An asset or liability for which market values cannot be measured using the methodologies described above are valued by methods deemed reasonable and in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund generally 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 asset or liability are discounted to calculate fair value. Discounts may also be applied due to the nature and/or duration of any restrictions on the disposition of the asset or liability. Due to the inherent valuation uncertainty of such assets or liabilities, fair values may differ significantly from values that would have been used had an active market existed. For the six-month period ended April 30, 2014, there have been no material 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 readily available from a third party pricing source or, if so provided, does not, in the opinion of the Manager or Subadvisor reflect the security’s market value; (vi) a security subject to trading collars for which no or limited trading takes place; and (vii) 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 April 30, 2014, 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 last 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 last quoted bid and ask prices.
Prices are normally 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 at the time of purchase (“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 from net investment income and distributions from 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, net of any foreign tax withheld at the source, and interest income is accrued as earned using the effective interest rate method. Discounts and premiums on Short-Term Investments are accreted and amortized,
mainstayinvestments.com | 23 |
Notes to Financial Statements (Unaudited) (continued)
respectively, on the straight-line method. The straight-line method approximates the effective interest method for short-term investments. 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.
(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 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 if 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 April 30, 2014.
(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 compensation 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.
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.
24 | MainStay Large Cap Growth Fund |
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 until February 28, 2015, 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.
The effective management fee rate was 0.60% for the six-month period ended April 30, 2014.
For the six-month period ended April 30, 2014, New York Life Investments earned fees from the Fund in the amount of $58,761,422.
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 six-month period ended April 30, 2014, were as follows:
Class R1 | $ | 1,123,010 | ||
Class R2 | 503,175 | |||
Class R3 | 100,153 |
(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 $13,891 and $31,866, respectively, for the six-month period ended April 30, 2014. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class B and Class C shares of $10, $39,621 and $5,001, respectively, for the six-month period ended April 30, 2014.
(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 six-month period ended April 30, 2014, were as follows:
Investor Class | $ | 172,948 | ||
Class A | 1,027,320 | |||
Class B | 50,957 | |||
Class C | 356,641 | |||
Class I | 8,609,722 | |||
Class R1 | 1,441,503 | |||
Class R2 | 645,848 | |||
Class R3 | 128,586 |
(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.
mainstayinvestments.com | 25 |
Notes to Financial Statements (Unaudited) (continued)
(F) Capital. As of April 30, 2014, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class C | $ | 4,366 | 0.0 | %‡ | ||||
Class I | 8,170 | 0.0 | ‡ | |||||
Class R6 | 29,153 | 0.0 | ‡ |
‡ | Less than one-tenth of a percent. |
Note 4–Federal Income Tax
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 tax character of distributions paid during the year ended October 31, 2013, shown in the Statements of Changes in Net Assets was as follows:
2013 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 39,790,967 | ||
Long-Term Capital Gain | 498,157 | |||
Total | $ | 40,289,124 |
Note 5–Custodian
State Street is the custodian of cash and securities held by the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities held by 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, who serves as the agent 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. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the six-month period ended April 30, 2014.
Note 7–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2014, purchases and sales of securities, other than short-term securities, were $5,949,141 and $6,617,690, respectively.
Note 8–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 1,008,716 | $ | 9,999,264 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,060,392 | 10,190,366 | ||||||
Shares redeemed | (4,321,676 | ) | (42,899,962 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (2,252,568 | ) | (22,710,332 | ) | ||||
Shares converted into Investor Class (See Note 1) | 329,418 | 3,284,895 | ||||||
Shares converted from Investor Class (See Note 1) | (654,788 | ) | (6,548,092 | ) | ||||
|
| |||||||
Net increase (decrease) | (2,577,938 | ) | $ | (25,973,529 | ) | |||
|
|
|
| |||||
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 | ) | |||
|
|
|
| |||||
26 | MainStay Large Cap Growth Fund |
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 12,301,902 | $ | 122,268,591 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 7,410,072 | 71,655,783 | ||||||
Shares redeemed | (24,742,830 | ) | (246,240,371 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (5,030,856 | ) | (52,315,997 | ) | ||||
Shares converted into Class A (See Note 1) | 740,354 | 7,437,374 | ||||||
|
| |||||||
Net increase (decrease) | (4,290,502 | ) | $ | (44,878,623 | ) | |||
|
|
|
| |||||
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 | ) | |||
|
|
|
| |||||
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 322,632 | $ | 2,973,535 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 311,937 | 2,795,119 | ||||||
Shares redeemed | (663,109 | ) | (6,132,254 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (28,540 | ) | (363,600 | ) | ||||
Shares converted from Class B (See Note 1) | (450,419 | ) | (4,174,177 | ) | ||||
|
| |||||||
Net increase (decrease) | (478,959 | ) | $ | (4,537,777 | ) | |||
|
|
|
| |||||
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 | ) | |||
|
|
|
| |||||
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 2,622,922 | $ | 23,898,968 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,003,771 | 8,993,784 | ||||||
Shares redeemed | (3,508,535 | ) | (32,371,979 | ) | ||||
|
| |||||||
Net increase (decrease) | 118,158 | $ | 520,773 | |||||
|
|
|
| |||||
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 | ) | |||
|
|
|
| |||||
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 153,345,144 | $ | 1,577,640,735 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 46,695,836 | 467,425,319 | ||||||
Shares redeemed | (186,212,240 | ) | (1,921,097,307 | ) | ||||
|
| |||||||
Net increase (decrease) | 13,828,740 | $ | 123,968,747 | |||||
|
|
|
| |||||
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 | ) | |||
|
|
|
| |||||
Class R1 | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 20,725,469 | $ | 212,529,172 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 11,099,576 | 109,774,812 | ||||||
Shares redeemed | (39,632,193 | ) | (403,962,197 | ) | ||||
|
| |||||||
Net increase (decrease) | (7,807,148 | ) | $ | (81,658,213 | ) | |||
|
|
|
| |||||
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 | ) | |||
|
|
|
| |||||
mainstayinvestments.com | 27 |
Notes to Financial Statements (Unaudited) (continued)
Class R2 | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 11,410,292 | $ | 113,415,653 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 3,763,451 | 36,430,206 | ||||||
Shares redeemed | (17,432,547 | ) | (173,860,917 | ) | ||||
|
| |||||||
Net increase (decrease) | (2,258,804 | ) | $ | (24,015,058 | ) | |||
|
|
|
| |||||
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 | ) | |||
|
|
|
| |||||
Class R3 | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 2,087,925 | $ | 20,398,792 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,039,861 | 9,868,280 | ||||||
Shares redeemed | (6,965,641 | ) | (67,850,535 | ) | ||||
|
| |||||||
Net increase (decrease) | (3,837,855 | ) | $ | (37,583,463 | ) | |||
|
|
|
| |||||
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 | ) | |||
|
|
|
| |||||
Class R6 | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 36,812,141 | $ | 384,064,486 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,548,525 | 15,500,740 | ||||||
Shares redeemed | (2,954,313 | ) | (30,467,303 | ) | ||||
|
| |||||||
Net increase (decrease) | 35,406,353 | $ | 369,097,923 | |||||
|
|
|
| |||||
Period ended October 31, 2013 (b): | ||||||||
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 |
Note 10–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the six-month period ended April 30, 2014, events and transactions subsequent to April 30, 2014, 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 Large Cap Growth Fund |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”) requires that each mutual fund’s board of trustees, including a majority of the independent trustees, annually review and approve the fund’s investment advisory agreements. At its December 10-11, 2013 meeting, the Board of Trustees of the MainStay Group of Funds (“Board”) unanimously approved the Management Agreement with respect to the MainStay Large Cap Growth Fund (“Fund”) and New York Life Investment Management LLC (“New York Life Investments”) and the Subadvisory Agreement between New York Life Investments and Winslow Capital Management, LLC (“Winslow Capital”) with respect to the Fund.
In reaching its decision to approve the Agreements, the Board considered information furnished by New York Life Investments and Winslow Capital in connection with a contract review process that took place at various meetings of the Board and its Contracts Committee between September 2013 and December 2013 as well as other relevant information furnished to the Board throughout the year by New York Life Investments and Winslow Capital. Information requested by and furnished to the Board in connection with the contract review process included, among other items, reports on the Fund and “peer funds” prepared by Strategic Insight Mutual Fund Research and Consulting, LLC (“Strategic Insight”), an independent third-party service provider engaged by the Board to report objectively on the Fund’s investment performance, management and subadvisory fees and ordinary operating expenses. The Board also considered information provided by New York Life Investments and Winslow Capital on the fees charged to other investment advisory clients (including institutional separate accounts) that follow investment strategies similar to the Fund and the rationale for any differences in the Fund’s management and subadvisory fees and the fees charged to those other investment advisory clients. In addition, the Board requested and received information on the profitability of the Fund to New York Life Investments and its affiliates and Winslow Capital, and responses from New York Life Investments and Winslow Capital to a series of questions encompassing a variety of topics prepared on behalf of the Board by independent legal counsel to the Board and its independent trustees (the “Independent Trustees”). Information provided to the Board at its meetings throughout the year included, among other items, detailed investment performance reports on the Fund prepared by the Investment Consulting Group at New York Life Investments. The structure and format for this regular reporting were developed in consultation with the Board. The Board also received from New York Life Investments throughout the year, among other items, periodic reports on legal and compliance matters, portfolio turnover, and sales and marketing activity.
In considering the Agreements, the members of the Board reviewed and evaluated all of the information and factors they believed to be relevant and appropriate in light of legal advice furnished to them by independent legal counsel and through the exercise of their own business judgment. The broad factors considered by the Board are discussed in greater detail below and included, among other items: (i) the nature, scope and quality of the services provided to the Fund by New York Life Investments and Winslow Capital; (ii) the investment performance of the Fund, New York Life Investments and Winslow Capital; (iii) the costs of the services provided, and profits realized, by New York Life Investments and Winslow Capital from their relationships with the
Fund; (iv) the extent to which economies of scale may be realized as the Fund grows, and the extent to which economies of scale may benefit Fund investors; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to similar funds and accounts managed by New York Life Investments and Winslow Capital and peer funds identified by Strategic Insight.
While individual members of the Board may have weighed certain factors differently, the Board’s decision to approve the Agreements was based on a consideration of all the information provided to the Board, including information provided to the Board throughout the year and specifically in connection with the contract review process. The Board’s conclusions with respect to the Agreements also were based, in part, on the Board’s consideration of the Agreements in prior years. In addition to considering the above-referenced factors, the Board observed that in the marketplace there are a range of investment options available to shareholders of the Fund and that the Fund’s shareholders, having had the opportunity to consider other investment options, have chosen to invest in the Fund. A more detailed discussion of the factors that figured prominently in the Board’s decisions to approve the Agreements is provided below.
Nature, Scope and Quality of Services to Be Provided by New York Life Investments and Winslow Capital
The Board examined the nature, scope and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience in serving as manager of the Fund, noting that New York Life Investments manages other mutual funds, serves a variety of other investment advisory clients, including other pooled investment vehicles, and has experience with overseeing mutual fund service providers, including subadvisors. The Board considered the experience of senior personnel at New York Life Investments providing management and administrative services to the Fund as well as New York Life Investments’ reputation and financial condition. The Board also considered the full range of non-advisory services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and oversight services provided by New York Life Investments’ Fund Accounting and Administration Group; (ii) investment oversight and analytical services provided by New York Life Investments’ Investment Consulting Group; (iii) compliance services provided by the Fund’s Chief Compliance Officer as well as New York Life Investments’ compliance department, including oversight and implementation of the Fund’s compliance program; and (iv) legal services provided by New York Life Investments’ Office of the General Counsel. Additional information about the non-advisory services provided by New York Life Investments is set forth in the Fund’s Management Agreement. The Board also considered New York Life Investments’ willingness to invest in personnel and infrastructure that benefit the Fund and noted that New York Life Investments is responsible for compensating the Fund’s officers. The Board also considered benefits to shareholders of being part of the MainStay Group of Funds, including the privilege of exchanging investments between the same class of shares without the imposition of a sales charge, as described more fully in the Fund’s prospectus.
mainstayinvestments.com | 29 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
The Board also examined the nature, scope and quality of the advisory services that Winslow Capital provides to the Fund. The Board evaluated Winslow Capital’s experience in serving as subadvisor to the Fund and managing other portfolios. It examined Winslow Capital’s track record and experience in providing investment advisory services, the experience of investment advisory, senior management and administrative personnel at Winslow Capital, and New York Life Winslow Capital’s overall legal and compliance environment. The Board also reviewed Winslow Capital’s willingness to invest in personnel that benefit the Fund. In this regard, the Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers and the method for compensating portfolio managers.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund should continue to benefit from the nature, scope and quality of these services as a result of New York Life Investments’ and Winslow Capital’s experience, personnel, operations and resources.
Investment Performance
In evaluating the Fund’s investment performance, the Board considered investment performance results in light of the Fund’s investment objective, strategies and risks, as disclosed in the Fund’s prospectus. The Board particularly considered detailed investment reports on the Fund’s performance provided to the Board throughout the year by the Investment Consulting Group of New York Life Investments. These reports include, among other items, information on the Fund’s gross and net returns, the Fund’s investment performance relative to relevant investment categories and Fund benchmarks, the Fund’s risk-adjusted investment performance, and the Fund’s investment performance as compared to peer funds, as appropriate. The Board also considered information provided by Strategic Insight showing the investment performance of the Fund as compared to peer funds.
