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.
30 Hudson Street
Jersey City, New Jersey 07302
(Name and address of agent for service)
Registrant’s telephone number, including area code: (212) 576-7000
Date of fiscal year end: October 31
Date of reporting period: April 30, 2017
Item 1. | Reports to Stockholders. |
MainStay Unconstrained Bond Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2017
This Page Intentionally Left Blank
Message from the President
The six months ended April 30, 2017, proved to be a strong period for many equity investors but presented challenges for some bond investors.
The reporting period began with considerable uncertainty about the outcome of the U.S. election. Once the Republicans gained control of the White House, the Senate and the House of Representatives, however, many investors hoped to see an end to political gridlock; and although debate has continued on a number of issues, the U.S. stock market steadily climbed through the end of the reporting period.
According to FTSE-Russell U.S. market data, stocks at all capitalization levels earned double-digit overall returns during the reporting period. Although growth stocks outperformed value stocks at most capitalization levels, value stocks outperformed growth stocks among micro-cap stocks.
In December 2016 and March 2017, the Federal Reserve announced increases in the target range for the federal funds rate. These moves, which brought the federal funds target range to 0.75% to 1.00%, were felt across the bond market. During the reporting period, yields rose on U.S. Treasury securities of all maturities, with the largest absolute increase on the 5-year U.S. Treasury note. On a percentage basis, however, the largest increases were at the short end of the maturity spectrum, with yields on the 1- and 3-month U.S. Treasury bills more than doubling during the reporting period.
When interest rates rise, bond prices tend to decline (and vice versa). As a result, several broad fixed-income asset classes—including U.S. government and agency bonds, mortgage-backed securities, investment-grade debt and municipal bonds—recorded negative total returns for the reporting period. Convertible securities, high-yield bonds and floating-rate loans, which tend to be less sensitive to interest-rate changes, provided positive total returns.
International stock markets generally advanced during the reporting period, with European stocks providing strong
double-digit returns. The Pacific region and Japan were weaker but provided positive returns in the single digits. Emerging markets also provided solid performance for the reporting period, despite modest commodity prices.
Many short-term political, economic and world events affected the markets during the reporting period. Nevertheless, at MainStay, we believe that the primary concern of our portfolio managers should be the long-term welfare of our shareholders, and we appreciate the discipline our portfolio managers seek to apply in their long-term investment decisions.
Our portfolio managers seek to pursue the investment objectives of their respective MainStay Funds using the various investment strategies outlined in the Fund’s Prospectus. Utilizing their years of professional market experience, they seek to enhance returns when possible, manage risk as necessary and view short-term events in light of long-term investment goals. At MainStay, we believe that shareholders who maintain a long-term perspective may be better able to weather turbulent markets, avoid selling when prices are low and stay focused on their reasons for choosing MainStay Funds.
The report that follows provides more detailed information about the markets, securities and decisions that affected your MainStay Fund during the six months ended April 30, 2017. We invite you to read it carefully and use the information as part of your ongoing portfolio evaluation and review.
Sincerely,
Stephen P. Fisher
President
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, 30 Hudson Street, Jersey City, NJ 07302 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 and other factors, 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, 2017
Class | Sales Charge | Inception Date | Six Months | One Year | Five Years or Since | Ten Years or Since | Gross Expense Ratio2 | |||||||||||||||||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges | | 2/28/1997 | | | –2.17 2.44 | %
| | 2.25 7.06 | %
| | 2.72 3.67 | %
| | 4.41 4.89 | %
| | 1.16 1.16 | %
| ||||||||
Investor Class Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges | 2/28/2008 | | –2.19 2.41 | | | 2.17 6.98 | | | 2.68 3.63 | | | 4.50 5.03 | | | 1.18 1.18 |
| ||||||||||
Class B Shares3 | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges | | 2/28/1997 | | | –2.94 2.06 | | | 1.27 6.27 | | | 2.50 2.85 | | | 4.01 4.01 | | | 1.93 1.93 |
| ||||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within | With sales charges Excluding sales charges | | 9/1/1998 | | | 1.07 2.07 | | | 5.28 6.28 | | | 2.83 2.83 | | | 4.00 4.00 | | | 1.93 1.93 |
| ||||||||
Class I Shares | No Sales Charge | 1/2/2004 | 2.57 | 7.33 | 3.95 | 5.18 | 0.91 | |||||||||||||||||||||
Class R2 Shares | No Sales Charge | 2/28/2014 | 2.28 | 6.85 | 1.63 | N/A | 1.28 | |||||||||||||||||||||
Class R3 Shares | No Sales Charge | 2/29/2016 | 2.27 | 6.58 | 10.41 | N/A | 1.50 |
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, if any, 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 may 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 (if any), 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. | Class B shares are closed to all new purchases as well as additional investments by existing Class B shareholders. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
5 |
Benchmark Performance | Six Months | One Year | Five Years | Ten Years | ||||||||||||
Bloomberg Barclays U.S. Aggregate Bond Index4 | –0.67 | % | 0.83 | % | 2.27 | % | 4.30 | % | ||||||||
BofA Merrill Lynch U.S. Dollar 3-Month LIBOR Constant Maturity Index5 | 0.45 | 0.78 | 0.41 | 1.13 | ||||||||||||
Morningstar Nontraditional Bond Category Average6 | 2.38 | 5.41 | 2.53 | 3.48 |
4. | The Bloomberg Barclays U.S. Aggregate Bond Index is the Fund’s primary broad-based securities market index for comparison purposes. The Bloomberg 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 Treasuries, 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. Results assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
5. | The Fund has selected the BofA Merrill Lynch U.S. Dollar 3-Month LIBOR Constant Maturity Index as a secondary benchmark. The BofA 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. Results assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
6. | The Fund has selected the Morningstar Nontraditional Bond Category Average as an additional benchmark. 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. Results 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, 2016, to April 30, 2017, 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, 2016, to April 30, 2017.
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, 2017. 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 11/1/16 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/17 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/17 | Expenses Paid During Period1 | Net Expense Ratio During | ||||||||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,024.40 | $ | 5.67 | $ | 1,019.20 | $ | 5.66 | 1.13 | % | ||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,024.10 | $ | 5.77 | $ | 1,019.10 | $ | 5.76 | 1.15 | % | ||||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,020.60 | $ | 9.52 | $ | 1,015.40 | $ | 9.49 | 1.90 | % | ||||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,020.70 | $ | 9.52 | $ | 1,015.40 | $ | 9.49 | 1.90 | % | ||||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,025.70 | $ | 4.42 | $ | 1,020.40 | $ | 4.41 | 0.88 | % | ||||||||||||
Class R2 Shares | $ | 1,000.00 | $ | 1,022.80 | $ | 6.17 | $ | 1,018.70 | $ | 6.16 | 1.23 | % | ||||||||||||
Class R3 Shares | $ | 1,000.00 | $ | 1,022.70 | $ | 7.42 | $ | 1,017.50 | $ | 7.40 | 1.48 | % |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class 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. |
2. | Expenses are equal to the Fund’s annualized expense ratio to reflect the six-month period. |
7 |
Portfolio Composition as of April 30, 2017 (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, 2017 (excluding short-term investment) (Unaudited)
1. | Goldman Sachs Group, Inc., 2.35%–5.25%, due 7/27/21–1/22/23 |
2. | Morgan Stanley, 3.625%–5.45%, due 11/1/22–12/31/49 |
3. | Bank of America Corp., 3.248%–8.57%, due 6/1/19–12/29/49 |
4. | Wells Fargo & Co., 4.65%–5.90%, due 1/15/44–12/29/49 |
5. | Kreditanstalt fuer Wiederaufbau, 1.50%, due 2/6/19 |
6. | Microsoft Corp., 1.10%–1.85%, due 8/8/19–2/6/20 |
7. | Quikrete Holdings, Inc., 4.243%, due 11/15/23 |
8. | Anheuser-Busch InBev Worldwide, Inc., 1.375%, due 7/15/17 |
9. | Citigroup, Inc., 6.30%, due 12/29/49 |
10. | Liberty Mutual Group, Inc., 6.50%–10.75%, due 3/15/35–6/15/88 |
8 | MainStay Unconstrained Bond Fund |
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Dan Roberts, PhD, Michael Kimble, CFA, and Louis N. Cohen, CFA, 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, 2017?
Excluding all sales charges, MainStay Unconstrained Bond Fund returned 2.44% for Class A shares, 2.41% for Investor Class shares, 2.06% for Class B shares and 2.07% for Class C shares for the six months ended April 30, 2017. Over the same period, the Fund returned 2.57% for Class I shares, 2.28% for Class R2 shares and 2.27% for Class R3 shares. For the six months ended April 30, 2017, all share classes outperformed the –0.67% return of the Bloomberg Barclays U.S. Aggregate Bond Index,1 which is the Fund’s primary benchmark, and the 0.45% return of the BofA Merrill Lynch U.S. Dollar 3-Month LIBOR Constant Maturity Index,1 which is the Fund’s secondary benchmark. For the six months ended April 30, 2017, Class A, Investor Class and Class I shares outperformed—and all other share classes underperformed—the 2.38% 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.
What factors affected the Fund’s relative performance during the reporting period?
The Fund’s outperformance relative to the Bloomberg Barclays U.S. Aggregate Bond Index resulted primarily from the Fund’s overweight position in spread product3—specifically high-yield bonds and bank loans—as credit spreads tightened during the reporting period. The Fund maintained an allocation to investment-grade and high-yield bonds and loans, while a short position in U.S. Treasury futures contributed to the Fund’s shorter-duration4 profile. During the reporting period, the U.S. Treasury yield curve5 flattened, as the Federal Reserve continued on its slow path toward the renormalization of interest rates. Most industries held in the Fund generated positive returns, with banking, insurance, basic industry, capital goods and technology as the primary contributors to the Fund’s relative performance. (Contributions take weightings and total returns into account.) Throughout the reporting period, our strategy was to maintain overweight positions in spread product—more specifically, in high-yield bonds, bank loans and investment-grade credit. During the reporting period, however, the Fund reduced exposure to high-yield credits and increased exposure to investment-grade credits.
What was the Fund’s duration strategy during the reporting period?
In order to reduce the Fund’s sensitivity to interest rates, we maintained a duration that was significantly shorter than that of the Bloomberg Barclays U.S. Aggregate Bond Index. At the end of the reporting period, the Fund’s duration was 1.0 year.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
Throughout the reporting period, we promoted credit risk as the anticipated principal driver of performance, as we have done for the past few years. We expected corporate bonds (both investment-grade and high-yield) to have superior returns to government-related debt, since we believed that the low interest-rate environment could spark healthy demand for higher-yielding products. In our opinion, improving profitability signaled that corporations were doing more with less: less leverage, less short-term debt, and smaller funding gaps, which in turn strengthened credit fundamentals and supported the narrowing of spreads. Although we continued to believe that credit spreads could tighten modestly, we reduced the Fund’s exposure to high-yield credits in favor of investment-grade credits as spreads continued to tighten during the reporting period. While we believed that valuations generally remained fair across all credit sectors, it was our opinion that greater vigilance was needed to navigate what we saw as the late stages of the current economic cycle.