In considering the Fund’s investment performance, the Board focused principally on the Fund’s long-term performance track record. The Board also gave weight to its ongoing discussions with senior management at New York Life Investments concerning the Fund’s investment performance as well as discussions between the Fund’s portfolio managers and the Board that generally occur on an annual basis. In addition, the Board considered any specific actions that New York Life Investments or Winslow Capital had taken, or had agreed with the Board to take, to enhance Fund investment performance and the results of those actions.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the long-term investment performance of the Fund, along with ongoing efforts by New York Life Investments and Winslow Capital to enhance investment returns, supported a determination to approve the Agreements. The Fund discloses more information about investment performance in the Portfolio Management Discussion and Analysis, Investment and Performance Comparison and Financial Highlights sections of this Semiannual Report and in the Fund’s prospectus.
Costs of the Services Provided, and Profits Realized, by New York Life Investments and Winslow Capital
The Board considered the costs of the services provided by New York Life Investments and Winslow Capital under the Agreements and the profits realized by New York Life Investments and its affiliates and Winslow Capital due to their relationships with the Fund. Because Winslow Capital’s subadvisory fees are negotiated at arm’s-length by New York Life Investments and are paid by New York Life Investments, not the Fund, the Board principally considered the profits realized by New York Life Investments and its affiliates with respect to the Fund.
In evaluating the costs and profits of New York Life Investments and its affiliates and Winslow Capital, the Board considered, among other factors, each party’s investments in personnel, systems, equipment and other resources necessary to manage the Fund and that New York Life Investments is responsible for paying the subadvisory fees for the Fund. The Board acknowledged that New York Life Investments and Winslow Capital must be in a position to pay and retain experienced professional personnel to provide services to the Fund and that the ability to maintain a strong financial position is important in order for New York Life Investments and Winslow Capital to continue to provide high-quality services to the Fund. The Board also noted that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds.
In addition, the Board noted the difficulty in obtaining reliable comparative data about mutual fund managers’ profitability, since such information generally is not publicly available and may be impacted by numerous factors, including the structure of a fund manager’s organization, the types of funds it manages, the methodology used to allocate certain fixed costs to specific funds, and the manager’s capital structure and costs of capital. While recognizing the difficulty in evaluating a manager’s profitability with respect to the Fund and noting that other profitability methodologies may also be reasonable, the Board concluded that the profitability methodology presented by New York Life Investments to the Board, which was developed by New York Life Investments in consultation with an independent consultant, was reasonable in all material respects.
In considering the costs and profitability of the Fund, the Board also considered certain fall-out benefits that may be realized by New York Life Investments and its affiliates due to their relationships with the Fund. The Board recognized, for example, the benefits to Winslow Capital from legally permitted “soft-dollar” arrangements by which brokers provide research and other services to Winslow Capital in exchange for commissions paid by the Fund with respect to trades on the Fund’s portfolio securities. The Board also requested and received information from New York Life Investments and Winslow Capital concerning other business relationships between Winslow Capital and its affiliates and New York Life Investments and its affiliates.
The Board further considered that, in addition to fees earned by New York Life Investments for managing the Fund, New York Life Investments’ affiliates also earn revenues from serving the Fund in various other capacities, including as the Fund’s transfer agent and distributor. The Board observed that information about these other revenues, and their impact on the profitability of the Fund to New York Life Investments and its affiliates, was furnished to the Board as part of the 15(c) process. The Board noted that, although it assessed the overall profitability
30 | MainStay Large Cap Growth Fund |
of the Fund to New York Life Investments and its affiliates as part of the contract review process, when considering the reasonableness of the fees to be paid to New York Life Investments and its affiliates under the Agreements, the Board considered the profitability of New York Life Investments’ relationship with the Fund on a pre-tax basis and without regard to distribution expenses.
After evaluating the information presented to the Board, the Board concluded, within the context of its overall determinations regarding the Agreements, that any profits realized by New York Life Investments and its affiliates, due to their relationships with the Fund supported the Board’s decision to approve the Agreements. With respect to Winslow Capital, the Board concluded that any profits realized by Winslow Capital due to its relationship with the Fund are the result of arm’s-length negotiations between New York Life Investments and Winslow Capital and are based on fees paid to Winslow Capital by New York Life Investments, not the Fund.
Extent to Which Economies of Scale May Be Realized as the Fund Grows
The Board considered whether the Fund’s expense structure permits economies of scale to be shared with Fund investors. The Board also considered a report from New York Life Investments, prepared at the request of the Board, that addressed economies of scale in the mutual fund business generally, the changing economics of the mutual fund business and the various ways in which the benefits of economies of scale may be shared with the MainStay Group of Funds. The Board reviewed information from New York Life Investments showing how the Fund’s management fee schedule compared to fee schedules of other funds and accounts managed by New York Life Investments. The Board also reviewed information from Strategic Insight showing how the Fund’s management fee schedule hypothetically would compare with fees paid for similar services by peer funds at varying asset levels. While recognizing the difficulty of determining economies of scale with precision, the Board acknowledged that economies of scale may be shared with the Fund in a number of ways, including, for example, through the imposition of management fee breakpoints and by initially setting relatively low management fees.
Based on this information, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund’s expense structure appropriately reflects economies of scale for the benefit of Fund investors. The Board noted, however, that it would continue to evaluate the reasonableness of the Fund’s expense structure as the Fund grows over time.
Management and Subadvisory Fees and Total Ordinary Operating Expenses
The Board evaluated the reasonableness of the fees to be paid under the Agreements and the Fund’s expected total ordinary operating expenses. The Board primarily considered the reasonableness of the management fee paid by the Fund to New York Life Investments, since the fees paid to Winslow Capital are paid by New York Life Investments, not the Fund.
In assessing the reasonableness of the Fund’s fees and expenses, the Board primarily considered comparative data provided by Strategic
Insight on the fees and expenses charged by similar mutual funds managed by other investment advisers. In addition, the Board considered information provided by New York Life Investments and Winslow Capital on fees charged to other investment advisory clients, including institutional separate accounts and other funds with similar investment objectives as the Fund. The Board particularly considered differences in the contractual management fee schedules of the retail MainStay Funds and similarly-managed MainStay VP Portfolios, taking into account New York Life Investments’ rationale for any differences in fee schedules. The Board also took into account explanations provided by New York Life Investments about the different scope of services provided to mutual funds as compared with other investment advisory clients. Additionally, the Board considered the impact of any contractual breakpoints, voluntary waivers and expense limitation arrangements on the Fund’s net management fee and expenses.
The Board noted that, outside of the Fund’s management fee and the fees charged under a share class’s Rule 12b-1 and/or shareholder services plans, a share class’s most significant “other expenses” are transfer agent fees. Transfer agent fees are charged to the Fund based on the number of shareholder accounts (a “per-account” fee) as compared with certain other fees (e.g., management fees), which are charged based on the Fund’s average net assets. The Board took into account information from New York Life Investments showing that the Fund’s transfer agent fee schedule is reasonable, including industry data showing that the per-account fees that NYLIM Service Company LLC, the Fund’s transfer agent, charges the Fund are within the range of per-account fees charged by transfer agents to other mutual funds. In addition, the Board considered NYLIM Service Company LLC’s profitability in connection with the transfer agent services it provides to the Fund.
The Board considered that, because the Fund’s transfer agent fees are billed on a per-account basis, the impact of transfer agent fees on a share class’s expense ratio may be more significant in cases where the share class has a high number of accounts with limited assets (i.e., small accounts). The Board observed that transfer agent fees are a significant portion of total expenses of many Funds in the MainStay Group of Funds. The impact of transfer agent fees on the expense ratios of these MainStay Funds tend to be greater than for other open-end retail funds, because the MainStay Group of Funds generally has a significant number of small accounts relative to competitor funds. The Board acknowledged the role that the MainStay Group of Funds historically has played in serving the investment needs of New York Life Insurance Company (“New York Life”) policyholders, who often maintain smaller account balances than other fund investors. The Board also acknowledged measures that it and New York Life Investments have taken in recent years to mitigate the effect of small accounts on the expense ratios of Fund share classes, including: (i) encouraging New York Life agents to consolidate multiple small accounts held by the same investor into one MainStay Asset Allocation Fund account; (ii) increasing investment minimums from $500 to $1,000 in 2003; (iii) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iv) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (v) eliminating an exception with no
mainstayinvestments.com | 31 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (vi) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vii) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. In addition, the Board acknowledged New York Life Investments’ efforts to encourage intermediaries to consolidate small accounts in multiple Funds held by the same investor into a single Asset Allocation Fund account, if appropriate under the circumstances, in an effort to mitigate the effect of small accounts on the Funds in the MainStay Group of Funds.
After considering all of the factors outlined above, the Board concluded that the Fund’s management and subadvisory fees and total ordinary operating expenses were within a range that is competitive and, within the context of the Board’s overall conclusions regarding the Agreements, support a conclusion that these fees and expenses are reasonable.
Conclusion
On the basis of the information provided to it and its evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the Agreements.
32 | MainStay Large Cap Growth Fund |
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 | 33 |
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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 Fund
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 Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund1
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund2
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 LLC3
New York, New York
Cornerstone Capital Management LLC3
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC3
Chicago, Illinois
MacKay Shields LLC3
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC3
New York, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP4
PricewaterhouseCoopers LLP5
1. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
2. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
3. An affiliate of New York Life Investment Management LLC.
4. For all Funds listed above except MainStay Marketfield Fund.
5. For MainStay Marketfield Fund only.
Not part of the Semiannual 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.
©2014 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-34016 MS164-14 | MSLG10-06/14 NL031 |
MainStay MAP Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2014
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Message from the President
Stocks and bonds generally advanced during the six months ended April 30, 2014, but results varied across different markets, asset classes and regions.
According to Russell data, mid-capitalization stocks tended to provide the strongest returns, outperforming large-cap stocks overall. As a group, small-cap stocks tended to underperform their larger-capitalization counterparts. Value outperformed growth at all capitalization levels as the 2013 market rally ended and investors moved from rapid-growth stocks toward utilities, real estate investment trusts (REITs) and other stocks that tend to be more defensive.
The reporting period opened with investors still reacting to the government shutdown and asking questions about the debt ceiling and the so-called fiscal cliff. Even so, U.S. stocks climbed relatively steadily through the end of 2013. After reaching a high point in January, the U.S. stock market tumbled to its low point for the reporting period in early February, hurt by weaker economic data and severe weather in the Northeast. From that point, domestic stocks generally recovered, advancing to new highs before the end of the reporting period.
International stocks benefited from the European Central Bank’s accommodative policies and an improving European economy, despite high levels of debt and unemployment. In Japan, a weaker currency and accommodative central bank policies had fueled a stock rally in 2013, but Japanese stocks began to decline in mid-January on concerns about the Prime Minister’s economic policies, including a substantial increase in the nation’s sales tax. International stocks also felt the effects of tensions in Ukraine and slowing growth in China.
Throughout the reporting period, the Federal Reserve held the federal funds target rate in a range close to zero. On December 18, 2013, the Federal Open Market Committee announced plans to begin tapering its direct security purchases (widely known as quantitative easing) in January of 2014. The announcement led investors to anticipate rising interest rates.
According to U.S. Department of the Treasury data, yields did rise through the early part of 2014. After peaking early in the year, however, U.S. Treasury yields generally trended downward. As of April 30, 2014, yields at the short and long ends of the U.S. Treasury yield curve1 were slightly lower than at the beginning of the reporting period, while yields on 1- to 10-year U.S. Treasury securities had moved slightly higher.
In harmony with these trends, extensive tax-loss harvesting in the municipal market tended to push municipal yields higher in November and December. Redemptions slowed as the new year progressed, and a scarcity of municipal supply pushed municipal bond prices higher—and yields lower—during the last four months of the reporting period.
Throughout the reporting period, our portfolio managers pursued the investment objectives of their respective Funds within the investment strategies outlined in the Prospectus. Using time-tested security-selection, portfolio-monitoring and risk-management techniques, they sought to maximize exposure to potential opportunities while seeking to minimize exposure to unnecessary risks.
The report that follows provides additional information about the decisions, securities and market forces that affected your MainStay Fund during the six months ended April 30, 2014. We encourage you to read this information carefully. It can help you evaluate your diversification and assess your asset allocation as you pursue your long-range financial goals.
We thank you for choosing MainStay Funds, and we look forward to a lasting and productive relationship.
Sincerely,
Stephen P. Fisher
1. | 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 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. Past performance is no guarantee of future results.
Not part of the Semiannual 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 the Period Ended April 30, 2014
Class | Sales Charge | Six Months | One Year | Five Years | Ten Years | Gross Expense Ratio2 | ||||||||||||||||
Investor Class Shares3 | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges | 0.28% 6.12 |
| 11.04 17.50 | %
|
| 16.05 17.37 | %
|
| 7.16 7.77 | %
|
| 1.30 1.30 | %
| |||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges | 0.37 6.21 |
| 11.24 17.72 |
|
| 16.28 17.60 |
|
| 7.28 7.89 |
|
| 1.11 1.11 |
| |||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges | 0.74 5.74 |
| 11.66 16.66 |
|
| 16.28 16.50 |
|
| 6.96 6.96 |
|
| 2.05 2.05 |
| |||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges | 4.74 5.74 |
| 15.62 16.62 |
|
| 16.50 16.50 |
|
| 6.96 6.96 |
|
| 2.05 2.05 |
| |||||||
Class I Shares | No Sales Charge | 6.35 | 18.00 | 17.89 | 8.21 | 0.86 | ||||||||||||||||
Class R1 Shares | No Sales Charge | 6.30 | 17.90 | 17.77 | 8.08 | 0.96 | ||||||||||||||||
Class R2 Shares | No Sales Charge | 6.16 | 17.60 | 17.49 | 7.83 | 1.21 | ||||||||||||||||
Class R3 Shares4 | No Sales Charge | 6.04 | 17.29 | 17.18 | 7.53 | 1.46 |
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 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 | Six Months | One Year | Five Years | Ten Years | ||||||||||
Russell 3000® Index5 | 7.83% | 20.78 | % | 19.54 | % | 8.10 | % | |||||||
S&P 500® Index6 | 8.36 | 20.44 | 19.14 | 7.67 | ||||||||||
Average Lipper Large-Cap Core Fund7 | 7.47 | 19.31 | 17.68 | 7.18 |
5. | 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. |
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 secondary benchmark. Results assume reinvestment of all income and capital gains. An investment cannot be made directly in an index. |
7. | 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 November 1, 2013, to April 30, 2014, 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 November 1, 2013, to April 30, 2014.
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 April 30, 2014. 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 11/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/14 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/14 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,061.20 | $ | 6.49 | $ | 1,018.50 | $ | 6.36 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,062.10 | $ | 5.68 | $ | 1,019.30 | $ | 5.56 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,057.40 | $ | 10.30 | $ | 1,014.80 | $ | 10.09 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,057.40 | $ | 10.30 | $ | 1,014.80 | $ | 10.09 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,063.50 | $ | 4.40 | $ | 1,020.50 | $ | 4.31 | ||||||||||
Class R1 Shares | $ | 1,000.00 | $ | 1,063.00 | $ | 4.91 | $ | 1,020.00 | $ | 4.81 | ||||||||||
Class R2 Shares | $ | 1,000.00 | $ | 1,061.60 | $ | 6.19 | $ | 1,018.80 | $ | 6.06 | ||||||||||
Class R3 Shares | $ | 1,000.00 | $ | 1,060.40 | $ | 7.46 | $ | 1,017.60 | $ | 7.30 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.27% for Investor Class, 1.11% for Class A, 2.02% 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 181 (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 April 30, 2014 (Unaudited)
Oil, Gas & Consumable Fuels | 11.0 | % | ||
Banks | 7.4 | |||
Media | 7.4 | |||
Pharmaceuticals | 6.4 | |||
Aerospace & Defense | 4.7 | |||
Insurance | 4.7 | |||
Chemicals | 4.3 | |||
Industrial Conglomerates | 3.5 | |||
Capital Markets | 3.3 | |||
Consumer Finance | 2.9 | |||
Software | 2.7 | |||
Technology Hardware, Storage & Peripherals | 2.7 | |||
Health Care Equipment & Supplies | 2.6 | |||
Internet Software & Services | 2.6 | |||
Food & Staples Retailing | 2.5 | |||
Energy Equipment & Services | 2.3 | |||
Health Care Providers & Services | 1.8 | |||
Beverages | 1.7 | |||
Diversified Telecommunication Services | 1.6 | |||
Electric Utilities | 1.6 | |||
Semiconductors & Semiconductor Equipment | 1.6 | |||
Auto Components | 1.4 | |||
Automobiles | 1.4 | |||
Specialty Retail | 1.4 | |||
IT Services | 1.3 | |||
Real Estate Investment Trusts | 1.3 |
Communications Equipment | 1.0 | % | ||
Hotels, Restaurants & Leisure | 1.0 | |||
Machinery | 1.0 | |||
Road & Rail | 1.0 | |||
Wireless Telecommunication Services | 1.0 | |||
Electrical Equipment | 0.9 | |||
Electronic Equipment, Instruments & Components | 0.8 | |||
Internet & Catalog Retail | 0.8 | |||
Biotechnology | 0.7 | |||
Commercial Services & Supplies | 0.7 | |||
Diversified Financial Services | 0.7 | |||
Household Products | 0.5 | |||
Real Estate Management & Development | 0.4 | |||
Construction & Engineering | 0.3 | |||
Food Products | 0.3 | |||
Gas Utilities | 0.3 | |||
Tobacco | 0.3 | |||
Trading Companies & Distributors | 0.3 | |||
Multiline Retail | 0.2 | |||
Containers & Packaging | 0.1 | |||
Multi-Utilities | 0.1 | |||
Short-Term Investment | 1.2 | |||
Other Assets, Less Liabilities | 0.3 | |||
|
| |||
100.0 | % | |||
|
|
See Portfolio of Investments beginning on page 12 for specific holdings within these categories.
Top Ten Holdings as of April 30, 2014 (excluding short-term investment) (Unaudited)
1. | General Electric Co. |
2. | Boeing Co. (The) |
3. | Pfizer, Inc. |
4. | Monsanto Co. |
5. | Exxon Mobil Corp. |
6. | Liberty Media Corp. Class A |
7. | Apple, Inc. |
8. | Time Warner, Inc. |
9. | Goldman Sachs Group, Inc. (The) |
10. | Citigroup, Inc. |
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 six months ended April 30, 2014?
Excluding all sales charges, MainStay MAP Fund returned 6.12% for Investor Class shares, 6.21% for Class A shares and 5.74% for both Class B and Class C shares for the six months ended April 30, 2014. Over the same period, Class I shares returned 6.35%, Class R1 shares returned 6.30%, Class R2 shares returned 6.16% and Class R3 shares returned 6.04%. For the six months ended April 30, 2014, all share classes underperformed the 7.83% return of the Russell 3000® Index,1 which is the Fund’s broad-based securities-market index. Over the same period, all share classes underperformed the 8.36% return of the S&P 500® Index,1 which is the Fund’s secondary benchmark, and the 7.47% return of the average Lipper2 large-cap core fund. See page 5 for Fund returns with applicable sales charges.
What factors affected the Fund’s performance during the reporting period?
Markston International
The performance for our portion of the Fund relative to the Russell 3000® Index resulted primarily from our decision to remain fully invested going into 2014. Slight underperformance versus the benchmark was mainly due to stock selection in the consumer discretionary sector. In addition, our slight cash holdings also detracted from performance.
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 energy and telecommunication services sectors added to relative performance. On the other hand, stock selection in the consumer discretionary and industrials sectors detracted from relative performance. Our portion of the Fund that invests in U.S. equities benefited from an underweight position relative to S&P 500® Index in consumer staples, but an overweight position in telecommunication services detracted from relative performance.
In our portion of the Fund that invests in global equities, utilities, energy and health care were the best-performing sectors on an absolute basis. The weakest-performing sectors on an absolute basis were consumer discretionary, financials and industrials, though returns in these sectors were all narrowly positive.
Which sectors were the strongest contributors to the Fund’s relative performance and which sectors were particularly weak?
Markston International
During the reporting period, our portion of the Fund saw positive contributions from an overweight position and stock selection in the energy sector, a slight underweight position and stock selection in the consumer staples sector, and an underweight position in the telecommunication services sector. (Contributions take weightings and total returns into account.) Unfavorable stock selection in the consumer discretionary sector detracted from the Fund’s performance, as did an underweight position in the information technology sector and an overweight position and stock selection in the financials sector.
ICAP
In our portion of the Fund that invests in U.S. equities, the sectors that contributed most positively to performance relative to the Index were energy, consumer staples and utilities. Favorable stock selection was the primary driver in each case. In this portion of the Fund, the sectors that detracted the most from relative performance were information technology, industrials and consumer discretionary. 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 energy, health care and telecommunication services. The sectors that contributed the least to absolute performance were consumer discretionary, consumer staples and industrials. Each of the weakest contributors had a positive total return.
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
Personal computer and peripheral device company Apple contributed positively to performance in our portion of the Fund after the company executed a major capital-return project to shareholders. Oil and gas refining company Marathon Petroleum also made a positive contribution as oil prices increased during the reporting period. Media conglomerate Liberty Media detracted from performance in our portion of the Fund, as Charter Communications, which is partially owned by Liberty Media, lost its bid to acquire Time Warner Cable. The company also scrapped its plans to acquire all of Sirius XM Holdings. Internet information provider Verisign detracted from performance amid slowing growth in domain name acquisitions.
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 |
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 integrated oil & gas company Exxon Mobil, oilfield services firm Halliburton and pharmacy retailer and benefits manager CVS Caremark. Exxon Mobil’s stock outperformed the S&P 500® Index, as the company’s international exploration and production have helped the company increase cash flow and return cash to shareholders by increasing dividends and repurchasing shares. During the reporting period, Halliburton benefited from higher-than-expected drilling activity and anticipation that prices would firm in the company’s pressure-pumping business. CVS provided a positive contribution, as the company delivered strong operating results and returned cash to shareholders through dividends and share buybacks. All three positions remained in our portion of the Fund at the end of the reporting period.
Detractors from absolute performance in our portion of the Fund that invests in U.S. equities included data storage provider NetApp, global investment bank Goldman Sachs Group and computer security company Symantec. NetApp lagged as enterprises have delayed technology spending. Goldman Sachs was added to the Fund during the reporting period. Although the stock lagged slightly, we believe that the company is well-positioned as global banking activity picks up, which may enable the firm to improve shareholder returns. Symantec underperformed as the company announced that it needed to increase reinvestment to achieve its growth goals. We sold our position in Symantec during the reporting period. NetApp and Goldman Sachs remained in the Fund at the end of the reporting period because we believed that the stocks were attractively valued and had strong catalysts for potential appreciation.
In our portion of the Fund that invests in global equities, the stocks that made the strongest positive contributions to absolute performance were German pharmaceutical and medical products company Fresenius, French integrated oil & gas company Total and electric utility Exelon. Fresenius outperformed as investors took a favorable view of the company’s recent merger and acquisition activity and news on Medicare dialysis reimbursement. Total advanced because of continued improvement in its refining and marketing business and a forecast decrease in capital expenditures. Exelon had strong performance during the reporting period as rising natural gas prices suggested that the company may be able to raise power rates, which would improve its financial position. The three positions remained in the Fund at the end of the reporting period.
Detractors from absolute performance in our global equity portion of the Fund included Japanese property developer Mitsubishi Estate and Chinese dairy producer China Huishan Dairy. Data storage provider NetApp, which we also held in our portion of the Fund that invests in U.S. equities was another detractor. Mitsubishi Estate performance lagged along with sector-wide
weakness in Japanese real estate companies. China Huishan Dairy has been affected by concerns that milk prices may be peaking. All three positions remained in the Fund at the end of the reporting period, as we believed that the companies were attractively valued and had strong performance catalysts.
Did the Fund make any significant purchases or sales during the reporting period?
Markston International
During the reporting period, we purchased shares of cigarette manufacturer Phillip Morris International and insurance company Chubb. We purchased Phillip Morris after we noticed a lot of buying by company officers. We added to our position in Chubb after the stock pulled back from its previous high.
During the report period, our portion of the Fund sold Exxon Mobil and Marathon Petroleum, two companies with significant exposure to refining margins. We also reduced our positions in these stocks to lock in profits and reduce our growing exposure to the energy sector. During the reporting period, our portion of the Fund also sold Duke Energy at a profit.
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 both our domestic and global equity portions of the Fund, we added global investment bank Goldman Sachs. We found the current valuation attractive given the underlying improvement in the company’s business. Equity issuance has steadily increased with rising equity markets, and merger and acquisition activity is making a slow comeback after being subdued for several years. We also added pharmaceutical company Bristol-Myers Squibb. The company has a leading position in immuno-oncology, a field that focuses on tumor-fighting cancer treatment. We believe that the stock may benefit as the company passes additional positive clinical milestones and earnings estimates rise. In our portion of the Fund that invests in global equities, we added Dutch retail and commercial bank ING Groep. We anticipate that the completion of the company’s divestiture process will result in a clean, European-focused retail and commercial bank.
In our domestic and global equity portions of the Fund, we sold global bank JPMorgan Chase in favor of positions that we believed had more attractive potential upside and stronger catalysts. We also sold security software company Symantec, as we believed the stock’s margin-expansion investment catalyst had been delayed beyond our investment time horizon. In our global equity portion of the Fund, we sold German luxury automaker BMW in favor of stocks that we believed had greater potential upside 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
During the reporting period, our portion of the Fund marginally lowered its allocation to cash, as well as its allocations to telecommunication services and utilities relative to the Russell 3000® Index. In addition, our portion of the Fund very slightly increased its weightings relative to the Index in information technology, health care and industrials.
ICAP
In our portion of the Fund that invests in U.S. equities, we increased sector exposure relative to the S&P 500® Index in financials and energy. In both cases, we increased already overweight positions relative to this benchmark. In our portion of the Fund that invests in U.S. equities, we decreased sector weightings relative to the S&P 500® Index in telecommunication services and consumer discretionary. In telecommunication services, our domestic equity portion of the Fund moved from an overweight position to a slightly underweight position relative to the Index. In consumer discretionary, our domestic equity portion of the Fund reduced an overweight position relative to the S&P 500® Index.
In our portion of the Fund that invests in global equities, we increased absolute weightings in the financials and energy sectors during the reporting period. Over the same period, we decreased our global-equity weightings in the consumer discretionary and materials sectors.
How was the Fund positioned at the end of the reporting period?
Markston International
As of April 30, 2014, our portion of the Fund held slightly overweight positions relative to the Russell 3000® Index in the energy, financials and materials sectors. As of the same date, our portion of the Fund held slightly underweight positions relative to the Russell 3000® Index in the information technology, health care and telecommunication services sectors.
ICAP
As of April 30, 2014, our U.S. equity portion of the Fund was most significantly overweight relative to the S&P 500® Index in the financials and energy sectors and most significantly underweight relative to the S&P 500® Index in the information technology and consumer staples sectors.
In our portion of the Fund that invests in global equities, the largest weightings were in the financials and health care sectors. The smallest weightings were in the utilities and consumer staples sectors.