Which sectors were the strongest contributors to the Fund’s performance and which sectors were particularly weak?
During the reporting period, the Fund’s position in high-yield bonds was the most significant contributor to the Fund’s performance, on both an absolute and a relative basis. Bank loans and investment-grade corporate bonds also contributed to returns on a relative basis.
Within the Fund’s high-yield bond component, transportation and telecommunication services were the most substantial contributors. Within the Fund’s investment-grade component, financial holdings and consumer-related holdings generated positive excess returns.
1. | See footnote on page 6 for more information about 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. The term “credit spread” typically refers to the difference in yield between corporate or municipal bonds (or a specific category of these bonds) and comparable U.S. Treasury issues. |
4. | Duration is a measure of the price sensitivity of a fixed-income investment to changes in interest rates. Duration is expressed as a number of years and is considered a more accurate sensitivity gauge than average maturity. |
5. | 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. |
9 |
Did the Fund make any significant purchases or sales during the reporting period?
During the reporting period, we purchased loans of telecommunication services company Sprint and information technology company Dell. Both were new issues and came at yields that we found attractive. We sold bonds of trucking company XPO Logistics and health care company HCA when
we believed that these bonds had reached their fair value.
How did the Fund’s sector weightings change during the reporting period?
During the reporting period, we trimmed the Fund’s exposure to high-yield credits while increasing the Fund’s weighting among
investment-grade credits as spreads continued to narrow within the high-yield universe. The Fund’s weighting in bank loans remained flat throughout the reporting period.
How was the Fund positioned at the end of the reporting period?
As of April 30, 2017, the Fund remained overweight relative to the Bloomberg Barclays U.S. Aggregate Bond Index in high-yield bonds and in bank loans, despite the reduced allocation to high-yield bonds. As of the same date, the Fund was overweight in investment-grade corporate bonds. At the end of the reporting period, the Fund was significantly underweight relative to the Index in U.S. Treasury securities and mortgage 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 forecasts 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, 2017 (Unaudited)
Principal Amount | Value | |||||||
Long-Term Bonds 91.3%† Asset-Backed Securities 0.2% |
| |||||||
Home Equity 0.2% |
| |||||||
Carrington Mortgage Loan Trust | $ | 113,110 | $ | 111,313 | ||||
Citigroup Mortgage Loan Trust | 139,703 | 103,501 | ||||||
First NLC Trust | 360,609 | 203,691 | ||||||
Home Equity Loan Trust | 27,312 | 27,162 | ||||||
HSI Asset Securitization Corp. Trust | 3,436 | 2,364 | ||||||
JPMorgan Mortgage Acquisition Trust | 139,886 | 89,224 | ||||||
MASTR Asset-Backed Securities Trust | 94,257 | 44,401 | ||||||
Morgan Stanley ABS Capital I, Inc. | ||||||||
Series 2006-HE6, Class A2B 1.082%, due 9/25/36 (a) | 337,643 | 162,430 | ||||||
Series 2006-HE8, Class A2B 1.082%, due 10/25/36 (a) | 171,815 | 94,524 | ||||||
Series 2007-HE4, Class A2A 1.092%, due 2/25/37 (a) | 91,857 | 40,243 | ||||||
Series 2007-NC2, Class A2FP | 346,770 | 204,568 | ||||||
Securitized Asset-Backed Receivables LLC Trust | 398,337 | 273,627 | ||||||
Soundview Home Loan Trust | ||||||||
Series 2007-OPT1, Class 2A1 | 349,809 | 231,841 | ||||||
Series 2006-EQ2, Class A2 | 214,534 | 153,235 | ||||||
Specialty Underwriting & Residential Finance Trust | 916,915 | 424,121 | ||||||
|
| |||||||
2,166,245 | ||||||||
|
|
Principal Amount | Value | |||||||
Student Loans 0.0%‡ |
| |||||||
KeyCorp Student Loan Trust | $ | 714,258 | $ | 691,614 | ||||
|
| |||||||
Total Asset-Backed Securities | 2,857,859 | |||||||
|
| |||||||
Corporate Bonds 70.2% | ||||||||
Advertising 0.2% |
| |||||||
Lamar Media Corp. | 2,695,000 | 2,843,224 | ||||||
|
| |||||||
Aerospace & Defense 0.9% |
| |||||||
Moog, Inc. | 5,505,000 | 5,725,200 | ||||||
Orbital ATK, Inc. (c) | ||||||||
5.25%, due 10/1/21 | 2,250,000 | 2,328,750 | ||||||
5.50%, due 10/1/23 | 4,045,000 | 4,196,687 | ||||||
|
| |||||||
12,250,637 | ||||||||
|
| |||||||
Agriculture 1.1% |
| |||||||
Cargill, Inc. | 6,390,000 | 6,553,680 | ||||||
Philip Morris International, Inc. | 8,215,000 | 8,187,940 | ||||||
|
| |||||||
14,741,620 | ||||||||
|
| |||||||
Airlines 1.4% |
| |||||||
Continental Airlines, Inc. | ||||||||
Series 2007-1, Class A | 2,865,543 | 3,152,097 | ||||||
Series 2003-ERJ1 | 111,603 | 114,393 | ||||||
Series 2005-ERJ1 | 359,907 | 394,549 | ||||||
Delta Air Lines, Inc. | 786,743 | 831,587 | ||||||
U.S. Airways Group, Inc. | ||||||||
Series 2012-1, Class A, Pass Through Trust | 2,169,867 | 2,433,159 | ||||||
Series 2010-1, Class A, Pass Through Trust | 6,279,620 | 6,844,785 | ||||||
United Airlines, Inc. | 5,304,420 | 5,437,031 | ||||||
|
| |||||||
19,207,601 | ||||||||
|
|
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings or issuers held, as of April 30, 2017, 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. | 11 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Auto Manufacturers 1.8% |
| |||||||
Daimler Finance North America LLC | $ | 6,950,000 | $ | 6,968,494 | ||||
Ford Holdings LLC | 93,000 | 128,914 | ||||||
Ford Motor Co. | ||||||||
7.45%, due 7/16/31 | 39,000 | 49,195 | ||||||
8.90%, due 1/15/32 | 3,009,000 | 4,081,381 | ||||||
General Motors Financial Co., Inc. | 8,590,000 | 8,678,236 | ||||||
Toyota Motor Credit Corp. | 5,700,000 | 5,705,700 | ||||||
|
| |||||||
25,611,920 | ||||||||
|
| |||||||
Auto Parts & Equipment 0.5% |
| |||||||
Schaeffler Finance B.V. | 6,490,000 | 6,765,825 | ||||||
|
| |||||||
Banks 14.6% |
| |||||||
¨Bank of America Corp. | ||||||||
3.248%, due 10/21/27 | 5,170,000 | 4,956,624 | ||||||
3.30%, due 1/11/23 | 510,000 | 518,445 | ||||||
4.25%, due 10/22/26 | 7,260,000 | 7,402,165 | ||||||
5.125%, due 12/29/49 (a) | 4,990,000 | 5,014,950 | ||||||
5.625%, due 7/1/20 | 1,720,000 | 1,889,064 | ||||||
6.11%, due 1/29/37 | 2,807,000 | 3,287,390 | ||||||
6.30%, due 12/29/49 (a) | 3,570,000 | 3,931,462 | ||||||
7.625%, due 6/1/19 | 420,000 | 466,750 | ||||||
8.57%, due 11/15/24 | 1,645,000 | 2,087,620 | ||||||
Bank of New York Mellon Corp. | 5,050,000 | 4,974,250 | ||||||
Barclays Bank PLC | 8,037,000 | 8,626,956 | ||||||
BB&T Corp. | 6,370,000 | 6,453,409 | ||||||
Capital One Financial Corp. | ||||||||
4.20%, due 10/29/25 | 800,000 | 805,603 | ||||||
5.55%, due 12/29/49 (a) | 2,434,000 | 2,531,360 | ||||||
¨Citigroup, Inc. | 10,800,000 | 11,397,240 | ||||||
Citizens Financial Group, Inc. | 2,270,000 | 2,356,660 | ||||||
¨Goldman Sachs Group, Inc. | ||||||||
2.35%, due 11/15/21 | 12,990,000 | 12,802,243 | ||||||
3.00%, due 4/26/22 | 7,000,000 | 7,055,664 | ||||||
3.625%, due 1/22/23 | 7,257,000 | 7,496,924 | ||||||
5.25%, due 7/27/21 | 6,047,000 | 6,651,893 | ||||||
JPMorgan Chase & Co. | 7,595,000 | 8,148,007 | ||||||
¨Kreditanstalt fuer Wiederaufbau | 12,800,000 | 12,809,856 |
Principal Amount | Value | |||||||
Banks (continued) |
| |||||||
¨ Morgan Stanley | ||||||||
3.625%, due 1/20/27 | $ | 7,975,000 | $ | 7,996,716 | ||||
3.70%, due 10/23/24 | 6,700,000 | 6,862,810 | ||||||
4.875%, due 11/1/22 | 4,287,000 | 4,662,014 | ||||||
5.00%, due 11/24/25 | 2,465,000 | 2,676,016 | ||||||
5.45%, due 12/31/49 (a) | 11,425,000 | 11,696,344 | ||||||
Royal Bank of Canada | 5,565,000 | 5,620,021 | ||||||
Royal Bank of Scotland Group PLC | 8,746,000 | 8,991,771 | ||||||
Toronto-Dominion Bank | 6,995,000 | 6,859,878 | ||||||
US Bancorp | 3,410,000 | 3,440,775 | ||||||
U.S. Bank N.A. | ||||||||
1.40%, due 4/26/19 | 3,730,000 | 3,707,135 | ||||||
2.00%, due 1/24/20 | 3,205,000 | 3,223,910 | ||||||
¨Wells Fargo & Co. | ||||||||
4.65%, due 11/4/44 | 825,000 | 833,349 | ||||||
5.606%, due 1/15/44 | 5,375,000 | 6,160,814 | ||||||
5.90%, due 12/29/49 (a) | 5,835,000 | 6,199,687 | ||||||
Wells Fargo Capital X | 1,490,000 | 1,609,200 | ||||||
|
| |||||||
202,204,975 | ||||||||
|
| |||||||
Beverages 2.4% |
| |||||||
¨Anheuser-Busch InBev Worldwide, Inc. | 11,494,000 | 11,495,345 | ||||||
Constellation Brands, Inc. | 6,765,000 | 7,361,544 | ||||||
Dr Pepper Snapple Group, Inc. | 4,768,000 | 4,897,623 | ||||||
PepsiCo, Inc. | ||||||||
1.55%, due 5/2/19 | 2,050,000 | 2,047,909 | ||||||
1.35%, due 10/4/19 | 7,170,000 | 7,123,445 | ||||||
|
| |||||||
32,925,866 | ||||||||
|
| |||||||
Building Materials 0.8% |
| |||||||
Masco Corp. | 2,250,000 | 2,538,000 | ||||||
Standard Industries, Inc. | 8,400,000 | 8,757,000 | ||||||
|
| |||||||
11,295,000 | ||||||||
|
| |||||||
Chemicals 1.3% |
| |||||||
Air Liquide Finance S.A. (b) | ||||||||
1.375%, due 9/27/19 | 4,135,000 | 4,069,564 | ||||||
1.75%, due 9/27/21 | 2,785,000 | 2,709,181 | ||||||
Ashland LLC | 2,970,000 | 3,096,225 | ||||||
Dow Chemical Co. | 693,000 | 781,756 | ||||||
WR Grace & Co-Conn | 6,410,000 | 6,882,737 | ||||||
|
| |||||||
17,539,463 | ||||||||
|
|
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 | |||||||
Corporate Bonds (continued) | ||||||||
Commercial Services 0.3% |
| |||||||
Service Corp. International | ||||||||
5.375%, due 1/15/22 | $ | 1,835,000 | $ | 1,892,344 | ||||
5.375%, due 5/15/24 (c) | 2,200,000 | 2,323,750 | ||||||
|
| |||||||
4,216,094 | ||||||||
|
| |||||||
Computers 0.8% |
| |||||||
Apple, Inc. | 6,765,000 | 6,775,168 | ||||||
International Business Machines Corp. | 4,500,000 | 4,518,463 | ||||||
|
| |||||||
11,293,631 | ||||||||
|
| |||||||
Cosmetics & Personal Care 0.2% |
| |||||||
Estee Lauder Cos., Inc. | 2,785,000 | 2,792,968 | ||||||
|
| |||||||
Diversified Financial Services 2.0% |
| |||||||
AerCap Ireland Capital DAC / AerCap Global Aviation Trust | ||||||||
3.50%, due 5/26/22 | 4,430,000 | 4,501,013 | ||||||
4.50%, due 5/15/21 | 1,465,000 | 1,548,544 | ||||||
Air Lease Corp. | 3,275,000 | 3,254,253 | ||||||
Capital One Bank USA N.A. | 3,000,000 | 3,020,589 | ||||||
GE Capital International Funding Co. | 6,800,000 | 6,844,554 | ||||||
Peachtree Corners Funding Trust | 1,690,000 | 1,713,785 | ||||||
Protective Life Global Funding | 4,200,000 | 4,141,070 | ||||||
Springleaf Finance Corp. | 3,100,000 | 3,173,625 | ||||||
|
| |||||||
28,197,433 | ||||||||
|
| |||||||
Electric 3.0% |
| |||||||
CMS Energy Corp. | ||||||||
3.875%, due 3/1/24 | 3,818,000 | 3,964,810 | ||||||
6.25%, due 2/1/20 | 1,980,000 | 2,186,781 | ||||||
Consolidated Edison, Inc. | 2,815,000 | 2,815,822 | ||||||
FirstEnergy Transmission LLC | 5,533,000 | 6,131,217 | ||||||
Great Plains Energy, Inc. | ||||||||
4.85%, due 6/1/21 | 5,200,000 | 5,573,547 | ||||||
5.292%, due 6/15/22 (d) | 663,000 | 728,200 | ||||||
IPALCO Enterprises, Inc. | 8,560,000 | 8,688,400 | ||||||
MidAmerican Energy Co. | 6,000,000 | 6,033,522 |
Principal Amount | Value | |||||||
Electric (continued) |
| |||||||
WEC Energy Group, Inc. | $ | 5,495,000 | $ | 5,137,825 | ||||
|
| |||||||
41,260,124 | ||||||||
|
| |||||||
Electronics 0.6% |
| |||||||
Honeywell International, Inc. | 7,840,000 | 7,783,215 | ||||||
|
| |||||||
Entertainment 0.5% |
| |||||||
Isle of Capri Casinos, Inc. | ||||||||
5.875%, due 3/15/21 | 437,000 | 451,202 | ||||||
8.875%, due 6/15/20 (c) | 5,815,000 | 5,989,450 | ||||||
|
| |||||||
6,440,652 | ||||||||
|
| |||||||
Environmental Controls 0.3% |
| |||||||
Waste Management, Inc. | 3,880,000 | 3,822,654 | ||||||
|
| |||||||
Food 2.9% |
| |||||||
J.M. Smucker Co. | 5,645,000 | 5,651,322 | ||||||
Kerry Group Financial Services | 4,595,000 | 4,575,402 | ||||||
Kroger Co. | 4,130,000 | 4,081,316 | ||||||
Mondelez International Holdings Netherlands B.V. (b) | ||||||||
1.625%, due 10/28/19 | 4,500,000 | 4,434,062 | ||||||
2.00%, due 10/28/21 | 4,885,000 | 4,730,903 | ||||||
Premier Foods Finance PLC | GBP | 4,500,000 | 5,945,547 | |||||
Smithfield Foods, Inc. | ||||||||
2.70%, due 1/31/20 (b) | $ | 2,675,000 | 2,680,912 | |||||
3.35%, due 2/1/22 (b) | 2,490,000 | 2,503,695 | ||||||
Tyson Foods, Inc. | 5,450,000 | 5,607,848 | ||||||
|
| |||||||
40,211,007 | ||||||||
|
| |||||||
Forest Products & Paper 0.4% |
| |||||||
Domtar Corp. | 308,000 | 309,749 | ||||||
Georgia-Pacific LLC | 2,945,000 | 3,788,439 | ||||||
International Paper Co. | 693,000 | 912,677 | ||||||
|
| |||||||
5,010,865 | ||||||||
|
| |||||||
Gas 0.5% |
| |||||||
AmeriGas Partners, L.P. / AmeriGas Finance Corp. | ||||||||
5.50%, due 5/20/25 | 2,825,000 | 2,853,250 | ||||||
5.625%, due 5/20/24 | 2,708,000 | 2,755,390 | ||||||
5.75%, due 5/20/27 | 1,890,000 | 1,894,725 | ||||||
|
| |||||||
7,503,365 | ||||||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 13 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Health Care—Products 0.6% |
| |||||||
Medtronic Global Holdings SCA | $ | 4,780,000 | $ | 4,778,188 | ||||
Stryker Corp. | 2,179,000 | 2,204,375 | ||||||
Zimmer Biomet Holdings, Inc. | 1,895,000 | 1,916,743 | ||||||
|
| |||||||
8,899,306 | ||||||||
|
| |||||||
Health Care—Services 1.5% |
| |||||||
Fresenius Medical Care U.S. Finance II, Inc. | 2,500,000 | 2,637,500 | ||||||
Laboratory Corp. of America Holdings | 5,500,000 | 5,550,067 | ||||||
Tenet Healthcare Corp. | 6,250,000 | 6,281,250 | ||||||
UnitedHealth Group, Inc. | 6,643,000 | 6,645,969 | ||||||
|
| |||||||
21,114,786 | ||||||||
|
| |||||||
Home Builders 3.7% |
| |||||||
CalAtlantic Group, Inc. (c) | ||||||||
6.25%, due 12/15/21 | 2,875,000 | 3,198,006 | ||||||
8.375%, due 1/15/21 | 4,560,000 | 5,358,000 | ||||||
D.R. Horton, Inc. | ||||||||
3.75%, due 3/1/19 | 2,750,000 | 2,818,668 | ||||||
5.75%, due 8/15/23 | 4,250,000 | 4,810,626 | ||||||
KB Home | 2,250,000 | 2,534,063 | ||||||
Lennar Corp. | ||||||||
4.50%, due 6/15/19 | 3,300,000 | 3,407,250 | ||||||
4.50%, due 11/15/19 | 4,740,000 | 4,899,975 | ||||||
MDC Holdings, Inc. | ||||||||
5.50%, due 1/15/24 | 7,025,000 | 7,303,892 | ||||||
5.625%, due 2/1/20 | 1,608,000 | 1,736,318 | ||||||
Meritage Homes Corp. | 7,800,000 | 8,853,000 | ||||||
Toll Brothers Finance Corp. | 5,750,000 | 6,343,688 | ||||||
|
| |||||||
51,263,486 | ||||||||
|
| |||||||
Insurance 4.9% |
| |||||||
Chubb Corp. | 9,873,000 | 9,774,270 | ||||||
Jackson National Life Global Funding | 2,830,000 | 2,832,451 | ||||||
¨Liberty Mutual Group, Inc. (b) | ||||||||
6.50%, due 3/15/35 | 870,000 | 1,059,955 | ||||||
7.80%, due 3/7/87 | 7,453,000 | 8,626,847 | ||||||
10.75%, due 6/15/88 (a) | 938,000 | 1,449,210 |
Principal Amount | Value | |||||||
Insurance (continued) |
| |||||||
Lincoln National Corp. | $ | 3,537,000 | $ | 3,143,509 | ||||
MassMutual Global Funding II | 3,600,000 | 3,604,007 | ||||||
Oil Insurance, Ltd. | 8,452,000 | 7,184,200 | ||||||
Pricoa Global Funding I | 2,725,000 | 2,742,721 | ||||||
Protective Life Corp. | 3,621,000 | 5,197,315 | ||||||
Provident Cos., Inc. | 5,460,000 | 6,960,162 | ||||||
Scottish Widows, Ltd. | GBP | 6,500,000 | 9,365,017 | |||||
Validus Holdings, Ltd. | $ | 1,300,000 | 1,834,330 | |||||
Voya Financial, Inc. | 1,240,000 | 1,234,881 | ||||||
XLIT, Ltd. | 4,116,000 | 3,498,600 | ||||||
|
| |||||||
68,507,475 | ||||||||
|
| |||||||
Internet 1.3% |
| |||||||
Amazon.com, Inc. | 6,364,000 | 6,359,628 | ||||||
eBay, Inc. | 4,640,000 | 4,638,858 | ||||||
Priceline Group, Inc. | 6,700,000 | 6,744,629 | ||||||
|
| |||||||
17,743,115 | ||||||||
|
| |||||||
Iron & Steel 1.4% |
| |||||||
ArcelorMittal | 5,425,000 | 6,150,594 | ||||||
Steel Dynamics, Inc. | 7,666,000 | 7,934,310 | ||||||
Vale Overseas, Ltd. | 4,330,000 | 4,731,824 | ||||||
|
| |||||||
18,816,728 | ||||||||
|
| |||||||
Leisure Time 0.5% |
| |||||||
Royal Caribbean Cruises, Ltd. | 6,115,000 | 6,374,888 | ||||||
|
| |||||||
Lodging 0.6% |
| |||||||
Marriott International, Inc. | ||||||||
6.75%, due 5/15/18 | 946,000 | 992,392 | ||||||
7.15%, due 12/1/19 | 2,341,000 | 2,615,157 | ||||||
Wyndham Worldwide Corp. | 4,160,000 | 4,242,405 | ||||||
|
| |||||||
7,849,954 | ||||||||
|
|
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) | ||||||||
Media 0.6% | ||||||||
DISH DBS Corp. | $ | 3,350,000 | $ | 3,408,625 | ||||
Sky PLC | 4,095,000 | 4,172,170 | ||||||
Time Warner Entertainment Co., L.P. | 1,087,000 | 1,366,256 | ||||||
|
| |||||||
8,947,051 | ||||||||
|
| |||||||
Mining 0.3% | ||||||||
Aleris International, Inc. | 2,000 | 1,980 | ||||||
FMG Resources (August 2006) Pty, Ltd. | 3,935,000 | 4,527,709 | ||||||
|
| |||||||
4,529,689 | ||||||||
|
| |||||||
Miscellaneous—Manufacturing 1.5% |
| |||||||
Amsted Industries, Inc. | 7,860,000 | 8,056,500 | ||||||
Siemens Financieringsmaatschappij N.V. | 3,320,000 | 3,352,875 | ||||||
Textron Financial Corp. | 11,250,000 | 9,028,125 | ||||||
|
| |||||||
�� | 20,437,500 | |||||||
|
| |||||||
Oil & Gas 2.9% | ||||||||
Anadarko Petroleum Corp. | 19,735,000 | 8,194,564 | ||||||
Chevron Corp. | 3,200,000 | 3,203,619 | ||||||
CITGO Petroleum Corp. | 9,000,000 | 9,180,000 | ||||||
Murphy Oil USA, Inc. | 7,318,000 | 7,683,900 | ||||||
QEP Resources, Inc. | 3,350,000 | 3,308,125 | ||||||
Tesoro Corp. | 8,050,000 | 8,492,750 | ||||||
|
| |||||||
40,062,958 | ||||||||
|
| |||||||
Packaging & Containers 0.8% | ||||||||
Crown European Holdings S.A. | EUR | 7,700,000 | 9,363,875 | |||||
WestRock MWV LLC | $ | 1,800,000 | 2,005,346 | |||||
|
| |||||||
11,369,221 | ||||||||
|
| |||||||
Pharmaceuticals 1.3% | ||||||||
Endo Dac / Endo Finance LLC / Endo Finco, Inc. | 3,865,000 | 3,386,706 |
Principal Amount | Value | |||||||
Pharmaceuticals (continued) | ||||||||
Johnson & Johnson | $ | 5,450,000 | $ | 5,496,701 | ||||
Pfizer, Inc. | 9,540,000 | 9,523,782 | ||||||
|
| |||||||
18,407,189 | ||||||||
|
| |||||||
Pipelines 1.5% | ||||||||
Kinder Morgan, Inc. | ||||||||
5.625%, due 11/15/23 (b) | 2,449,000 | 2,708,261 | ||||||
7.75%, due 1/15/32 | 2,035,000 | 2,591,493 | ||||||
Plains All American Pipeline, L.P. / PAA Finance Corp. | 4,150,000 | 3,854,317 | ||||||
Targa Resources Partners, L.P. / Targa Resources Partners Finance Corp. | 3,725,000 | 3,836,750 | ||||||
Tesoro Logistics, L.P. / Tesoro Logistics Finance Corp. | ||||||||
5.875%, due 10/1/20 | 3,810,000 | 3,897,630 | ||||||
6.125%, due 10/15/21 | 3,500,000 | 3,653,125 | ||||||
|
| |||||||
20,541,576 | ||||||||
|
| |||||||
Real Estate Investment Trusts 0.6% | ||||||||
Crown Castle International Corp. | 2,625,000 | 2,904,657 | ||||||
Host Hotels & Resorts, L.P. | 472,000 | 479,246 | ||||||
Iron Mountain, Inc. | 4,125,000 | 4,233,281 | ||||||
Ventas Realty, L.P. / Ventas Capital Corp. | 1,000 | 1,009 | ||||||
|
| |||||||
7,618,193 | ||||||||
|
| |||||||
Retail 3.3% | ||||||||
AutoZone, Inc. | 3,565,000 | 3,593,549 | ||||||
Brinker International, Inc. | 1,875,000 | 1,882,031 | ||||||
CVS Pass-Through Trust | 59,260 | 65,289 | ||||||
Darden Restaurants, Inc. | 2,700,000 | 2,723,884 | ||||||
QVC, Inc. | 6,500,000 | 6,624,599 | ||||||
Signet UK Finance PLC | 8,635,000 | 8,530,214 | ||||||
Starbucks Corp. | 4,279,000 | 4,128,696 | ||||||
Suburban Propane Partners, L.P. / Suburban Energy Finance Corp. | 8,550,000 | 8,485,875 | ||||||
TJX Cos., Inc. | 10,505,000 | 9,782,655 | ||||||
|
| |||||||
45,816,792 | ||||||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 15 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Semiconductors 1.3% | ||||||||
NXP B.V. / NXP Funding LLC (b) | ||||||||
4.125%, due 6/1/21 | $ | 6,300,000 | $ | 6,591,375 | ||||
4.625%, due 6/15/22 | 2,960,000 | 3,178,300 | ||||||
Sensata Technologies B.V. | 8,700,000 | 8,884,875 | ||||||
|
| |||||||
18,654,550 | ||||||||
|
| |||||||
Software 0.9% | ||||||||
First Data Corp. | 755,000 | 809,511 | ||||||
¨Microsoft Corp. | ||||||||
1.10%, due 8/8/19 | 6,040,000 | 5,981,207 | ||||||
1.85%, due 2/6/20 | 6,190,000 | 6,213,509 | ||||||
|
| |||||||
13,004,227 | ||||||||
|
| |||||||
Telecommunications 3.5% | ||||||||
AT&T, Inc. | 5,840,000 | 5,912,235 | ||||||
Hughes Satellite Systems Corp. | 2,250,000 | 2,432,813 | ||||||