This positioning 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 April 30, 2014 (Unaudited)
Shares | Value | |||||||
Common Stocks 98.4%† | ||||||||
Aerospace & Defense 4.7% |
| |||||||
¨Boeing Co. (The) | 489,420 | $ | 63,144,968 | |||||
GenCorp, Inc. (a) | 166,100 | 2,916,716 | ||||||
Honeywell International, Inc. | 246,252 | 22,876,811 | ||||||
Northrop Grumman Corp. | 42,988 | 5,223,472 | ||||||
Orbital Sciences Corp. (a) | 144,350 | 4,243,890 | ||||||
Raytheon Co. | 55,575 | 5,306,301 | ||||||
United Technologies Corp. | 23,650 | 2,798,505 | ||||||
|
| |||||||
106,510,663 | ||||||||
|
| |||||||
Auto Components 1.4% |
| |||||||
Bridgestone Corp. | 216,200 | 7,739,932 | ||||||
Johnson Controls, Inc. | 558,140 | 25,194,440 | ||||||
|
| |||||||
32,934,372 | ||||||||
|
| |||||||
Automobiles 1.4% |
| |||||||
Daimler A.G. | 64,000 | 5,924,980 | ||||||
Ford Motor Co. | 1,650,000 | 26,647,500 | ||||||
|
| |||||||
32,572,480 | ||||||||
|
| |||||||
Banks 7.4% |
| |||||||
Bank of America Corp. | 2,324,254 | 35,189,206 | ||||||
¨Citigroup, Inc. | 741,605 | 35,530,296 | ||||||
DBS Group Holdings, Ltd. | 699,100 | 9,446,242 | ||||||
JPMorgan Chase & Co. | 204,772 | 11,463,137 | ||||||
Lloyds Banking Group PLC (a) | 7,007,650 | 8,916,377 | ||||||
PNC Financial Services Group, Inc. | 362,200 | 30,439,288 | ||||||
U.S. Bancorp | 305,600 | 12,462,368 | ||||||
UniCredit S.p.A. | 971,750 | 8,682,129 | ||||||
Wells Fargo & Co. | 325,624 | 16,163,975 | ||||||
|
| |||||||
168,293,018 | ||||||||
|
| |||||||
Beverages 1.7% |
| |||||||
Anheuser-Busch InBev N.V. | 48,950 | 5,326,919 | ||||||
Coca-Cola Co. (The) | 430,090 | 17,543,371 | ||||||
PepsiCo., Inc. | 197,347 | 16,950,134 | ||||||
|
| |||||||
39,820,424 | ||||||||
|
| |||||||
Biotechnology 0.7% |
| |||||||
Alkermes PLC (a) | 71,900 | 3,326,094 | ||||||
Celgene Corp. (a) | 85,520 | 12,572,295 | ||||||
|
| |||||||
15,898,389 | ||||||||
|
| |||||||
Capital Markets 3.3% |
| |||||||
Ameriprise Financial, Inc. | 46,570 | 5,198,609 | ||||||
Bank of New York Mellon Corp. | 111,725 | 3,784,126 | ||||||
¨Goldman Sachs Group, Inc. (The) | 230,719 | 36,873,511 | ||||||
Julius Baer Group, Ltd. | 228,500 | 10,683,757 | ||||||
State Street Corp. | 302,559 | 19,533,209 | ||||||
|
| |||||||
76,073,212 | ||||||||
|
|
Shares | Value | |||||||
Chemicals 4.3% |
| |||||||
Akzo Nobel N.V. | 64,062 | $ | 4,931,750 | |||||
E.I. du Pont de Nemours & Co. | 365,050 | 24,575,166 | ||||||
¨Monsanto Co. | 481,669 | 53,320,758 | ||||||
Mosaic Co. (The) | 312,700 | 15,647,508 | ||||||
|
| |||||||
98,475,182 | ||||||||
|
| |||||||
Commercial Services & Supplies 0.7% |
| |||||||
ADT Corp. (The) | 87,889 | 2,657,764 | ||||||
Covanta Holding Corp. | 260,403 | 4,804,435 | ||||||
Tyco International, Ltd. | 168,189 | 6,878,930 | ||||||
Waste Management, Inc. | 43,400 | 1,929,130 | ||||||
|
| |||||||
16,270,259 | ||||||||
|
| |||||||
Communications Equipment 1.0% |
| |||||||
Cisco Systems, Inc. | 916,900 | 21,189,559 | ||||||
Infinera Corp. (a) | 119,850 | 1,073,856 | ||||||
|
| |||||||
22,263,415 | ||||||||
|
| |||||||
Construction & Engineering 0.3% |
| |||||||
Jacobs Engineering Group, Inc. (a) | 109,001 | 6,289,358 | ||||||
|
| |||||||
Consumer Finance 2.9% |
| |||||||
American Express Co. | 360,910 | 31,554,361 | ||||||
Capital One Financial Corp. | 269,600 | 19,923,440 | ||||||
Discover Financial Services | 254,305 | 14,215,650 | ||||||
|
| |||||||
65,693,451 | ||||||||
|
| |||||||
Containers & Packaging 0.1% |
| |||||||
MeadWestvaco Corp. | 80,405 | 3,141,423 | ||||||
|
| |||||||
Diversified Financial Services 0.7% |
| |||||||
Berkshire Hathaway, Inc. Class B (a) | 24,249 | 3,124,484 | ||||||
ING Groep N.V. (a) | 537,700 | 7,635,082 | ||||||
Leucadia National Corp. | 161,124 | 4,111,884 | ||||||
|
| |||||||
14,871,450 | ||||||||
|
| |||||||
Diversified Telecommunication Services 1.6% |
| |||||||
AT&T, Inc. | 257,895 | 9,206,851 | ||||||
BCE, Inc. | 229,550 | 10,224,157 | ||||||
Nippon Telegraph & Telephone Corp. | 248,050 | 13,735,130 | ||||||
Verizon Communications, Inc. | 75,635 | 3,534,424 | ||||||
|
| |||||||
36,700,562 | ||||||||
|
| |||||||
Electric Utilities 1.6% |
| |||||||
Duke Energy Corp. | 170,646 | 12,711,421 | ||||||
Exelon Corp. | 702,650 | 24,613,829 | ||||||
|
| |||||||
37,325,250 | ||||||||
|
| |||||||
Electrical Equipment 0.9% |
| |||||||
ABB, Ltd. | 363,750 | 8,737,274 | ||||||
Rockwell Automation, Inc. | 91,132 | 10,861,112 | ||||||
|
| |||||||
19,598,386 | ||||||||
|
|
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings, as of April 30, 2014, 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) | ||||||||
Electronic Equipment, Instruments & Components 0.8% |
| |||||||
Corning, Inc. | 193,800 | $ | 4,052,358 | |||||
TE Connectivity, Ltd. | 255,541 | 15,071,808 | ||||||
|
| |||||||
19,124,166 | ||||||||
|
| |||||||
Energy Equipment & Services 2.3% |
| |||||||
Baker Hughes, Inc. | 45,822 | 3,202,958 | ||||||
Cameron International Corp. (a) | 145,550 | 9,454,928 | ||||||
Exterran Holdings, Inc. | 59,700 | 2,568,294 | ||||||
Halliburton Co. | 406,950 | 25,666,337 | ||||||
Schlumberger, Ltd. | 106,144 | 10,778,923 | ||||||
Weatherford International, Ltd. (a) | 73,800 | 1,549,800 | ||||||
|
| |||||||
53,221,240 | ||||||||
|
| |||||||
Food & Staples Retailing 2.5% |
| |||||||
CVS Caremark Corp. | 432,101 | 31,422,385 | ||||||
Wal-Mart Stores, Inc. | 176,000 | 14,028,960 | ||||||
Walgreen Co. | 164,340 | 11,158,686 | ||||||
|
| |||||||
56,610,031 | ||||||||
|
| |||||||
Food Products 0.3% |
| |||||||
Bunge, Ltd. | 25,400 | 2,023,110 | ||||||
China Huishan Dairy Holdings Co., Ltd. (a) | 6,771,200 | 1,537,133 | ||||||
Mondelez International, Inc. Class A | 66,300 | 2,363,595 | ||||||
|
| |||||||
5,923,838 | ||||||||
|
| |||||||
Gas Utilities 0.3% |
| |||||||
National Fuel Gas Co. | 77,735 | 5,724,405 | ||||||
|
| |||||||
Health Care Equipment & Supplies 2.6% |
| |||||||
Abbott Laboratories | 133,827 | 5,184,458 | ||||||
Baxter International, Inc. | 446,543 | 32,503,865 | ||||||
Covidien PLC | 170,619 | 12,156,604 | ||||||
Medtronic, Inc. | 163,296 | 9,605,070 | ||||||
|
| |||||||
59,449,997 | ||||||||
|
| |||||||
Health Care Providers & Services 1.8% |
| |||||||
Aetna, Inc. | 382,680 | 27,342,486 | ||||||
Fresenius SE & Co. KGaA | 36,250 | 5,509,424 | ||||||
SunLink Health Systems, Inc. (a) | 43,723 | 66,022 | ||||||
UnitedHealth Group, Inc. | 103,550 | 7,770,392 | ||||||
|
| |||||||
40,688,324 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure 1.0% |
| |||||||
McDonald’s Corp. | 114,080 | 11,565,430 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 140,591 | 10,776,300 | ||||||
Yum! Brands, Inc. | 6,615 | 509,289 | ||||||
|
| |||||||
22,851,019 | ||||||||
|
| |||||||
Household Products 0.5% |
| |||||||
Colgate-Palmolive Co. | 52,483 | 3,532,106 | ||||||
Procter & Gamble Co. (The) | 100,540 | 8,299,577 | ||||||
|
| |||||||
11,831,683 | ||||||||
|
|
Shares | Value | |||||||
Industrial Conglomerates 3.5% |
| |||||||
3M Co. | 65,909 | $ | 9,167,283 | |||||
¨General Electric Co. | 2,660,698 | 71,546,169 | ||||||
|
| |||||||
80,713,452 | ||||||||
|
| |||||||
Insurance 4.7% |
| |||||||
ACE, Ltd. | 247,300 | 25,303,736 | ||||||
Allstate Corp. (The) | 144,809 | 8,246,873 | ||||||
American International Group, Inc. | 121,275 | 6,443,341 | ||||||
Aon PLC | 70,700 | 6,001,016 | ||||||
Chubb Corp. (The) | 125,111 | 11,520,221 | ||||||
Marsh & McLennan Cos., Inc. | 54,194 | 2,672,306 | ||||||
MetLife, Inc. | 170,771 | 8,939,862 | ||||||
Tokio Marine Holdings, Inc. | 234,700 | 6,912,326 | ||||||
Travelers Companies, Inc. (The) | 273,902 | 24,810,043 | ||||||
W.R. Berkley Corp. | 171,368 | 7,581,320 | ||||||
|
| |||||||
108,431,044 | ||||||||
|
| |||||||
Internet & Catalog Retail 0.8% |
| |||||||
Liberty Interactive Corp. Class A (a) | 550,690 | 16,003,051 | ||||||
Liberty Ventures (a) | 49,994 | 2,901,652 | ||||||
|
| |||||||
18,904,703 | ||||||||
|
| |||||||
Internet Software & Services 2.6% |
| |||||||
eBay, Inc. (a) | 392,540 | 20,345,348 | ||||||
Google, Inc. Class A (a) | 24,710 | 13,216,885 | ||||||
Google, Inc. Class C (a) | 24,710 | 13,013,768 | ||||||
VeriSign, Inc. (a) | 231,027 | 10,899,854 | ||||||
Yahoo!, Inc. (a) | 61,000 | 2,192,950 | ||||||
|
| |||||||
59,668,805 | ||||||||
|
| |||||||
IT Services 1.3% |
| |||||||
Automatic Data Processing, Inc. | 150,537 | 11,735,865 | ||||||
International Business Machines Corp. | 90,949 | 17,868,750 | ||||||
|
| |||||||
29,604,615 | ||||||||
|
| |||||||
Machinery 1.0% |
| |||||||
Caterpillar, Inc. | 111,700 | 11,773,180 | ||||||
Vallourec S.A. | 184,250 | 10,890,652 | ||||||
|
| |||||||
22,663,832 | ||||||||
|
| |||||||
Media 7.4% |
| |||||||
Cablevision Systems Corp. Class A | 251,462 | 4,199,415 | ||||||
CBS Outdoor Americas, Inc. (a) | 58,594 | 1,716,804 | ||||||
Comcast Corp. Class A | 278,210 | 14,400,150 | ||||||
DIRECTV (a) | 55,965 | 4,342,884 | ||||||
¨Liberty Media Corp. Class A (a) | 326,944 | 42,407,906 | ||||||
Madison Square Garden Co. | 179,084 | 9,777,986 | ||||||
Sirius XM Holdings, Inc. (a) | 556,700 | 1,775,873 | ||||||
Starz Class A (a) | 177,528 | 5,728,829 | ||||||
Time Warner Cable, Inc. | 14,320 | 2,025,707 | ||||||
¨Time Warner, Inc. | 592,182 | 39,356,416 | ||||||
Viacom, Inc. Class B | 345,700 | 29,377,586 | ||||||
Walt Disney Co. (The) | 40,743 | 3,232,550 | ||||||
Wolters Kluwer N.V. | 351,950 | 9,799,731 | ||||||
|
| |||||||
168,141,837 | ||||||||
|
|
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 April 30, 2014 (Unaudited) (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Multi-Utilities 0.1% |
| |||||||
Dominion Resources, Inc. | 29,700 | $ | 2,154,438 | |||||
|
| |||||||
Multiline Retail 0.2% |
| |||||||
J.C. Penney Co., Inc. (a) | 110,297 | 939,730 | ||||||
Target Corp. | 62,650 | 3,868,638 | ||||||
|
| |||||||
4,808,368 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels 11.0% |
| |||||||
Anadarko Petroleum Corp. | 139,734 | 13,836,461 | ||||||
Apache Corp. | 112,079 | 9,728,457 | ||||||
Chesapeake Energy Corp. | 194,124 | 5,581,065 | ||||||
Chevron Corp. | 84,879 | 10,654,012 | ||||||
ConocoPhillips | 146,351 | 10,875,343 | ||||||
Devon Energy Corp. | 160,696 | 11,248,720 | ||||||
Encana Corp. | 642,750 | 14,918,227 | ||||||
ENI S.p.A. | 364,200 | 9,453,651 | ||||||
EOG Resources, Inc. | 145,258 | 14,235,284 | ||||||
¨Exxon Mobil Corp. | 485,310 | 49,700,597 | ||||||
Hess Corp. | 102,806 | 9,166,183 | ||||||
Marathon Oil Corp. | 589,774 | 21,320,330 | ||||||
Marathon Petroleum Corp. | 183,063 | 17,015,706 | ||||||
Phillips 66 | 67,953 | 5,655,049 | ||||||
Southwestern Energy Co. (a) | 347,800 | 16,652,664 | ||||||
Spectra Energy Corp. | 392,650 | 15,592,131 | ||||||
Total S.A. | 161,650 | 11,545,163 | ||||||
Williams Cos., Inc. (The) | 124,181 | 5,236,713 | ||||||
|
| |||||||
252,415,756 | ||||||||
|
| |||||||
Pharmaceuticals 6.4% |
| |||||||
AbbVie, Inc. | 133,827 | 6,969,710 | ||||||
Bayer A.G. | 75,400 | 10,460,614 | ||||||
Bristol-Myers Squibb Co. | 394,150 | 19,742,974 | ||||||
GlaxoSmithKline PLC | 441,200 | 12,157,122 | ||||||
Hospira, Inc. (a) | 149,424 | 6,843,619 | ||||||
Johnson & Johnson | 92,225 | 9,341,470 | ||||||
Merck & Co., Inc. | 130,726 | 7,655,315 | ||||||
Novartis A.G. | 137,950 | 11,959,533 | ||||||
¨Pfizer, Inc. | 1,831,400 | 57,286,192 | ||||||
Teva Pharmaceutical Industries, Ltd., Sponsored ADR | 75,950 | 3,710,917 | ||||||
|
| |||||||
146,127,466 | ||||||||
|
| |||||||
Real Estate Investment Trusts 1.3% |
| |||||||
HCP, Inc. | 279,361 | 11,694,051 | ||||||
UDR, Inc. | 563,529 | 14,572,860 | ||||||
Weyerhaeuser Co. | 80,140 | 2,392,179 | ||||||
|
| |||||||
28,659,090 | ||||||||
|
| |||||||
Real Estate Management & Development 0.4% |
| |||||||
Mitsubishi Estate Co., Ltd. | 439,900 | 9,956,753 | ||||||
|
|
Shares | Value | |||||||
Road & Rail 1.0% |
| |||||||
Celadon Group, Inc. | 108,692 | $ | 2,501,003 | |||||
CSX Corp. | 210,426 | 5,938,222 | ||||||
Union Pacific Corp. | 79,375 | 15,115,381 | ||||||
|
| |||||||
23,554,606 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment 1.6% |
| |||||||
Intel Corp. | 262,725 | 7,012,130 | ||||||
Texas Instruments, Inc. | 627,300 | 28,510,785 | ||||||
|
| |||||||
35,522,915 | ||||||||
|
| |||||||
Software 2.7% |
| |||||||
Microsoft Corp. | 518,913 | 20,964,085 | ||||||
Oracle Corp. | 781,853 | 31,962,151 | ||||||
SAP A.G. | 121,400 | 9,775,341 | ||||||
|
| |||||||
62,701,577 | ||||||||
|
| |||||||
Specialty Retail 1.3% |
| |||||||
Home Depot, Inc. (The) | 127,548 | 10,141,341 | ||||||
Lowe’s Companies, Inc. | 294,137 | 13,503,830 | ||||||
Outerwall, Inc. (a) | 86,600 | 6,005,710 | ||||||
|
| |||||||
29,650,881 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals 2.7% |
| |||||||
¨Apple, Inc. | 71,345 | 42,099,971 | ||||||
NetApp, Inc. | 347,400 | 12,370,914 | ||||||
SanDisk Corp. | 95,601 | 8,123,217 | ||||||
|
| |||||||
62,594,102 | ||||||||
|
| |||||||
Tobacco 0.3% |
| |||||||
Philip Morris International, Inc. | 84,825 | 7,246,600 | ||||||
|
| |||||||
Trading Companies & Distributors 0.3% |
| |||||||
Mitsubishi Corp. | 429,650 | 7,682,303 | ||||||
|
| |||||||
Wireless Telecommunication Services 1.0% |
| |||||||
Intouch Holdings PCL, NVDR | 945,700 | 2,279,499 | ||||||
Vodafone Group PLC, Sponsored ADR | 558,013 | 21,182,174 | ||||||
|
| |||||||
23,461,673 | ||||||||
|
| |||||||