Rogers Communications, Inc. | 6,760,000 | 6,881,072 | ||||||
Sprint Capital Corp. | 1,060,000 | 1,304,457 | ||||||
Sprint Communications, Inc. | 1,800,000 | 1,948,500 | ||||||
Sprint Corp. | 1,650,000 | 1,852,125 | ||||||
Sprint Spectrum Co. LLC / Sprint Spectrum Co. II LLC / Sprint Spectrum Co. III LLC | 4,758,000 | 4,799,632 | ||||||
T-Mobile USA, Inc. | ||||||||
6.00%, due 3/1/23 | 3,000,000 | 3,206,250 | ||||||
6.125%, due 1/15/22 (c) | 4,525,000 | 4,779,531 | ||||||
Telefonica Emisiones SAU | ||||||||
4.103%, due 3/8/27 | 2,755,000 | 2,825,839 | ||||||
5.462%, due 2/16/21 | 1,000 | 1,102 | ||||||
Verizon Communications, Inc. | ||||||||
4.125%, due 3/16/27 | 685,000 | 700,445 | ||||||
5.15%, due 9/15/23 | 3,573,000 | 3,954,211 | ||||||
ViaSat, Inc. | 7,340,000 | 7,486,800 | ||||||
|
| |||||||
48,085,012 | ||||||||
|
| |||||||
Textiles 0.2% | ||||||||
Cintas Corp. No | 2,985,000 | 3,029,235 | ||||||
|
|
Principal Amount | Value | |||||||
Trucking & Leasing 0.5% | ||||||||
Aviation Capital Group Corp. | $ | 6,795,000 | $ | 6,765,435 | ||||
|
| |||||||
Total Corporate Bonds | 971,756,504 | |||||||
|
| |||||||
Foreign Bonds 0.1% | ||||||||
United Kingdom 0.1% | ||||||||
Barclays Bank PLC | GBP | 449,000 | 749,878 | |||||
|
| |||||||
Total Foreign Bonds | 749,878 | |||||||
|
| |||||||
Loan Assignments 20.0% (f) | ||||||||
Advertising 2.0% | ||||||||
Allied Universal Holdco LLC | $ | 8,640,625 | 8,648,730 | |||||
Global Payments, Inc. | 2,575,000 | 2,575,000 | ||||||
Outfront Media Capital LLC | 7,878,750 | 7,926,353 | ||||||
USAGM HoldCo LLC | 8,750,000 | 8,837,500 | ||||||
|
| |||||||
27,987,583 | ||||||||
|
| |||||||
Auto Manufacturers 0.3% | ||||||||
Navistar International Corp. | 4,436,325 | 4,488,084 | ||||||
|
| |||||||
Auto Parts & Equipment 0.8% | ||||||||
TI Group Automotive Systems LLC 2015 USD Term Loan | 10,908,875 | 10,963,419 | ||||||
|
| |||||||
Building Materials 0.7% | ||||||||
Builders FirstSource, Inc. | 2,723,175 | 2,714,325 | ||||||
Forterra Finance LLC | 7,144,100 | 7,132,941 | ||||||
|
| |||||||
9,847,266 | ||||||||
|
|
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 | |||||||
Loan Assignments (continued) | ||||||||
Buildings & Real Estate 0.8% | ||||||||
¨Quikrete Holdings, Inc. | $ | 11,670,750 | $ | 11,746,120 | ||||
|
| |||||||
Chemicals 0.2% | ||||||||
Axalta Coating Systems U.S. Holdings, Inc. | 3,384,140 | 3,416,310 | ||||||
|
| |||||||
Commercial Services 1.2% | ||||||||
KAR Auction Services, Inc. | 8,658,122 | 8,705,023 | ||||||
Neff Rental LLC | 8,591,780 | 8,591,780 | ||||||
|
| |||||||
17,296,803 | ||||||||
|
| |||||||
Computers 0.3% | ||||||||
Tempo Acquisition LLC | 4,110,000 | 4,115,138 | ||||||
|
| |||||||
Containers, Packaging & Glass 0.9% | ||||||||
Berry Plastics Group, Inc. | 5,000,000 | 5,028,750 | ||||||
BWAY Holding Co. | 4,140,000 | 4,119,300 | ||||||
Reynolds Group Holdings, Inc. | 2,810,893 | 2,824,261 | ||||||
|
| |||||||
11,972,311 | ||||||||
|
| |||||||
Electric 0.1% | ||||||||
Calpine Corp. | 1,965,000 | 1,969,606 | ||||||
|
| |||||||
Electrical Components & Equipment 0.2% |
| |||||||
Electro Rent Corp. | 3,331,650 | 3,352,473 | ||||||
|
| |||||||
Electronics 0.4% | ||||||||
Dell, Inc. | 6,129,638 | 6,150,987 | ||||||
|
|
Principal Amount | Value | |||||||
Entertainment 0.2% | ||||||||
Mohegan Tribal Gaming Authority | $ | 2,992,500 | $ | 3,005,218 | ||||
|
| |||||||
Environmental Controls 0.9% | ||||||||
Advanced Disposal Services, Inc. | 5,905,000 | 5,952,240 | ||||||
GFL Environmental, Inc. | 5,970,000 | 5,982,436 | ||||||
|
| |||||||
11,934,676 | ||||||||
|
| |||||||
Food 0.4% | ||||||||
Pinnacle Foods Finance LLC | 5,456,325 | 5,487,393 | ||||||
|
| |||||||
Food Services 0.2% | ||||||||
Aramark Services, Inc. | 2,317,000 | 2,332,929 | ||||||
|
| |||||||
Hand & Machine Tools 0.4% | ||||||||
Milacron LLC | 4,907,700 | 4,932,239 | ||||||
|
| |||||||
Health Care—Products 0.6% | ||||||||
Ortho-Clinical Diagnostics, Inc. | 7,310,549 | 7,266,020 | ||||||
Sterigenics-Nordion Holdings LLC | 985,000 | 980,075 | ||||||
|
| |||||||
8,246,095 | ||||||||
|
| |||||||
Health Care—Services 0.9% | ||||||||
inVentiv Health, Inc. | 7,172,025 | 7,210,130 | ||||||
MPH Acquisition Holdings LLC | 4,788,545 | 4,848,401 | ||||||
|
| |||||||
12,058,531 | ||||||||
|
| |||||||
Household Products & Wares 0.9% | ||||||||
KIK Custom Products, Inc. | 5,510,478 | 5,562,138 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 17 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Loan Assignments (continued) | ||||||||
Household Products & Wares (continued) |
| |||||||
Prestige Brands, Inc. | $ | 6,916,150 | $ | 6,969,460 | ||||
|
| |||||||
12,531,598 | ||||||||
|
| |||||||
Iron & Steel 0.6% |
| |||||||
Signode Industrial Group U.S., Inc. | 7,685,398 | 7,747,842 | ||||||
|
| |||||||
Lodging 0.8% | ||||||||
Boyd Gaming Corp. | 369,075 | 370,591 | ||||||
Hilton Worldwide Finance LLC | 10,647,290 | 10,725,484 | ||||||
|
| |||||||
11,096,075 | ||||||||
|
| |||||||
Machinery—Construction & Mining 0.2% |
| |||||||
Terex Corp. | 2,541,500 | 2,551,031 | ||||||
|
| |||||||
Machinery—Diversified 0.6% | ||||||||
Husky Injection Molding Systems, Ltd. | 8,297,955 | 8,342,556 | ||||||
|
| |||||||
Media 1.2% | ||||||||
Charter Communications Operating LLC | 8,743,030 | 8,777,181 | ||||||
Nielsen Finance LLC | 3,965,000 | 3,978,766 | ||||||
Virgin Media Bristol LLC | 4,100,000 | 4,113,325 | ||||||
|
| |||||||
16,869,272 | ||||||||
|
| |||||||
Miscellaneous—Manufacturing 0.3% |
| |||||||
Gates Global LLC | 4,062,269 | 4,081,947 | ||||||
|
| |||||||
Oil & Gas 0.3% | ||||||||
CITGO Petroleum Corp. | 4,259,345 | 4,280,642 | ||||||
|
|
Principal Amount | Value | |||||||
Pharmaceuticals 0.4% | ||||||||
Change Healthcare Holdings, Inc. | $ | 5,485,000 | $ | 5,498,713 | ||||
|
| |||||||
Real Estate 0.4% | ||||||||
Realogy Corp. | 4,891,600 | 4,917,280 | ||||||
|
| |||||||
Retail 0.6% | ||||||||
Nature’s Bounty Co. | 5,386,500 | 5,408,946 | ||||||
Pilot Travel Centers LLC | 2,765,122 | 2,782,404 | ||||||
|
| |||||||
8,191,350 | ||||||||
|
| |||||||
Software 0.3% | ||||||||
First Data Corp. | 3,968,688 | 3,968,688 | ||||||
|
| |||||||
Telecommunications 1.7% | ||||||||
Level 3 Financing, Inc. | 9,000,000 | 9,024,750 | ||||||
SBA Senior Finance II LLC | 8,788,827 | 8,828,060 | ||||||
Sprint Communications, Inc. | 5,150,000 | 5,152,148 | ||||||
|
| |||||||
23,004,958 | ||||||||
|
| |||||||
Transportation 0.2% | ||||||||
XPO Logistics, Inc. | 3,285,000 | 3,302,269 | ||||||
|
| |||||||
Total Loan Assignments | 277,687,402 | |||||||
|
| |||||||
Mortgage-Backed Securities 0.8% | ||||||||
Commercial Mortgage Loans |
| |||||||
Bayview Commercial Asset Trust | 30,436 | 27,315 |
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 | |||||||
Mortgage-Backed Securities (continued) | ||||||||
Commercial Mortgage Loans |
| |||||||
Wells Fargo Mortgage Backed Securities Trust | $ | 107,000 | $ | 106,458 | ||||
|
| |||||||
133,773 | ||||||||
|
| |||||||
Residential Mortgages (Collateralized Mortgage Obligations) 0.8% |
| |||||||
Deutsche Alt-A Securities, Inc. | 68,881 | 68,257 | ||||||
Japan Finance Organization for Municipalities | 10,610,000 | 10,570,403 | ||||||
WaMu Mortgage | 120,403 | 107,169 | ||||||
|
| |||||||
10,745,829 | ||||||||
|
| |||||||
Whole Loan Collateral (Collateralized Mortgage Obligation) 0.0%‡ |
| |||||||
Banc of America Mortgage Trust | 119,984 | 107,536 | ||||||
|
| |||||||
Total Mortgage-Backed Securities | 10,987,138 | |||||||
|
| |||||||
U.S. Government & Federal Agencies 0.0%‡ | ||||||||
United States Treasury Note 0.0% | ||||||||
2.125%, due 8/15/21 | 70,000 | 71,140 | ||||||
|
| |||||||
Total U.S. Government & Federal Agencies | 71,140 | |||||||
|
| |||||||
Total Long-Term Bonds | 1,264,109,921 | |||||||
|
| |||||||
Shares | ||||||||
Common Stocks 0.0%‡ | ||||||||
Media 0.0%‡ |
| |||||||
ION Media Networks, Inc. (e)(h)(i)(j) | 22 | 14,929 | ||||||
|
| |||||||
Total Common Stocks | 14,929 | |||||||
|
|
Principal Amount | Value | |||||||
Short-Term Investments 9.7% | ||||||||
Repurchase Agreement 9.7% |
| |||||||
Fixed Income Clearing Corp. | $ | 134,605,754 | $ | 134,605,754 | ||||
|
| |||||||
Total Short-Term Investment | 134,605,754 | |||||||
|
| |||||||
Total Investments, Before Investments Sold Short | 101.0 | % | 1,398,730,604 | |||||
|
| |||||||
Long-Term Bonds Sold Short (1.1)% Corporate Bonds Sold Short (1.1%) |
| |||||||
Oil & Gas (1.1%) | ||||||||
Noble Energy, Inc. | ||||||||
3.90%, due 11/15/24 | (12,115,000 | ) | (12,366,168 | ) | ||||
4.15%, due 12/15/21 | (3,000,000 | ) | (3,170,508 | ) | ||||
|
| |||||||
(15,536,676 | ) | |||||||
|
| |||||||
Total Investments Sold Short | (1.1 | )% | (15,536,676 | ) | ||||
|
| |||||||
Total Investments, Net of Investments Sold Short | 99.9 | 1,383,193,928 | ||||||
Other Assets, Less Liabilities | 0.1 | 1,781,326 | ||||||
Net Assets | 100.0 | % | $ | 1,384,975,254 |
‡ | Less than one-tenth of a percent. |
(a) | Floating rate—Rate shown was the rate in effect as of April 30, 2017. |
(b) | 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. |
(c) | 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(K)). |
(d) | Step coupon—Rate shown was the rate in effect as of April 30, 2017. |
(e) | Fair valued security—Represents fair value as measured in good faith under procedures approved by the Board of Trustees. As of April 30, 2017, the total market value of these securities was $80,218, which represented less than one-tenth of a percent of the Fund’s net assets. |
(f) | 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, 2017. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 19 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
(g) | 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, 2017. |
(h) | Restricted security. |
(i) | Illiquid security—As of April 30, 2017, the total market value of this security deemed illiquid under procedures approved by the Board of Trustees was $14,929, which represented less than one-tenth of a percent of the Fund’s net assets. |
(j) | Non-income producing security. |
(k) | As of April 30, 2017, cost was $1,390,587,810 for federal income tax purposes and net unrealized depreciation was as follows: |
Gross unrealized appreciation | $ | 21,851,509 | ||
Gross unrealized depreciation | (13,708,715 | ) | ||
|
| |||
Net unrealized appreciation | $ | 8,142,794 | ||
|
|
As of April 30, 2017, the Fund held the following foreign currency forward contracts:
Foreign Currency Buy Contracts | Expiration Date | Counterparty | Contract Amount Purchased | Contract Amount Sold | Unrealized | |||||||||||||||||||||||||
Euro vs. U.S. Dollar | 5/2/17 | JPMorgan Chase Bank N.A. | EUR | 15,994,000 | USD | 17,243,593 | USD | 178,667 | ||||||||||||||||||||||
Pound Sterling vs. U.S. Dollar | 5/2/17 | JPMorgan Chase Bank N.A. | GBP | 21,734,000 | 27,499,234 | 650,625 | ||||||||||||||||||||||||
Foreign Currency Sales Contracts | Contract Sold | Contract Amount Purchased | ||||||||||||||||||||||||||||
Euro vs. U.S. Dollar | 5/2/17 | JPMorgan Chase Bank N.A. | EUR | 15,994,000 | USD | 17,158,363 | (263,896 | ) | ||||||||||||||||||||||
Euro vs. U.S. Dollar | 8/1/17 | JPMorgan Chase Bank N.A. | 8,643,000 | 9,287,509 | (170,768 | ) | ||||||||||||||||||||||||
Pound Sterling vs. U.S. Dollar | 5/2/17 | JPMorgan Chase Bank N.A. | GBP | 21,734,000 | 27,380,711 | (769,149 | ) | |||||||||||||||||||||||
Pound Sterling vs. U.S. Dollar | 8/1/17 | JPMorgan Chase Bank N.A. | 12,703,000 | 16,274,448 | (221,112 | ) | ||||||||||||||||||||||||
Net unrealized appreciation (depreciation) on foreign currency forward contracts |
| $ | (595,633 | ) |
As of April 30, 2017, the Fund held the following futures contracts1:
Type | Number of Contracts Long (Short) | Expiration Date | Notional Amount | Unrealized Appreciation (Depreciation)2 | ||||||||||||
2-Year United States Treasury Note | (2,855 | ) | June 2017 | $ | (618,419,768 | ) | $ | (667,079 | ) | |||||||
10-Year United States Treasury Note | 481 | June 2017 | 60,470,719 | 664,208 | ||||||||||||
Euro Bund | (373 | ) | June 2017 | (65,732,636 | ) | 92,886 | ||||||||||
United States Treasury Long Bond | (181 | ) | June 2017 | (27,687,344 | ) | (524,167 | ) | |||||||||
|
|
|
| |||||||||||||
$ | (651,369,029 | ) | $ | (434,152 | ) | |||||||||||
|
|
|
|
1. | As of April 30, 2017, cash in the amount of $2,740,460 was on deposit with a broker for futures transactions. |
2. | Represents the difference between the value of the contracts at the time they were opened and the value as of April 30, 2017. |
As of April 30, 2017, the Fund held the following centrally cleared interest rate swap agreements1:
Notional Amount | Currency | Expiration Date | Payments made by Fund | Payments Received by Fund | Upfront Received/ (Paid) | Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||
$350,000 | USD | 5/6/2017 | 3-Month USD-LIBOR | Fixed 0.861% | $ — | $ | 16,996 | $ | 16,996 | |||||||||||||||||
273,000 | USD | 7/8/2017 | 3-Month USD-LIBOR | Fixed 0.877% | — | 161,556 | 161,556 | |||||||||||||||||||
250,000 | USD | 10/8/2017 | 3-Month USD-LIBOR | Fixed 0.730% | — | 614,452 | 614,452 | |||||||||||||||||||
250,000 | USD | 10/16/2017 | 3-Month USD-LIBOR | Fixed 0.695% | — | 683,548 | 683,548 | |||||||||||||||||||
400,000 | USD | 2/16/2018 | 3-Month USD-LIBOR | Fixed 0.670% | (20,001) | 2,190,120 | 2,170,119 | |||||||||||||||||||
725,000 | USD | 7/22/2018 | 3-Month USD-LIBOR | Fixed 0.937% | (32,032) | 4,444,119 | 4,412,087 | |||||||||||||||||||
$(52,033) | $ | 8,110,791 | $ | 8,058,758 |
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. |
Open OTC credit default swap agreements as of April 30, 2017 were as follows:
Reference Entity | Counterparty | Termination | Buy/Sell Protection2 | Notional Amount (000)3 | (Pay)/ Receive Fixed Rate4 | Upfront Premiums Received/ (Paid) | Value | Unrealized | ||||||||||||||||||||
Staples, Inc. 2.75%, 1/12/18 | Credit Suisse First Boston | 6/20/2019 | Buy | $ | 7,000 | 1.00 | % | $ | 208,739 | $ | (106,485) | $(315,224) |
1. | As of April 30, 2017, cash in the amount of $2,205,536 was on deposit with a broker for centrally cleared swap agreements. |
2. | 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. |
3. | 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. |
4. | 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. |
5. | Represents the difference between the value of the credit default swap contracts at the time they were opened and the value at April 30, 2017. |
The following abbreviations are used in the preceding pages:
EUR—Euro
GBP—British Pound Sterling
The following is a summary of the fair valuations according to the inputs used as of April 30, 2017, 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 | $ | — | $ | 2,857,859 | $ | — | $ | 2,857,859 | ||||||||
Corporate Bonds | — | 971,756,504 | — | 971,756,504 | ||||||||||||
Foreign Bonds | — | 749,878 | — | 749,878 | ||||||||||||
Loan Assignments (b) | — | 258,822,450 | 18,864,952 | 277,687,402 | ||||||||||||
Mortgage-Backed Securities | — | 10,987,138 | — | 10,987,138 | ||||||||||||
U.S. Government & Federal Agencies | — | 71,140 | — | 71,140 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Long-Term Bonds | — | 1,245,244,969 | 18,864,952 | 1,264,109,921 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Common Stocks (c) | — | — | 14,929 | 14,929 | ||||||||||||
Short-Term Investments | ||||||||||||||||
Repurchase Agreement | — | 134,605,754 | — | 134,605,754 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | — | 1,379,850,723 | 18,879,881 | 1,398,730,604 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other Financial Instruments | ||||||||||||||||
Foreign Currency Forward Contract (d) | — | 829,292 | — | 829,292 | ||||||||||||
Futures Contracts (d) | 757,094 | — | — | 757,094 | ||||||||||||
Interest Rate Swap Contracts (d) | — | 8,058,758 | — | 8,058,758 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Other Financial Instruments | 757,094 | 8,888,050 | — | 9,645,144 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities and Other Financial Instruments | $ | 757,094 | $ | 1,388,738,773 | $ | 18,879,881 | $ | 1,408,375,748 | ||||||||
|
|
|
|
|
|
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 21 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Liability Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Long-Term Bonds Sold Short | ||||||||||||||||
Corporate Bonds Sold Short | $ | — | $ | (15,536,676 | ) | $ | — | $ | (15,536,676 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
Total Long-Term Bonds Sold Short | — | (15,536,676 | ) | — | (15,536,676 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Other Financial Instruments | ||||||||||||||||
Foreign Currency Forward Contracts (d) | — | (1,424,925 | ) | — | (1,424,925 | ) | ||||||||||
Futures Contracts (d) | (1,191,246 | ) | — | — | (1,191,246 | ) | ||||||||||
Credit Default Swap Contracts (d) | — | (315,224 | ) | — | (315,224 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Other Financial Instruments | (1,191,246 | ) | (1,740,149 | ) | — | (2,931,395 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities Sold Short and Other Financial Instruments | $ | (1,191,246 | ) | $ | (17,276,825 | ) | $ | — | $ | (18,468,071 | ) | |||||
|
|
|
|
|
|
|
|
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | Includes $8,837,500, $4,115,138, $4,932,239 and $980,075 of Level 3 securities held in Advertising, Computers, Hand & Machine Tools and Health Care—Products, respectively, within the Loan Assignments section of the Portfolio of Investments. |
(c) | The Level 3 security valued at $14,929 is held in Media within the Common Stocks section of the Portfolio of Investments. |
(d) | 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, 2017, securities with a market value of $8,695,313 transferred from Level 2 to Level 3. The transfer occurred as a result of utilizing significant unobservable inputs. As of October 31, 2016, the fair value obtained for these securities, as determined based on information provided by an independent pricing source, utilized significant observable inputs. (See Note 2)
As of April 30, 2017, a security with a market value of $8,673,520 transferred from Level 3 to Level 2. The transfer occurred as a result of utilizing significant observable inputs. As of October 31, 2016, the fair value obtained for these securities, as determined based on information provided by an independent pricing source, utilized significant unobservable inputs. (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, 2016 | Accrued Discounts (Premiums) | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Purchases | Sales (a) | Transfers in to Level 3 | Transfers Level 3 | Balance as of April 30, 2017 | Change in Unrealized Appreciation (Depreciation) from Investments Still Held at April 30, 2017 (b) | ||||||||||||||||||||||||||||||
Long-Term Bonds | ||||||||||||||||||||||||||||||||||||||||
Loan Assignments | ||||||||||||||||||||||||||||||||||||||||
Advertising | $ | 8,673,520 | $ | 5,437 | $ | — | $ | 136,750 | $ | — | $ | — | $ | 8,695,313 | $ | (8,673,520 | ) | $ | 8,837,500 | $ | 136,750 | |||||||||||||||||||
Computers | — | — | — | 16,369 | 4,098,769 | — | — | — | 4,115,138 | 16,369 | ||||||||||||||||||||||||||||||
Hand & Machine Tools | 6,635,753 | 408 | 47 | 9,521 | 4,901,550 | (6,615,040 | ) | — | — | 4,932,239 | 42,535 | |||||||||||||||||||||||||||||
Health Care—Products | 987,525 | 185 | (652 | ) | (1,983 | ) | 982,538 | (987,538 | ) | — | — | 980,075 | (2,498 | ) | ||||||||||||||||||||||||||
Machinery—Construction & Mining | 2,535,260 | 227 | 13 | 8,377 | — | (2,543,877 | ) | — | — | — | — | |||||||||||||||||||||||||||||
Retail Stores | 729,051 | (87 | ) | (2,159 | ) | (4,078 | ) | — | (722,727 | ) | — | — | — | — | ||||||||||||||||||||||||||
Common Stocks | ||||||||||||||||||||||||||||||||||||||||