Total Common Stocks |
| 2,252,820,813 | ||||||
|
| |||||||
Principal Amount | ||||||||
Long-Term Bonds 0.1% Convertible Bonds 0.1% | ||||||||
Oil, Gas & Consumable Fuels 0.0%‡ | ||||||||
Bill Barrett Corp. | $ | 300 | 301 | |||||
|
|
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 | |||||||
Convertible Bonds (continued) | ||||||||
Specialty Retail 0.1% | ||||||||
Outerwall, Inc. | $ | 900,000 | $ | 1,553,625 | ||||
|
| |||||||
Total Convertible Bonds |
| 1,553,926 | ||||||
|
| |||||||
Total Long-Term Bonds |
| 1,553,926 | ||||||
|
| |||||||
Short-Term Investment 1.2% | ||||||||
Repurchase Agreement 1.2% | ||||||||
State Street Bank and Trust Co. 0.00%, dated 4/30/14 | 27,884,919 | 27,884,919 | ||||||
|
| |||||||
Total Short-Term Investment |
| 27,884,919 | ||||||
|
| |||||||
Total Investments | 99.7 | % | 2,282,259,658 | |||||
|
| |||||||
Other Assets, Less Liabilities | 0.3 | 6,750,181 | ||||||
Net Assets | 100.0 | % | $ | 2,289,009,839 |
‡ | Less than one-tenth of a percent. |
(a) | Non-income producing security. |
(b) | As of April 30, 2014, cost was $1,627,884,870 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 682,558,021 | ||
Gross unrealized depreciation | (28,183,233 | ) | ||
|
| |||
Net unrealized appreciation | $ | 654,374,788 | ||
|
|
The following abbreviations are used in the above portfolio:
ADR—American Depositary Receipt
NVDR—Non-Voting Depositary Receipt
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 April 30, 2014 (Unaudited) (continued)
The following is a summary of the fair valuations according to the inputs used as of April 30, 2014, 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 | $ | 2,252,820,813 | $ | — | $ | — | $ | 2,252,820,813 | ||||||||
Long-Term Bonds | ||||||||||||||||
Convertible Bonds | — | 1,553,926 | — | 1,553,926 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 27,884,919 | — | 27,884,919 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | 2,252,820,813 | $ | 29,438,845 | $ | — | $ | 2,282,259,658 | ||||||||
|
|
|
|
|
|
|
|
(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 and April 30, 2014, 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 April 30, 2014, the Fund did not hold any investments with significant unobservable inputs (Level 3). (See Note 2)
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 Assets and Liabilities as of April 30, 2014 (Unaudited)
Assets | ||||
Investment in securities, at value (identified cost $1,619,810,370) | $ | 2,282,259,658 | ||
Cash denominated in foreign currencies (identified cost $161,149) | 161,884 | |||
Receivables: | ||||
Investment securities sold | 18,751,050 | |||
Dividends and interest | 2,541,280 | |||
Fund shares sold | 616,524 | |||
Other assets | 63,694 | |||
|
| |||
Total assets | 2,304,394,090 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 12,023,816 | |||
Manager (See Note 3) | 1,368,280 | |||
Fund shares redeemed | 1,087,820 | |||
Transfer agent (See Note 3) | 449,472 | |||
NYLIFE Distributors (See Note 3) | 289,258 | |||
Shareholder communication | 92,570 | |||
Professional fees | 43,468 | |||
Trustees | 3,598 | |||
Custodian | 164 | |||
Accrued expenses | 25,805 | |||
|
| |||
Total liabilities | 15,384,251 | |||
|
| |||
Net assets | $ | 2,289,009,839 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 510,550 | ||
Additional paid-in capital | 1,548,492,535 | |||
|
| |||
1,549,003,085 | ||||
Undistributed net investment income | 20,162,161 | |||
Accumulated net realized gain (loss) on investments and foreign currency transactions | 57,384,535 | |||
Net unrealized appreciation (depreciation) on investments | 662,449,288 | |||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies | 10,770 | |||
|
| |||
Net assets | $ | 2,289,009,839 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 149,873,463 | ||
|
| |||
Shares of beneficial interest outstanding | 3,363,260 | |||
|
| |||
Net asset value per share outstanding | $ | 44.56 | ||
Maximum sales charge (5.50% of offering price) | 2.59 | |||
|
| |||
Maximum offering price per share outstanding | $ | 47.15 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 366,729,761 | ||
|
| |||
Shares of beneficial interest outstanding | 8,228,045 | |||
|
| |||
Net asset value per share outstanding | $ | 44.57 | ||
Maximum sales charge (5.50% of offering price) | 2.59 | |||
|
| |||
Maximum offering price per share outstanding | $ | 47.16 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 77,089,656 | ||
|
| |||
Shares of beneficial interest outstanding | 1,863,603 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 41.37 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 142,943,033 | ||
|
| |||
Shares of beneficial interest outstanding | 3,455,164 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 41.37 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 1,527,582,551 | ||
|
| |||
Shares of beneficial interest outstanding | 33,590,434 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 45.48 | ||
|
| |||
Class R1 | ||||
Net assets applicable to outstanding shares | $ | 7,098,910 | ||
|
| |||
Shares of beneficial interest outstanding | 158,571 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 44.77 | ||
|
| |||
Class R2 | ||||
Net assets applicable to outstanding shares | $ | 16,279,256 | ||
|
| |||
Shares of beneficial interest outstanding | 364,227 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 44.70 | ||
|
| |||
Class R3 | ||||
Net assets applicable to outstanding shares | $ | 1,413,209 | ||
|
| |||
Shares of beneficial interest outstanding | 31,736 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 44.53 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 17 |
Statement of Operations for the six months ended April 30, 2014 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Dividends (a) | $ | 35,716,669 | ||
Interest | 22,548 | |||
|
| |||
Total income | 35,739,217 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 8,157,988 | |||
Distribution/Service—Investor Class (See Note 3) | 182,724 | |||
Distribution/Service—Class A (See Note 3) | 449,195 | |||
Distribution/Service—Class B (See Note 3) | 396,482 | |||
Distribution/Service—Class C (See Note 3) | 708,914 | |||
Distribution/Service—Class R2 (See Note 3) | 22,812 | |||
Distribution/Service—Class R3 (See Note 3) | 4,186 | |||
Transfer agent (See Note 3) | 1,389,375 | |||
Shareholder communication | 80,286 | |||
Professional fees | 64,545 | |||
Registration | 51,665 | |||
Custodian | 33,415 | |||
Trustees | 19,972 | |||
Shareholder service (See Note 3) | 13,425 | |||
Miscellaneous | 37,794 | |||
|
| |||
Total expenses | 11,612,778 | |||
|
| |||
Net investment income (loss) | 24,126,439 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 67,707,428 | |||
Foreign currency transactions | (32,618 | ) | ||
|
| |||
Net realized gain (loss) on investments and foreign currency transactions | 67,674,810 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 45,496,888 | |||
Translation of other assets and liabilities in foreign currencies | 2,503 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions | 45,499,391 | |||
|
| |||
Net realized and unrealized gain (loss) on investments and foreign currency transactions | 113,174,201 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 137,300,640 | ||
|
|
(a) | Dividends recorded net of foreign withholding taxes in the amount of $321,563. |
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. |
Statements of Changes in Net Assets
for the six months ended April 30, 2014 (Unaudited) and the year ended October 31, 2013
2014 | 2013 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 24,126,439 | $ | 24,353,606 | ||||
Net realized gain (loss) on investments and foreign currency transactions | 67,674,810 | 177,601,529 | ||||||
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions | 45,499,391 | 335,309,956 | ||||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 137,300,640 | 537,265,091 | ||||||
|
| |||||||
Dividends and distributions to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (1,282,654 | ) | (1,125,412 | ) | ||||
Class A | (3,679,355 | ) | (3,306,456 | ) | ||||
Class B | (155,655 | ) | (177,081 | ) | ||||
Class C | (276,234 | ) | (255,810 | ) | ||||
Class I | (18,234,809 | ) | (18,508,015 | ) | ||||
Class R1 | (79,038 | ) | (63,811 | ) | ||||
Class R2 | (185,472 | ) | (183,045 | ) | ||||
Class R3 | (11,404 | ) | (10,894 | ) | ||||
|
| |||||||
(23,904,621 | ) | (23,630,524 | ) | |||||
|
| |||||||
From net realized gain on investments: | ||||||||
Investor Class | (3,038,070 | ) | — | |||||
Class A | (7,353,614 | ) | — | |||||
Class B | (1,778,836 | ) | — | |||||
Class C | (3,153,772 | ) | — | |||||
Class I | (29,691,451 | ) | — | |||||
Class R1 | (139,803 | ) | — | |||||
Class R2 | (410,736 | ) | — | |||||
Class R3 | (34,875 | ) | — | |||||
|
| |||||||
(45,601,157 | ) | — | ||||||
|
| |||||||
Total dividends and distributions to shareholders | (69,505,778 | ) | (23,630,524 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 209,728,257 | 320,171,647 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 67,824,014 | 23,021,367 | ||||||
Cost of shares redeemed | (228,595,156 | ) | (713,542,943 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | 48,957,115 | (370,349,929 | ) | |||||
|
| |||||||
Net increase (decrease) in net assets | 116,751,977 | 143,284,638 |
2014 | 2013 | |||||||
Net Assets | ||||||||
Beginning of period | $ | 2,172,257,862 | $ | 2,028,973,224 | ||||
|
| |||||||
End of period | $ | 2,289,009,839 | $ | 2,172,257,862 | ||||
|
| |||||||
Undistributed net investment income at end of period | $ | 20,162,161 | $ | 19,940,343 | ||||
|
|
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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Investor Class | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 43.24 | $ | 34.04 | $ | 30.44 | $ | 29.76 | $ | 25.71 | $ | 23.04 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.42 | 0.34 | 0.34 | 0.31 | 0.19 | 0.22 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.18 | 9.18 | 3.55 | 0.63 | 3.86 | 2.90 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.06 | ) | (0.00 | )‡ | 0.00 | ‡ | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 2.60 | 9.52 | 3.89 | 0.88 | 4.05 | 3.12 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.38 | ) | (0.32 | ) | (0.29 | ) | (0.20 | ) | — | (0.45 | ) | |||||||||||||||
From net realized gain on investments | (0.90 | ) | — | — | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (1.28 | ) | (0.32 | ) | (0.29 | ) | (0.20 | ) | — | (0.45 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 44.56 | $ | 43.24 | $ | 34.04 | $ | 30.44 | $ | 29.76 | $ | 25.71 | ||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 6.12 | %(c) | 28.26 | % | 12.88 | % | 2.96 | % | 15.75 | % | 13.83 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 1.93 | %†† | 0.88 | % | 1.04 | % | 0.98 | % | 0.69 | % | 0.98 | % | ||||||||||||||
Net expenses | 1.27 | %†† | 1.30 | % | 1.34 | % | 1.34 | % | 1.41 | % | 1.44 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.27 | %†† | 1.30 | % | 1.34 | % | 1.34 | % | 1.41 | % | 1.50 | % | ||||||||||||||
Portfolio turnover rate | 15 | % | 29 | % | 40 | % | 44 | % | 49 | % | 60 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 149,873 | $ | 144,892 | $ | 120,771 | $ | 114,786 | $ | 113,557 | $ | 99,663 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class A | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 43.28 | $ | 34.07 | $ | 30.47 | $ | 29.79 | $ | 25.68 | $ | 23.04 | ||||||||||||||
|
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|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.45 | 0.41 | 0.40 | 0.37 | 0.25 | 0.28 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.19 | 9.19 | 3.56 | 0.63 | 3.86 | 2.90 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.06 | ) | (0.00 | )‡ | 0.00 | ‡ | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 2.64 | 9.60 | 3.96 | 0.94 | 4.11 | 3.18 | ||||||||||||||||||||
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|
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| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.45 | ) | (0.39 | ) | (0.36 | ) | (0.26 | ) | — | (0.54 | ) | |||||||||||||||
From net realized gain on investments | (0.90 | ) | — | — | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (1.35 | ) | (0.39 | ) | (0.36 | ) | (0.26 | ) | — | (0.54 | ) | |||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 44.57 | $ | 43.28 | $ | 34.07 | $ | 30.47 | $ | 29.79 | $ | 25.68 | ||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 6.21 | %(c) | 28.47 | % | 13.14 | % | 3.16 | % | 16.00 | % | 14.12 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 2.09 | %†† | 1.07 | % | 1.24 | % | 1.18 | % | 0.90 | % | 1.25 | % | ||||||||||||||
Net expenses | 1.11 | %†† | 1.11 | % | 1.14 | % | 1.14 | % | 1.21 | % | 1.20 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.11 | %†† | 1.11 | % | 1.14 | % | 1.14 | % | 1.21 | % | 1.29 | % | ||||||||||||||
Portfolio turnover rate | 15 | % | 29 | % | 40 | % | 44 | % | 49 | % | 60 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 366,730 | $ | 356,657 | $ | 294,247 | $ | 296,453 | $ | 345,067 | $ | 324,421 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
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