Media | 11,778 | — | — | 3,151 | — | — | — | — | 14,929 | 3,151 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total | $ | 19,572,887 | $ | 6,170 | $ | (2,751 | ) | $ | 168,107 | $ | 9,982,857 | $ | (10,869,182 | ) | $ | 8,695,313 | $ | (8,673,520 | ) | $ | 18,879,881 | $ | 196,307 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Sales include principal reductions. |
(b) | Included in “Net change in unrealized appreciation (depreciation) on investments” in the Statement of Operations. |
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. |
Statement of Assets and Liabilities as of April 30, 2017 (Unaudited)
Assets | ||||
Investment in securities, at value (identified cost $1,390,499,849) | $ | 1,398,730,604 | ||
Cash collateral on deposit at broker | 4,945,996 | |||
Cash denominated in foreign currencies (identified cost $61,492) | 66,194 | |||
Receivables: | ||||
Dividends and interest | 10,885,454 | |||
Fund shares sold | 3,437,106 | |||
Investment securities sold | 1,185,422 | |||
Variation margin on futures contracts | 545,227 | |||
Premiums paid for OTC swap contracts | 208,739 | |||
Other assets | 104,944 | |||
Unrealized appreciation on foreign currency forward contracts | 829,292 | |||
Variation margin on centrally cleared swaps | 194,102 | |||
|
| |||
Total assets | 1,421,133,080 | |||
|
| |||
Liabilities | ||||
Investments sold short (proceeds $13,591,699) | 15,536,676 | |||
Payables: | ||||
Investment securities purchased | 12,841,531 | |||
Fund shares redeemed | 3,799,865 | |||
Manager (See Note 3) | 644,949 | |||
Transfer agent (See Note 3) | 380,577 | |||
Interest on investments sold short | 264,901 | |||
NYLIFE Distributors (See Note 3) | 243,509 | |||
Broker fees and charges on short sales | 87,952 | |||
Shareholder communication | 68,362 | |||
Professional fees | 54,572 | |||
Custodian | 36,897 | |||
Trustees | 2,863 | |||
Dividend payable | 444,475 | |||
Accrued expenses | 9,772 | |||
Interest expense and fees payable | 776 | |||
Unrealized depreciation on OTC swap contracts | 315,224 | |||
Unrealized depreciation on foreign currency forward contracts | 1,424,925 | |||
|
| |||
Total liabilities | 36,157,826 | |||
|
| |||
Net assets | $ | 1,384,975,254 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 1,568,880 | ||
Additional paid-in capital | 1,556,451,558 | |||
|
| |||
1,558,020,438 | ||||
Distributions in excess of net investment income | (3,071,284 | ) | ||
Accumulated net realized gain (loss) on investments, investments sold short, futures transactions, swap transactions and foreign currency transactions | (183,001,196 | ) | ||
Net unrealized appreciation (depreciation) on investments, swap contracts and futures contracts | 15,540,137 | |||
Net unrealized appreciation (depreciation) on investments sold short | (1,944,977 | ) | ||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (567,864 | ) | ||
|
| |||
Net assets | $ | 1,384,975,254 | ||
|
|
Class A | ||||
Net assets applicable to outstanding shares | $ | 316,478,086 | ||
|
| |||
Shares of beneficial interest outstanding | 35,844,291 | |||
|
| |||
Net asset value per share outstanding | $ | 8.83 | ||
Maximum sales charge (4.50% of offering price) | 0.42 | |||
|
| |||
Maximum offering price per share outstanding | $ | 9.25 | ||
|
| |||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 31,369,521 | ||
|
| |||
Shares of beneficial interest outstanding | 3,525,799 | |||
|
| |||
Net asset value per share outstanding | $ | 8.90 | ||
Maximum sales charge (4.50% of offering price) | 0.42 | |||
|
| |||
Maximum offering price per share outstanding | $ | 9.32 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 16,608,549 | ||
|
| |||
Shares of beneficial interest outstanding | 1,890,502 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 8.79 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 190,063,878 | ||
|
| |||
Shares of beneficial interest outstanding | 21,651,249 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 8.78 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 829,616,685 | ||
|
| |||
Shares of beneficial interest outstanding | 93,881,113 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 8.84 | ||
|
| |||
Class R2 | ||||
Net assets applicable to outstanding shares | $ | 754,744 | ||
|
| |||
Shares of beneficial interest outstanding | 85,527 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 8.82 | ||
|
| |||
Class R3 | ||||
Net assets applicable to outstanding shares | $ | 83,791 | ||
|
| |||
Shares of beneficial interest outstanding | 9,487 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 8.83 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 23 |
Statement of Operations for the six months ended April 30, 2017 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 28,151,895 | ||
Dividends | 11,613 | |||
Other income | 903 | |||
|
| |||
Total income | 28,164,411 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 3,910,479 | |||
Distribution/Service—Class A (See Note 3) | 444,879 | |||
Distribution/Service—Investor Class (See Note 3) | 38,984 | |||
Distribution/Service—Class B (See Note 3) | 86,844 | |||
Distribution/Service—Class C (See Note 3) | 1,013,304 | |||
Distribution/Service—Class R2 (See Note 3) | 765 | |||
Distribution/Service—Class R3 (See Note 3) | 170 | |||
Transfer agent (See Note 3) | 1,114,400 | |||
Interest on investments sold short | 472,786 | |||
Broker fees and charges on short sales | 273,721 | |||
Shareholder communication | 91,010 | |||
Registration | 78,327 | |||
Professional fees | 58,462 | |||
Interest expense | 26,275 | |||
Custodian | 23,130 | |||
Trustees | 17,835 | |||
Shareholder service (See Note 3) | 340 | |||
Miscellaneous | 30,316 | |||
|
| |||
Total expenses | 7,682,027 | |||
|
| |||
Net investment income (loss) | 20,482,384 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts, Swap Contracts and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 1,202,666 | |||
Investments sold short | 748,141 | |||
Futures transactions | 2,142,263 | |||
Swap transactions | 1,755,548 | |||
Foreign currency transactions | 1,433,363 | |||
|
| |||
Net realized gain (loss) on investments, investments sold short, futures transactions, swap transactions and foreign currency transactions | 7,281,981 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 6,880,009 | |||
Investments sold short | (122,453 | ) | ||
Futures contracts | (1,828,235 | ) | ||
Swap contracts | 2,981,167 | |||
Translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (2,090,578 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on investments, investments sold short, futures contracts, swap contracts and foreign currency transactions | 5,819,910 | |||
|
| |||
Net realized and unrealized gain (loss) on investments, investments sold short, futures transactions, swap transactions and foreign currency transactions | 13,101,891 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 33,584,275 | ||
|
|
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. |
Statements of Changes in Net Assets
for the six months ended April 30, 2017 (Unaudited) and the year ended October 31, 2016
2017 | 2016 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 20,482,384 | $ | 65,976,301 | ||||
Net realized gain (loss) on investments, investments sold short, futures transactions, swap transactions and foreign currency transactions | 7,281,981 | (126,707,512 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments, investments sold short, futures contracts, swap contracts and foreign currency transactions | 5,819,910 | 111,755,483 | ||||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 33,584,275 | 51,024,272 | ||||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Class A | (7,978,642 | ) | (17,448,500 | ) | ||||
Investor Class | (680,696 | ) | (1,174,147 | ) | ||||
Class B | (320,375 | ) | (553,640 | ) | ||||
Class C | (3,742,100 | ) | (7,691,473 | ) | ||||
Class I | (17,772,101 | ) | (34,272,357 | ) | ||||
Class R2 | (13,356 | ) | (5,314 | ) | ||||
Class R3 | (1,495 | ) | (626 | ) | ||||
|
| |||||||
Total dividends to shareholders | (30,508,765 | ) | (61,146,057 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 199,175,524 | 289,363,678 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 26,558,820 | 52,612,771 | ||||||
Cost of shares redeemed | (263,398,631 | ) | (1,127,795,232 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | (37,664,287 | ) | (785,818,783 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets | (34,588,777 | ) | (795,940,568 | ) | ||||
Net Assets | ||||||||
Beginning of period | 1,419,564,031 | 2,215,504,599 | ||||||
|
| |||||||
End of period | $ | 1,384,975,254 | $ | 1,419,564,031 | ||||
|
| |||||||
Undistributed net investment income at end of period | $ | (3,071,284 | ) | $ | 6,955,097 | |||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 25 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class A | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 8.81 | $ | 8.72 | $ | 9.27 | $ | 9.28 | $ | 9.22 | $ | 8.73 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.13 | 0.35 | 0.36 | 0.36 | 0.40 | 0.45 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.08 | 0.08 | (0.63 | ) | (0.05 | ) | 0.06 | 0.49 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.02 | ) | 0.02 | 0.01 | (0.01 | ) | 0.01 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 0.21 | 0.41 | (0.25 | ) | 0.32 | 0.45 | 0.95 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends: | ||||||||||||||||||||||||||||
From net investment income | (0.19 | ) | (0.32 | ) | (0.30 | ) | (0.33 | ) | (0.39 | ) | (0.46 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends | (0.19 | ) | (0.32 | ) | (0.30 | ) | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 8.83 | $ | 8.81 | $ | 8.72 | $ | 9.27 | $ | 9.28 | $ | 9.22 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 2.44 | % | 4.94 | % | (2.70 | %) | 3.48 | % | 4.96 | % | 11.26 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 2.98 | %†† | 4.04 | % | 4.01 | % | 3.81 | % | 4.25 | % | 5.08 | % | ||||||||||||||||
Net expenses (excluding short sale expenses) | 1.02 | %†† | 1.00 | % | 0.96 | % | 0.98 | % | 1.00 | % | 1.00 | % | ||||||||||||||||