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class B | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 40.08 | $ | 31.55 | $ | 28.21 | $ | 27.63 | $ | 24.04 | $ | 21.36 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.24 | 0.06 | 0.10 | 0.07 | (0.01 | ) | 0.06 | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.03 | 8.54 | 3.29 | 0.58 | 3.60 | 2.70 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.05 | ) | (0.00 | )‡ | 0.00 | ‡ | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 2.27 | 8.60 | 3.39 | 0.60 | 3.59 | 2.76 | ||||||||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.08 | ) | (0.07 | ) | (0.05 | ) | (0.02 | ) | — | (0.08 | ) | |||||||||||||||
From net realized gain on investments | (0.90 | ) | — | — | — | — | — | |||||||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends | (0.98 | ) | (0.07 | ) | (0.05 | ) | (0.02 | ) | — | (0.08 | ) | |||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 41.37 | $ | 40.08 | $ | 31.55 | $ | 28.21 | $ | 27.63 | $ | 24.04 | ||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 5.74 | %(c) | 27.30 | % | 12.04 | % | 2.18 | % | 14.93 | % | 12.97 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 1.19 | %†† | 0.16 | % | 0.33 | % | 0.24 | % | (0.04 | %) | 0.31 | % | ||||||||||||||
Net expenses | 2.02 | %†† | 2.05 | % | 2.09 | % | 2.09 | % | 2.16 | % | 2.19 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 2.02 | %†† | 2.05 | % | 2.09 | % | 2.09 | % | 2.16 | % | 2.26 | % | ||||||||||||||
Portfolio turnover rate | 15 | % | 29 | % | 40 | % | 44 | % | 49 | % | 60 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 77,090 | $ | 82,695 | $ | 86,613 | $ | 110,794 | $ | 140,674 | $ | 169,606 |
* | Unaudited. |
†† | 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. |
(c) | Total investment return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class C | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 40.08 | $ | 31.56 | $ | 28.21 | $ | 27.63 | $ | 24.05 | $ | 21.37 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.24 | 0.05 | 0.09 | 0.07 | (0.01 | ) | 0.06 | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.03 | 8.54 | 3.31 | 0.58 | 3.59 | 2.70 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.05 | ) | (0.00 | )‡ | 0.00 | ‡ | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 2.27 | 8.59 | 3.40 | 0.60 | 3.58 | 2.76 | ||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.08 | ) | (0.07 | ) | (0.05 | ) | (0.02 | ) | — | (0.08 | ) | |||||||||||||||
From net realized gain on investments | (0.90 | ) | — | — | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.98 | ) | (0.07 | ) | (0.05 | ) | (0.02 | ) | — | (0.08 | ) | |||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 41.37 | $ | 40.08 | $ | 31.56 | $ | 28.21 | $ | 27.63 | $ | 24.05 | ||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 5.74 | %(c) | 27.26 | % | 12.07 | % | 2.18 | % | 14.89 | % | 12.96 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 1.18 | %†† | 0.14 | % | 0.31 | % | 0.23 | % | (0.05 | %) | 0.29 | % | ||||||||||||||
Net expenses | 2.02 | %†† | 2.05 | % | 2.09 | % | 2.09 | % | 2.16 | % | 2.19 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 2.02 | %†† | 2.05 | % | 2.09 | % | 2.09 | % | 2.16 | % | 2.25 | % | ||||||||||||||
Portfolio turnover rate | 15 | % | 29 | % | 40 | % | 44 | % | 49 | % | 60 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 142,943 | $ | 141,628 | $ | 125,700 | $ | 136,274 | $ | 160,098 | $ | 167,652 |
* | Unaudited. |
†† | 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. |
(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 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class I | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 44.18 | $ | 34.77 | $ | 31.10 | $ | 30.39 | $ | 26.15 | $ | 23.51 | ||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.52 | 0.52 | 0.49 | 0.45 | 0.32 | 0.33 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.23 | 9.37 | 3.62 | 0.66 | 3.93 | 2.95 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.06 | ) | (0.00 | )‡ | 0.00 | ‡ | ||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 2.75 | 9.89 | 4.11 | 1.05 | 4.25 | 3.28 | ||||||||||||||||||||
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|
|
|
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|
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| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.55 | ) | (0.48 | ) | (0.44 | ) | (0.34 | ) | (0.01 | ) | (0.64 | ) | ||||||||||||||
From net realized gain on investments | (0.90 | ) | — | — | — | — | — | |||||||||||||||||||
|
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|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (1.45 | ) | (0.48 | ) | (0.44 | ) | (0.34 | ) | (0.01 | ) | (0.64 | ) | ||||||||||||||
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|
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| |||||||||||||||
Net asset value at end of period | $ | 45.48 | $ | 44.18 | $ | 34.77 | $ | 31.10 | $ | 30.39 | $ | 26.15 | ||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 6.35 | %(c) | 28.79 | % | 13.40 | % | 3.43 | % | 16.26 | % | 14.38 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 2.36 | %†† | 1.33 | % | 1.48 | % | 1.42 | % | 1.12 | % | 1.45 | % | ||||||||||||||
Net expenses | 0.86 | %†† | 0.86 | % | 0.89 | % | 0.89 | % | 0.95 | % | 0.98 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 0.86 | %†† | 0.86 | % | 0.89 | % | 0.89 | % | 0.95 | % | 1.04 | % | ||||||||||||||
Portfolio turnover rate | 15 | % | 29 | % | 40 | % | 44 | % | 49 | % | 60 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 1,527,583 | $ | 1,417,814 | $ | 1,358,999 | $ | 1,188,911 | $ | 759,317 | $ | 567,720 |
* | Unaudited. |
†† | 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 I shares are not subject to sales charges. |
(c) | Total investment return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class R1 | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 43.49 | $ | 34.23 | $ | 30.63 | $ | 29.93 | $ | 25.84 | $ | 23.23 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.49 | 0.54 | 0.44 | 0.31 | 0.30 | 0.27 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.20 | 9.14 | 3.58 | 0.77 | 3.87 | 2.94 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.07 | ) | (0.00 | )‡ | 0.00 | ‡ | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 2.69 | 9.68 | 4.02 | 1.01 | 4.17 | 3.21 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.51 | ) | (0.42 | ) | (0.42 | ) | (0.31 | ) | (0.08 | ) | (0.60 | ) | ||||||||||||||
From net realized gain on investments | (0.90 | ) | — | — | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (1.41 | ) | (0.42 | ) | (0.42 | ) | (0.31 | ) | (0.08 | ) | (0.60 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 44.77 | $ | 43.49 | $ | 34.23 | $ | 30.63 | $ | 29.93 | $ | 25.84 | ||||||||||||||
|
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|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 6.30 | %(c) | 28.63 | % | 13.26 | % | 3.35 | % | 16.12 | % | 14.20 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 2.24 | %†† | 1.43 | % | 1.37 | % | 1.02 | % | 1.07 | % | 1.21 | % | ||||||||||||||
Net expenses | 0.96 | %†† | 0.96 | % | 0.99 | % | 0.99 | % | 1.06 | % | 1.08 | % | ||||||||||||||
Expenses (before reimbursement/waiver) | 0.96 | %†† | 0.96 | % | 0.99 | % | 0.99 | % | 1.06 | % | 1.14 | % | ||||||||||||||
Portfolio turnover rate | 15 | % | 29 | % | 40 | % | 44 | % | 49 | % | 60 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 7,099 | $ | 6,737 | $ | 21,761 | $ | 17,611 | $ | 325 | $ | 626 |
* | Unaudited. |
†† | 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. |
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. |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class R2 | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 43.38 | $ | 34.12 | $ | 30.53 | $ | 29.85 | $ | 25.76 | $ | 23.06 | ||||||||||||||
|
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|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.42 | 0.38 | 0.38 | 0.34 | 0.22 | 0.23 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.21 | 9.21 | 3.54 | 0.63 | 3.87 | 2.93 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.06 | ) | (0.00 | )‡ | 0.00 | ‡ | ||||||||||||||
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| |||||||||||||||
Total from investment operations | 2.63 | 9.59 | 3.92 | 0.91 | 4.09 | 3.16 | ||||||||||||||||||||
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|
|
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| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.41 | ) | (0.33 | ) | (0.33 | ) | (0.23 | ) | — | (0.46 | ) | |||||||||||||||
From net realized gain on investments | (0.90 | ) | — | — | — | — | — | |||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (1.31 | ) | (0.33 | ) | (0.33 | ) | (0.23 | ) | — | (0.46 | ) | |||||||||||||||
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Net asset value at end of period | $ | 44.70 | $ | 43.38 | $ | 34.12 | $ | 30.53 | $ | 29.85 | $ | 25.76 | ||||||||||||||
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|
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| |||||||||||||||
Total investment return (b) | 6.16 | %(c) | 28.36 | % | 12.99 | % | 3.05 | % | 15.88 | % | 13.96 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 1.96 | %†† | 0.98 | % | 1.16 | % | 1.08 | % | 0.80 | % | 1.01 | % | ||||||||||||||
Net expenses | 1.21 | %†† | 1.21 | % | 1.24 | % | 1.24 | % | 1.31 | % | 1.33 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.21 | %†† | 1.21 | % | 1.24 | % | 1.24 | % | 1.31 | % | 1.38 | % | ||||||||||||||
Portfolio turnover rate | 15 | % | 29 | % | 40 | % | 44 | % | 49 | % | 60 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 16,279 | $ | 20,140 | $ | 19,072 | $ | 22,733 | $ | 26,735 | $ | 14,006 |
* | Unaudited. |
†† | 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 R2 shares are not subject to sales charges. |
(c) | Total investment return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||
Class R3 | 2014* | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Net asset value at beginning of period | $ | 43.16 | $ | 33.94 | $ | 30.38 | $ | 29.71 | $ | 25.70 | $ | 22.97 | ||||||||||||||
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|
|
|
|
|
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|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.38 | 0.29 | 0.30 | 0.25 | 0.15 | 0.16 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.18 | 9.16 | 3.53 | 0.64 | 3.86 | 2.93 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.06 | ) | (0.00 | )‡ | 0.00 | ‡ | ||||||||||||||
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| |||||||||||||||
Total from investment operations | 2.56 | 9.45 | 3.83 | 0.83 | 4.01 | 3.09 | ||||||||||||||||||||
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|
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| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||
From net investment income | (0.29 | ) | (0.23 | ) | (0.27 | ) | (0.16 | ) | — | (0.36 | ) | |||||||||||||||
From net realized gain on investments | (0.90 | ) | — | — | — | — | — | |||||||||||||||||||
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|
|
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| |||||||||||||||
Total dividends and distributions | (1.19 | ) | (0.23 | ) | (0.27 | ) | (0.16 | ) | — | (0.36 | ) | |||||||||||||||
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|
|
|
|
|
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|
|
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| |||||||||||||||
Net asset value at end of period | $ | 44.53 | $ | 43.16 | $ | 33.94 | $ | 30.38 | $ | 29.71 | $ | 25.70 | ||||||||||||||
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| |||||||||||||||
Total investment return (b) | 6.04 | %(c) | 28.03 | % | 12.72 | % | 2.79 | % | 15.60 | % | 13.65 | % | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||
Net investment income (loss) | 1.77 | %†† | 0.74 | % | 0.94 | % | 0.80 | % | 0.54 | % | 0.72 | % | ||||||||||||||
Net expenses | 1.46 | %†† | 1.46 | % | 1.49 | % | 1.49 | % | 1.56 | % | 1.58 | % | ||||||||||||||
Expenses (before waiver/reimbursement) | 1.46 | %†† | 1.46 | % | 1.49 | % | 1.49 | % | 1.56 | % | 1.63 | % | ||||||||||||||
Portfolio turnover rate | 15 | % | 29 | % | 40 | % | 44 | % | 49 | % | 60 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 1,413 | $ | 1,696 | $ | 1,809 | $ | 2,380 | $ | 1,850 | $ | 1,484 |
* | Unaudited. |
†† | 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 R3 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 | 23 |
Notes to Financial Statements (Unaudited)
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 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”) adopted procedures for the valuation of the Fund’s securities and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board 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 Sub-Committee deals in the first instance with such valuation and 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. Any action taken by the Sub-Committee with respect to the valuation of a portfolio security is submitted by the Valuation Committee to the Board for its review at its next regularly scheduled meeting immediately after such action.