Expenses (including short sales expenses, before waiver/reimbursement) | 1.13 | %†† | 1.16 | % | 1.01 | % | 1.04 | % | 1.12 | % | 1.33 | % | ||||||||||||||||
Short sale expenses | 0.11 | %†† | 0.16 | % | 0.05 | % | 0.06 | % | 0.12 | % | 0.33 | % | ||||||||||||||||
Portfolio turnover rate | 26 | % | 15 | % | 22 | % | 19 | % | 23 | % | 25 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 316,478 | $ | 412,834 | $ | 584,184 | $ | 675,552 | $ | 317,917 | $ | 192,009 |
* | 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. For periods of less than one year, total return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Investor Class | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 8.88 | $ | 8.78 | $ | 9.33 | $ | 9.34 | $ | 9.28 | $ | 8.78 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.13 | 0.35 | 0.36 | 0.36 | 0.39 | 0.44 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.08 | 0.10 | (0.63 | ) | (0.05 | ) | 0.06 | 0.50 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.03 | ) | 0.02 | 0.01 | (0.01 | ) | 0.01 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 0.21 | 0.42 | (0.25 | ) | 0.32 | 0.44 | 0.95 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends: | ||||||||||||||||||||||||||||
From net investment income | (0.19 | ) | (0.32 | ) | (0.30 | ) | (0.33 | ) | (0.38 | ) | (0.45 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 8.90 | $ | 8.88 | $ | 8.78 | $ | 9.33 | $ | 9.34 | $ | 9.28 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 2.41 | % | 5.00 | % | (2.70 | %) | 3.42 | % | 4.76 | % | 10.98 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 2.92 | %†† | 4.01 | % | 3.99 | % | 3.78 | % | 4.12 | % | 4.89 | % | ||||||||||||||||
Net expenses (excluding short sale expenses) | 1.04 | %†† | 1.02 | % | 0.98 | % | 1.00 | % | 1.15 | % | 1.19 | % | ||||||||||||||||
Expenses (including short sales expenses, before waiver/reimbursement) | 1.15 | %†† | 1.18 | % | 1.03 | % | 1.06 | % | 1.27 | % | 1.52 | % | ||||||||||||||||
Short sale expenses | 0.11 | %†† | 0.16 | % | 0.05 | % | 0.06 | % | 0.12 | % | 0.33 | % | ||||||||||||||||
Portfolio turnover rate | 26 | % | 15 | % | 22 | % | 19 | % | 23 | % | 25 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 31,370 | $ | 31,851 | $ | 32,498 | $ | 31,690 | $ | 28,341 | $ | 24,551 |
* | 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. For periods of less than one year, total return is not annualized. |
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. |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class B | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 8.77 | $ | 8.68 | $ | 9.23 | $ | 9.24 | $ | 9.18 | $ | 8.70 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.09 | 0.28 | 0.29 | 0.28 | 0.31 | 0.37 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.09 | 0.10 | (0.62 | ) | (0.04 | ) | 0.07 | 0.48 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.03 | ) | 0.02 | 0.01 | (0.01 | ) | 0.01 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 0.18 | 0.35 | (0.31 | ) | 0.25 | 0.37 | 0.86 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.16 | ) | (0.26 | ) | (0.24 | ) | (0.26 | ) | (0.31 | ) | (0.38 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 8.79 | $ | 8.77 | $ | 8.68 | $ | 9.23 | $ | 9.24 | $ | 9.18 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 2.06 | % | 4.16 | % | (3.45 | %) | 2.71 | % | 4.05 | % | 10.15 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 2.18 | %†† | 3.26 | % | 3.24 | % | 3.03 | % | 3.38 | % | 4.14 | % | ||||||||||||||||
Net expenses (excluding short sales expenses) | 1.79 | %†† | 1.77 | % | 1.73 | % | 1.75 | % | 1.90 | % | 1.94 | % | ||||||||||||||||
Expenses (including short sales expenses, before | 1.90 | %†† | 1.93 | % | 1.78 | % | 1.81 | % | 2.02 | % | 2.27 | % | ||||||||||||||||
Short sale expenses | 0.11 | %†† | 0.16 | % | 0.05 | % | 0.06 | % | 0.12 | % | 0.33 | % | ||||||||||||||||
Portfolio turnover rate | 26 | % | 15 | % | 22 | % | 19 | % | 23 | % | 25 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 16,609 | $ | 18,313 | $ | 19,833 | $ | 22,460 | $ | 19,254 | $ | 17,591 |
* | 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. For periods of less than one year, total return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class C | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 8.76 | $ | 8.67 | $ | 9.22 | $ | 9.23 | $ | 9.18 | $ | 8.69 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.09 | 0.28 | 0.29 | 0.28 | 0.31 | 0.37 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.09 | 0.10 | (0.62 | ) | (0.04 | ) | 0.06 | 0.49 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.03 | ) | 0.02 | 0.01 | (0.01 | ) | 0.01 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 0.18 | 0.35 | (0.31 | ) | 0.25 | 0.36 | 0.87 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends: | ||||||||||||||||||||||||||||
From net investment income | (0.16 | ) | (0.26 | ) | (0.24 | ) | (0.26 | ) | (0.31 | ) | (0.38 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 8.78 | $ | 8.76 | $ | 8.67 | $ | 9.22 | $ | 9.23 | $ | 9.18 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 2.07 | % | 4.16 | % | (3.46 | %) | 2.71 | % | 4.05 | % | 10.16 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 2.19 | %†† | 3.27 | % | 3.24 | % | 3.05 | % | 3.34 | % | 4.14 | % | ||||||||||||||||
Net expenses (excluding short sale expenses) | 1.79 | %†† | 1.77 | % | 1.73 | % | 1.75 | % | 1.90 | % | 1.94 | % | ||||||||||||||||
Expenses (including short sales expenses, before | 1.90 | %†† | 1.93 | % | 1.78 | % | 1.81 | % | 2.02 | % | 2.27 | % | ||||||||||||||||
Short sale expenses | 0.11 | %†† | 0.16 | % | 0.05 | % | 0.06 | % | 0.12 | % | 0.33 | % | ||||||||||||||||
Portfolio turnover rate | 26 | % | 15 | % | 22 | % | 19 | % | 23 | % | 25 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 190,064 | $ | 220,513 | $ | 315,183 | $ | 345,900 | $ | 113,183 | $ | 59,159 |
* | 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. For periods of less than one year, total 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. | 27 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class I | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 8.82 | $ | 8.72 | $ | 9.28 | $ | 9.29 | $ | 9.23 | $ | 8.73 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.14 | 0.37 | 0.38 | 0.38 | 0.41 | 0.47 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.08 | 0.11 | (0.63 | ) | (0.05 | ) | 0.07 | 0.51 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.03 | ) | 0.02 | 0.01 | (0.01 | ) | 0.01 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 0.22 | 0.45 | (0.23 | ) | 0.34 | 0.47 | 0.99 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends: | ||||||||||||||||||||||||||||
From net investment income | (0.20 | ) | (0.35 | ) | (0.33 | ) | (0.35 | ) | (0.41 | ) | (0.49 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 8.84 | $ | 8.82 | $ | 8.72 | $ | 9.28 | $ | 9.29 | $ | 9.23 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 2.57 | % | 5.32 | % | (2.56 | %) | 3.73 | % | 5.32 | % | 11.41 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 3.18 | %†† | 4.30 | % | 4.25 | % | 4.08 | % | 4.45 | % | 5.32 | % | ||||||||||||||||
Net expenses (excluding short sale expenses) | 0.77 | %†† | 0.75 | % | 0.71 | % | 0.73 | % | 0.75 | % | 0.76 | % | ||||||||||||||||
Expenses (including short sales expenses, before | 0.88 | %†† | 0.91 | % | 0.76 | % | 0.79 | % | 0.87 | % | 1.08 | % | ||||||||||||||||
Short sale expenses | 0.11 | %†† | 0.16 | % | 0.05 | % | 0.06 | % | 0.12 | % | 0.32 | % | ||||||||||||||||
Portfolio turnover rate | 26 | % | 15 | % | 22 | % | 19 | % | 23 | % | 25 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 829,617 | $ | 735,359 | $ | 1,263,695 | $ | 1,481,314 | $ | 294,560 | $ | 111,435 |
* | 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. For periods of less than one year, total return is not annualized. |
Six months ended April 30, | Year ended October 31, | February 28, through October 31, | ||||||||||||||||||
Class R2 | 2017* | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value at beginning of period | $ | 8.81 | $ | 8.72 | $ | 9.27 | $ | 9.39 | ||||||||||||
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| |||||||||||||
Net investment income (loss) (a) | 0.12 | 0.34 | 0.35 | 0.23 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.08 | 0.10 | (0.63 | ) | (0.16 | ) | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.03 | ) | 0.02 | 0.02 | ||||||||||||||
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|
|
|
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| |||||||||||||
Total from investment operations | 0.20 | 0.41 | (0.26 | ) | 0.09 | |||||||||||||||
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|
|
|
|
|
|
| |||||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.19 | ) | (0.32 | ) | (0.29 | ) | (0.21 | ) | ||||||||||||
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|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 8.82 | $ | 8.81 | $ | 8.72 | $ | 9.27 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 2.28 | % | 4.84 | % | (2.81 | %) | 0.99 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 2.85 | %†† | 3.97 | % | 3.87 | % | 3.78 | %†† | ||||||||||||
Net expenses | 1.12 | %†† | 1.12 | % | 1.06 | % | 1.08 | %†† | ||||||||||||
Expenses (including short sales expenses, before | 1.23 | %†† | 1.28 | % | 1.11 | % | 1.14 | %†† | ||||||||||||
Short sale expenses | 0.11 | %†† | 0.16 | % | 0.05 | % | 0.06 | %†† | ||||||||||||
Portfolio turnover rate | 26 | % | 15 | % | 22 | % | 19 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 755 | $ | 662 | $ | 112 | $ | 336 |
* | 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. For periods of less than one year, total return is not annualized. |
28 | MainStay Unconstrained Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Class R3 | Six months ended April 30, 2017* | February 29, 2016 | ||||||
Net asset value at beginning of period | $ | 8.81 | $ | 8.20 | ||||