“Fair value” is defined as the price that the Fund would receive upon selling an asset or liability in an orderly transaction to an independent buyer in the principal or most advantageous market for the asset or liability. Fair value measurements are determined within a framework that 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” refer 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 based on the information available. 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 below.
• | Level 1—quoted prices in active markets for an identical asset or liability |
24 | MainStay MAP Fund |
• | Level 2—other significant observable inputs (including quoted prices for a similar asset or liability in active markets, interest rates and yield curves, prepayment speeds, credit risk etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring fair value of an asset or liability) |
The aggregate value by input level, as of April 30, 2014, for the Fund’s assets or liabilities is included at the end of the Fund’s Portfolio of Investments.
The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs among others:
• 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 |
An asset or liability for which market values cannot be measured using the methodologies described above are valued by methods deemed reasonable and in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund generally 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 asset or liability are discounted to calculate fair value. Discounts may also be applied due to the nature and/or duration of any restrictions on the disposition of the asset or liability. Due to the inherent valuation uncertainty of such assets or liabilities, fair values may differ significantly from values that would have been used had an active market existed. For the six-month period ended April 30, 2014, there have been no material 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 readily available from a third party pricing source or, if so provided, does not, in the opinion of the Manager or Subadvisors reflect the security’s market value; (vi) a security subject to trading collars for which no or limited trading takes place; and (vii) 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 April 30, 2014, the Fund did not hold any securities that were fair valued in such a manner.
Certain securities held by the Fund may principally trade in foreign markets. Events may occur between the time that foreign markets close
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 April 30, 2014, no foreign equity securities were fair valued in such a manner.
Equity securities and Exchange-Traded Funds are valued at the last 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 last quoted bid and ask prices. Prices are normally 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 Manager, in consultation with the Subadvisors. Those prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Manager, in consultation with the Subadvisors, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities purchased on a 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 at the time of purchase (“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
mainstayinvestments.com | 25 |
Notes to Financial Statements (Unaudited) (continued)
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 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. The Fund may be subject to foreign taxes on income and other transaction-based taxes imposed by certain countries in which they invest. A portion of the taxes on gains on investments or currency purchases/repatriation 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 six-month period ended April 30, 2014, 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 from net investment income and distributions from 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, net of any foreign tax withheld at the source, 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. The straight-line method approximates the effective interest method for short-term investments. 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 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 if 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.
26 | MainStay MAP 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 April 30, 2014, 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 April 30, 2014.
(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 purchase and sell foreign currency forward
contracts for purposes of seeking to enhance portfolio returns and manage portfolio risk more efficiently. Foreign currency forward contracts may also be used to gain exposure to a particular currency or to hedge against the risk of loss due to changing currency exchange rates. Foreign currency forward contracts to purchase or sell a foreign currency may also be used in anticipation of future purchases or sales of securities denominated in foreign currency, even if the specific investments have not yet been selected.
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.
(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 or economic
mainstayinvestments.com | 27 |
Notes to Financial Statements (Unaudited) (continued)
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.
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 compensation 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 six-month period ended April 30, 2014, inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets.
For the six-month period ended April 30, 2014, New York Life Investments earned fees from the Fund in the amount of $8,157,988.
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.
28 | MainStay MAP Fund |
Shareholder service fees incurred by the Fund for the six-month period ended April 30, 2014, were as follows:
Class R1 | $ | 3,463 | ||
Class R2 | 9,125 | |||
Class R3 | 837 |
(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 $26,923 and $31,045, respectively, for the six-month period ended April 30, 2014. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $1, $35, $39,724 and $1,813, respectively, for the six-month period ended April 30, 2014.
(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 six-month period ended April 30, 2014, were as follows:
Investor Class | $ | 189,746 | ||
Class A | 176,589 | |||
Class B | 102,961 | |||
Class C | 184,052 | |||
Class I | 722,854 | |||
Class R1 | 3,403 | |||
Class R2 | 8,948 | |||
Class R3 | 822 |
(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 April 30, 2014, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class A | $ | 4,427 | 0.0 | %‡ | ||||
Class I | 133,719,383 | 8.8 |
‡ | Less than one-tenth of a percent. |
Note 4–Federal Income Tax
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 | Short-Term Capital Loss Amounts (000’s) | Long-Term Capital Loss Amounts (000’s) | ||||||
2015 | $ | 2,216 | $ | — |
The tax character of distributions paid during the year ended October 31, 2013, shown in the Statements of Changes in Net Assets was as follows:
2013 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 23,630,524 |
Note 5–Custodian
State Street is the custodian of cash and securities held by the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities held by 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, who serves as the agent 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. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the six-month period ended April 30, 2014.
mainstayinvestments.com | 29 |
Notes to Financial Statements (Unaudited) (continued)
Note 7–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2014, purchases and sales of securities, other than short-term securities, were $339,087 and $330,716, respectively.
Note 8–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 149,903 | $ | 6,526,968 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 100,342 | 4,311,713 | ||||||
Shares redeemed | (211,304 | ) | (9,209,524 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 38,941 | 1,629,157 | ||||||
Shares converted into Investor Class (See Note 1) | 109,028 | 4,791,370 | ||||||
Shares converted from Investor Class (See Note 1) | (135,629 | ) | (5,880,759 | ) | ||||
|
| |||||||
Net increase (decrease) | 12,340 | $ | 539,768 | |||||
|
| |||||||
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 | ) | |||
|
| |||||||
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 392,280 | $ | 17,058,206 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 246,104 | 10,570,176 | ||||||
Shares redeemed | (812,125 | ) | (35,295,263 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (173,741 | ) | (7,666,881 | ) | ||||
Shares converted into Class A (See Note 1) | 161,335 | 6,997,948 | ||||||
|
| |||||||
Net increase (decrease) | (12,406 | ) | $ | (668,933 | ) | |||
|
| |||||||
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 | ) | |||
|
|
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 85,868 | $ | 3,475,208 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 46,848 | 1,873,418 | ||||||
Shares redeemed | (187,230 | ) | (7,588,267 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (54,514 | ) | (2,239,641 | ) | ||||
Shares converted from Class B (See Note 1) | (145,203 | ) | (5,908,559 | ) | ||||
|
| |||||||
Net increase (decrease) | (199,717 | ) | $ | (8,148,200 | ) | |||
|
| |||||||
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 | ) | |||
|
| |||||||
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 103,248 | $ | 4,176,937 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 69,225 | 2,768,999 | ||||||
Shares redeemed | (250,577 | ) | (10,149,072 | ) | ||||
|
| |||||||
Net increase (decrease) | (78,104 | ) | $ | (3,203,136 | ) | |||
|
| |||||||
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 | ) | |||
|
| |||||||
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 3,982,840 | $ | 176,957,974 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,084,485 | 47,478,734 | ||||||
Shares redeemed | (3,567,737 | ) | (159,442,729 | ) | ||||
|
| |||||||
Net increase (decrease) | 1,499,588 | $ | 64,993,979 | |||||
|
| |||||||
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 | ) | |||
|
|
30 | MainStay MAP Fund |
Class R1 | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 10,939 | $ | 478,981 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 5,075 | 218,841 | ||||||
Shares redeemed | (12,340 | ) | (540,201 | ) | ||||
|
| |||||||
Net increase (decrease) | 3,674 | $ | 157,621 | |||||
|
| |||||||
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 | ) | |||
|
| |||||||
Class R2 | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 22,664 | $ | 989,457 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 12,900 | 555,854 | ||||||
Shares redeemed | (135,631 | ) | (5,928,694 | ) | ||||
|
| |||||||
Net increase (decrease) | (100,067 | ) | $ | (4,383,383 | ) | |||
|
| |||||||
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 | ) | |||
|
|
Class R3 | Shares | Amount | ||||||
Six-month period ended April 30, 2014: | ||||||||
Shares sold | 1,482 | $ | 64,526 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,077 | 46,279 | ||||||
Shares redeemed | (10,115 | ) | (441,406 | ) | ||||
|
| |||||||
Net increase (decrease) | (7,556 | ) | $ | (330,601 | ) | |||
|
| |||||||
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 | ) | |||
|
|
Note 9–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the six-month period ended April 30, 2014, events and transactions subsequent to April 30, 2014, 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 | 31 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreements (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”) requires that each mutual fund’s board of trustees, including a majority of the independent trustees, annually review and approve the fund’s investment advisory agreements. At its December 10-11, 2013 meeting, the Board of Trustees of the MainStay Group of Funds (“Board”) unanimously approved the Management Agreement with respect to the MainStay MAP Fund (“Fund”) and New York Life Investment Management LLC (“New York Life Investments”) and the Subadvisory Agreements between New York Life Investments and Institutional Capital LLC (“ICAP”) and Markston International LLC (“Markston”) with respect to the Fund.
In reaching its decision to approve the Agreements, the Board considered information furnished by New York Life Investments, ICAP and Markston in connection with a contract review process that took place at various meetings of the Board and its Contracts Committee between September 2013 and December 2013 as well as other relevant information furnished to the Board throughout the year by New York Life Investments, ICAP and Markston. Information requested by and furnished to the Board in connection with the contract review process included, among other items, reports on the Fund and “peer funds” prepared by Strategic Insight Mutual Fund Research and Consulting, LLC (“Strategic Insight”), an independent third-party service provider engaged by the Board to report objectively on the Fund’s investment performance, management and subadvisory fees and ordinary operating expenses. The Board also considered information provided by New York Life Investments, ICAP and Markston on the fees charged to other investment advisory clients (including institutional separate accounts) that follow investment strategies similar to the Fund and the rationale for any differences in the Fund’s management and subadvisory fees and the fees charged to those other investment advisory clients. In addition, the Board requested and received information on the profitability of the Fund to New York Life Investments and its affiliates, including ICAP as subadvisor to the Fund, and Markston and responses from New York Life Investments, ICAP and Markston to a series of questions encompassing a variety of topics prepared on behalf of the Board by independent legal counsel to the Board and its independent trustees (the “Independent Trustees”). Information provided to the Board at its meetings throughout the year included, among other items, detailed investment performance reports on the Fund prepared by the Investment Consulting Group at New York Life Investments. The structure and format for this regular reporting were developed in consultation with the Board. The Board also received from New York Life Investments throughout the year, among other items, periodic reports on legal and compliance matters, portfolio turnover, and sales and marketing activity.
In considering the Agreements, the members of the Board reviewed and evaluated all of the information and factors they believed to be relevant and appropriate in light of legal advice furnished to them by independent legal counsel and through the exercise of their own business judgment. The broad factors considered by the Board are discussed in greater detail below and included, among other items: (i) the nature, scope and quality of the services provided to the Fund by New York Life Investments, ICAP and Markston; (ii) the investment performance of the Fund, New York Life Investments, ICAP and Markston; (iii) the costs of the services provided, and profits realized, by New York Life Investments, ICAP and Markston from their relationships with the
Fund; (iv) the extent to which economies of scale may be realized as the Fund grows and the extent to which economies of scale may benefit Fund investors; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to similar funds and accounts managed by New York Life Investments, ICAP and Markston and peer funds identified by Strategic Insight.
While individual members of the Board may have weighed certain factors differently, the Board’s decision to approve the Agreements was based on a consideration of all the information provided to the Board, including information provided to the Board throughout the year and specifically in connection with the contract review process. The Board’s conclusions with respect to the Agreements also were based, in part, on the Board’s consideration of the Agreements in prior years. In addition to considering the above-referenced factors, the Board observed that in the marketplace there are a range of investment options available to shareholders of the Fund and that the Fund’s shareholders, having had the opportunity to consider other investment options, have chosen to invest in the Fund. A more detailed discussion of the factors that figured prominently in the Board’s decisions to approve the Agreements is provided below.
Nature, Scope and Quality of Services to Be Provided by New York Life Investments, ICAP and Markston
The Board examined the nature, scope and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience in serving as manager of the Fund, noting that New York Life Investments manages other mutual funds, serves a variety of other investment advisory clients, including other pooled investment vehicles, and has experience with overseeing mutual fund service providers, including subadvisors. The Board considered the experience of senior personnel at New York Life Investments providing management and administrative services to the Fund as well as New York Life Investments’ reputation and financial condition. The Board also considered the full range of non-advisory services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and oversight services provided by New York Life Investments’ Fund Accounting and Administration Group; (ii) investment oversight and analytical services provided by New York Life Investments’ Investment Consulting Group; (iii) compliance services provided by the Fund’s Chief Compliance Officer as well as New York Life Investments’ compliance department, including oversight and implementation of the Fund’s compliance program; and (iv) legal services provided by New York Life Investments’ Office of the General Counsel. Additional information about the non-advisory services provided by New York Life Investments is set forth in the Fund’s Management Agreement. The Board also considered New York Life Investments’ willingness to invest in personnel and infrastructure that benefit the Fund and noted that New York Life Investments is responsible for compensating the Fund’s officers. The Board also considered benefits to shareholders of being part of the MainStay Group of Funds, including the privilege of exchanging investments between the same class of shares without the imposition of a sales charge, as described more fully in the Fund’s prospectus.
32 | MainStay MAP Fund |
The Board also examined the nature, scope and quality of the advisory services that ICAP and Markston provide to the Fund. The Board evaluated ICAP’s and Markston’s experience in serving as subadvisors to the Fund and managing other portfolios. It examined ICAP’s and Markston’s track records and experience in providing investment advisory services, the experience of investment advisory, senior management and administrative personnel at ICAP and Markston, and ICAP’s and Markston’s overall legal and compliance environments. The Board also reviewed ICAP’s and Markston’s willingness to invest in personnel that benefit the Fund. In this regard, the Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers and the method for compensating portfolio managers.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund should continue to benefit from the nature, scope and quality of these services as a result of New York Life Investments’, ICAP’s and Markston’s experience, personnel, operations and resources.
Investment Performance
In evaluating the Fund’s investment performance, the Board considered investment performance results in light of the Fund’s investment objective, strategies and risks, as disclosed in the Fund’s prospectus. The Board particularly considered detailed investment reports on the Fund’s performance provided to the Board throughout the year by the Investment Consulting Group of New York Life Investments. These reports include, among other items, information on the Fund’s gross and net returns, the Fund’s investment performance relative to relevant investment categories and Fund benchmarks, the Fund’s risk-adjusted investment performance, and the Fund’s investment performance as compared to peer funds, as appropriate. The Board also considered information provided by Strategic Insight showing the investment performance of the Fund as compared to peer funds.
In considering the Fund’s investment performance, the Board focused principally on the Fund’s long-term performance track record. The Board also gave weight to its ongoing discussions with senior management at New York Life Investments concerning the Fund’s investment performance as well as discussions between the Fund’s portfolio managers and the Board that generally occur on an annual basis. In addition, the Board considered any specific actions that New York Life Investments, ICAP and Markston had taken, or had agreed with the Board to take, to enhance Fund investment performance and the results of those actions.
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreements, that the long-term investment performance of the Fund, along with ongoing efforts by New York Life Investments, ICAP and Markston to enhance investment returns, supported a determination to approve the Agreements. The Fund discloses more information about investment performance in the Portfolio Management Discussion and Analysis, Investment and Performance Comparison and Financial Highlights sections of this Semiannual Report and in the Fund’s prospectus.
Costs of the Services Provided, and Profits Realized, by New York Life Investments, ICAP and Markston
The Board considered the costs of the services provided by New York Life Investments, ICAP and Markston under the Agreements and the profits realized by New York Life Investments and its affiliates, including ICAP, and Markston due to their relationships with the Fund. Because ICAP is an affiliate of New York Life Investments whose subadvisory fees are paid directly by New York Life Investments, the Board considered cost and profitability information for New York Life Investments and ICAP in the aggregate. Because Markston’s subadvisory fees are negotiated at arm’s-length by New York Life Investments and are paid by New York Life Investments, not the Fund, the Board principally considered the profits realized by New York Life Investments and its affiliates with respect to the Fund.
In evaluating the costs and profits of New York Life Investments and its affiliates, including ICAP, and Markston the Board considered, among other factors, each party’s investments in personnel, systems, equipment and other resources necessary to manage the Fund, and that New York Life Investments is responsible for paying the subadvisory fees for the Fund. The Board acknowledged that New York Life Investments, ICAP and Markston must be in a position to pay and retain experienced professional personnel to provide services to the Fund and that the ability to maintain a strong financial position is important in order for New York Life Investments, ICAP and Markston to continue to provide high-quality services to the Fund. The Board also noted that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds.
In addition, the Board noted the difficulty in obtaining reliable comparative data about mutual fund managers’ profitability, since such information generally is not publicly available and may be impacted by numerous factors, including the structure of a fund manager’s organization, the types of funds it manages, the methodology used to allocate certain fixed costs to specific funds, and the manager’s capital structure and costs of capital. While recognizing the difficulty in evaluating a manager’s profitability with respect to the Fund and noting that other profitability methodologies may also be reasonable, the Board concluded that the profitability methodology presented by New York Life Investments to the Board, which was developed by New York Life Investments in consultation with an independent consultant, was reasonable in all material respects.
In considering the costs and profitability of the Fund, the Board also considered certain fall-out benefits that may be realized by New York Life Investments and its affiliates due to their relationships with the Fund. The Board recognized, for example, the benefits to ICAP and Markston from legally permitted “soft-dollar” arrangements by which brokers provide research and other services to ICAP and Markston in exchange for commissions paid by the Fund with respect to trades on the Fund’s portfolio securities. The Board also requested and received information from New York Life Investments and Markston concerning other business relationships between Markston and its affiliates and New York Life Investments and its affiliates.
The Board further considered that, in addition to fees earned by New York Life Investments for managing the Fund, New York Life Investments’ affiliates also earn revenues from serving the Fund in various
mainstayinvestments.com | 33 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreements (Unaudited) (continued)
other capacities, including as the Fund’s transfer agent and distributor. The Board observed that information about these other revenues, and their impact on the profitability of the Fund to New York Life Investments and its affiliates, was furnished to the Board as part of the 15(c) process. The Board noted that, although it assessed the overall profitability of the Fund to New York Life Investments and its affiliates as part of the contract review process, when considering the reasonableness of the fees to be paid to New York Life Investments and its affiliates under the Agreements, the Board considered the profitability of New York Life Investments’ relationship with the Fund on a pre-tax basis and without regard to distribution expenses.
After evaluating the information presented to the Board, the Board concluded, within the context of its overall determinations regarding the Agreements, that any profits realized by New York Life Investments and its affiliates, including ICAP, due to their relationships with the Fund supported the Board’s decision to approve the Agreements. With respect to Markston, the Board concluded that any profits realized by Markston due to its relationship with the Fund are the result of arm’s-length negotiations between New York Life Investments and Markston and are based on fees paid to Markston by New York Life Investments, not the Fund.
Extent to Which Economies of Scale May Be Realized as the Fund Grows
The Board considered whether the Fund’s expense structure permits economies of scale to be shared with Fund investors. The Board also considered a report from New York Life Investments, prepared at the request of the Board, that addressed economies of scale in the mutual fund business generally, the changing economics of the mutual fund business and the various ways in which the benefits of economies of scale may be shared with the MainStay Group of Funds. The Board reviewed information from New York Life Investments showing how the Fund’s management fee schedule compared to fee schedules of other funds and accounts managed by New York Life Investments. The Board also reviewed information from Strategic Insight showing how the Fund’s management fee schedule hypothetically would compare with fees paid for similar services by peer funds at varying asset levels. While recognizing the difficulty of determining economies of scale with precision, the Board acknowledged that economies of scale may be shared with the Fund in a number of ways, including, for example, through the imposition of management fee breakpoints and by initially setting relatively low management fees.
Based on this information, the Board concluded, within the context of its overall determinations regarding the Agreements, that the Fund’s expense structure appropriately reflects economies of scale for the benefit of Fund investors. The Board noted, however, that it would continue to evaluate the reasonableness of the Fund’s expense structure as the Fund grows over time.
Management and Subadvisory Fees and Total Ordinary Operating Expenses
The Board evaluated the reasonableness of the fees to be paid under the Agreements and the Fund’s expected total ordinary operating expenses. The Board primarily considered the reasonableness of the
management fee paid by the Fund to New York Life Investments, since the fees paid to ICAP and Markston are paid by New York Life Investments, not the Fund.
In assessing the reasonableness of the Fund’s fees and expenses, the Board primarily considered comparative data provided by Strategic Insight on the fees and expenses charged by similar mutual funds managed by other investment advisers. In addition, the Board considered information provided by New York Life Investments, ICAP and Markston on fees charged to other investment advisory clients, including institutional separate accounts and other funds with similar investment objectives as the Fund. The Board particularly considered differences in the contractual management fee schedules of the retail MainStay Funds and similarly-managed MainStay VP Portfolios, taking into account New York Life Investments’ rationale for any differences in fee schedules. The Board also took into account explanations provided by New York Life Investments about the different scope of services provided to mutual funds as compared with other investment advisory clients. Additionally, the Board considered the impact of any contractual breakpoints, voluntary waivers and expense limitation arrangements on the Fund’s net management fee and expenses.
The Board noted that, outside of the Fund’s management fee and the fees charged under a share class’s Rule 12b-1 and/or shareholder services plans, a share class’s most significant “other expenses” are transfer agent fees. Transfer agent fees are charged to the Fund based on the number of shareholder accounts (a “per-account” fee) as compared with certain other fees (e.g., management fees), which are charged based on the Fund’s average net assets. The Board took into account information from New York Life Investments showing that the Fund’s transfer agent fee schedule is reasonable, including industry data showing that the per-account fees that NYLIM Service Company LLC, the Fund’s transfer agent, charges the Fund are within the range of per-account fees charged by transfer agents to other mutual funds. In addition, the Board considered NYLIM Service Company LLC’s profitability in connection with the transfer agent services it provides to the Fund.
The Board considered that, because the Fund’s transfer agent fees are billed on a per-account basis, the impact of transfer agent fees on a share class’s expense ratio may be more significant in cases where the share class has a high number of accounts with limited assets (i.e., small accounts). The Board observed that transfer agent fees are a significant portion of total expenses of many Funds in the MainStay Group of Funds. The impact of transfer agent fees on the expense ratios of these MainStay Funds tend to be greater than for other open-end retail funds, because the MainStay Group of Funds generally has a significant number of small accounts relative to competitor funds. The Board acknowledged the role that the MainStay Group of Funds historically has played in serving the investment needs of New York Life Insurance Company (“New York Life”) policyholders, who often maintain smaller account balances than other fund investors. The Board also acknowledged measures that it and New York Life Investments have taken in recent years to mitigate the effect of small accounts on the expense ratios of Fund share classes, including: (i) encouraging New York Life agents to consolidate multiple small accounts held by the same investor into one MainStay Asset Allocation Fund account; (ii) increasing investment minimums from $500 to $1,000 in 2003;
34 | MainStay MAP Fund |
(iii) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iv) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (v) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (vi) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vii) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. In addition, the Board acknowledged New York Life Investments’ efforts to encourage intermediaries to consolidate small accounts in multiple Funds held by the same investor into a single Asset Allocation Fund account, if appropriate under the circumstances, in an effort to mitigate the effect of small accounts on the Funds in the MainStay Group of Funds.
After considering all of the factors outlined above, the Board concluded that the Fund’s management and subadvisory fees and total ordinary operating expenses were within a range that is competitive and, within the context of the Board’s overall conclusions regarding the Agreements, support a conclusion that these fees and expenses are reasonable.
Conclusion
On the basis of the information provided to it and its evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the Agreements.
mainstayinvestments.com | 35 |
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).
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 Fund
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 Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund1
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund2
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 LLC3
New York, New York
Cornerstone Capital Management LLC3
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC3
Chicago, Illinois
MacKay Shields LLC3
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC3
New York, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP4
PricewaterhouseCoopers LLP5
1. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
2. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
3. An affiliate of New York Life Investment Management LLC.
4. For all Funds listed above except MainStay Marketfield Fund.
5. For MainStay Marketfield Fund only.
Not part of the Semiannual 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.
©2014 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-34193 MS164-14 | MSMP10-06/14 NL030 |
Item 2. | Code of Ethics. |
Not applicable.
Item 3. | Audit Committee Financial Expert. |
Not applicable.
Item 4. | Principal Accountant Fees and Services. |
Not applicable.
Item 5. | Audit Committee of Listed Registrants. |
Not applicable.
Item 6. | 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) | 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: | July 7, 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: | July 7, 2014 | |
By: | /s/ Jack R. Benintende | |
Jack R. Benintende Treasurer and Principal Financial and Accounting Officer | ||
Date: | July 7, 2014 |
EXHIBIT INDEX
(a) | 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. |