|
|
|
| |||||
Net investment income (loss) (a) | 0.11 | 0.21 | ||||||
Net realized and unrealized gain (loss) on investments | 0.09 | 0.86 | ||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.27 | ) | ||||
|
|
|
| |||||
Total from investment operations | 0.20 | 0.80 | ||||||
|
|
|
| |||||
Less dividends: | ||||||||
From net investment income | (0.18 | ) | (0.19 | ) | ||||
|
|
|
| |||||
Net asset value at end of period | $ | 8.83 | $ | 8.81 | ||||
|
|
|
| |||||
Total investment return (b) | 2.27 | % | 9.77 | % | ||||
Ratios (to average net assets)/Supplemental Data: | ||||||||
Net investment income (loss) | 2.53 | %†† | 3.32 | %†† | ||||
Net expenses | 1.37 | %†† | 1.34 | %†† | ||||
Expenses (before reimbursement/waiver) | 1.48 | %†† | 1.50 | %†† | ||||
Short sale expenses | 0.11 | % | 0.16 | % | ||||
Portfolio turnover rate | 26 | % | 15 | % | ||||
Net assets at end of period (in 000’s) | $ | 84 | $ | 32 |
* | 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 R3 shares are not subject to sales charges. For periods of less than one year, total 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. | 29 |
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, and is governed by a Declaration of 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 Unconstrained Bond Fund (the “Fund”), a “diversified” fund, as that term is defined in the 1940 Act, as interpreted or modified by regulatory authorities having jurisdiction, from time to time.
The Fund currently offers nine 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. Class R3 shares commenced operations on February 29, 2016. Class R6 and Class T shares of the Fund were registered for sale effective as of February 28, 2017. As of April 30, 2017, Class R6 and Class T shares had no investment operations. Effective February 28, 2017, Class B shares of the MainStay Group of Funds were closed to all new purchases as well as additional investments by existing Class B shareholders. Existing Class B shareholders may continue to reinvest dividends and capital gains distributions, as well as exchange their Class B shares for Class B shares of other Funds as permitted by the current exchange privileges. Class B shareholders continue to be subject to any applicable contingent deferred sales charge at the time of redemption. All other features of the Class B shares, including but not limited to the fees and expenses applicable to Class B shares, remain unchanged. Unless redeemed, Class B shareholders will remain in Class B shares of their respective Fund until the Class B shares are converted to Class A or Investor Class shares pursuant to the applicable conversion schedule.
Class A and Investor Class shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No initial sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Class A and Investor Class shares. Effective August 1, 2017, contingent deferred sales charge (“CDSC”) of 1.00% may be imposed on certain redemptions of Class A and Investor Class shares made within 18 months of the date of purchase on shares that were made without an initial sales charge. For purchases of Class A and Investor Class shares made from January 1, 2017 through July 31, 2017, a CDSC of 1.00% may be imposed on certain redemptions of such shares made within 24 months of the date of purchase on shares that were purchased without an initial sales charge. For purchases of Class A and Investor Class shares made prior to January 1, 2017, a CDSC of 1.00% may be imposed on certain redemptions made within one year of the date of purchase on shares purchased without a sales charge. Class C shares are offered at NAV without an initial sales charge, although a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. When Class B shares were offered, they were offered at NAV without an initial sales charge, although a CDSC that declines depending on the number of years a shareholder has held its Class B shares may be imposed on redemptions made within six years of the date of purchase of such shares. Class T shares are offered at NAV per share plus an initial sales charge. 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 Class A or Investor Class shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Class A shares may convert to Investor Class shares and Investor Class shares may convert to Class A shares. Under certain circumstances and as may be permitted by the Trust’s multiple class plan under Rule 18f-3 of the 1940 Act, an exchange/conversion may be made from specified share classes of the Fund to one or more other share classes of the Fund as disclosed in the capital share transactions within these notes. 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 under distribution plans pursuant to Rule 12b-1 under the 1940 Act, Class B and Class C shares are subject to higher distribution and/or service fee rates than Class A, Investor Class, Class T and Class R2 shares. Class I and Class R6 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 is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services—Investment Companies. 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 usually valued as of the close of regular trading on the New York Stock Exchange (the “Exchange”) (usually 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 establishing methodologies for the valuation of the Fund’s securities and other assets and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Trust (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 establishing the prices of securities for which market quotations are not readily available or the prices of which are not otherwise readily determinable under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. Subsequently, the Valuation Committee meets 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 the day-to-day valuation of portfolio assets (including fair value measurements for the Fund’s assets and liabilities) 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, Subadvisor 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 with changes exceeding certain tolerance
30 | MainStay Unconstrained Bond Fund |
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, if appropriate, 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 or other asset is submitted by the Valuation Committee to the Board for its review and ratification, if appropriate, at its next regularly scheduled meeting.
“Fair value” is defined as the price the Fund would reasonably expect to 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 establishes 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 assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities. 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) |
The level of an asset or liability within the fair value hierarchy is based on the lowest level of an input, both individually and in the aggregate, that is significant to the fair value measurement. As of April 30, 2017, the aggregate value by input level of the Fund’s assets and 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 is valued by methods deemed reasonable 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. Fair value represents a good faith approximation of the value of a security. Fair value determinations involve the consideration of a number of subjective factors, an analysis of applicable facts and circumstances and the exercise of judgment. As a result, it is possible that the fair value for a security determined in good faith in accordance with the Fund’s valuation procedures may differ from valuations for the same security determined by other funds using their own valuation procedures. Although the Fund’s valuation procedures are designed to value a security at the price the Fund may reasonably expect to receive upon its sale in an orderly transaction, there can be no assurance that any fair value determination thereunder would, in fact, approximate the amount that the Fund would actually realize upon the sale of the security or the price at which the security would trade if a reliable market price were readily available. During the six-month period ended April 30, 2017, there were 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, 2017, securities that were fair valued in such a manner are shown in the Portfolio of Investments.
Equity securities and warrants are valued at the last quoted sales prices as of the close of regular trading on the relevant 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 mutual funds, including money market 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.
31 |
Notes to Financial Statements (Unaudited) (continued)
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 brokers selected by the Manager, in consultation with the Subadvisor. Those values reflect broker/dealer supplied prices and electronic data processing techniques, if the evaluated bid or mean 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, convertible bonds, asset-backed securities and mortgage-backed securities are generally categorized as Level 2 in the hierarchy.
Certain securities held by the Fund may principally trade in foreign markets. Events may occur between the time the foreign markets close and the time at which the Fund’s NAVs are 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 certain thresholds. In such cases, the securities are fair valued by applying factors provided by a third party vendor in accordance with valuation procedures adopted by the Board and are generally categorized as Level 2 in the hierarchy. As of April 30, 2017, no foreign equity securities held by the Fund were fair valued in such a manner.
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 service and are generally categorized as Level 2 in the hierarchy. Certain loan assignments, participations and commitments may be valued by utilizing significant unobservable inputs obtained from the pricing service and are generally categorized as Level 3 in the hierarchy. As of April 30, 2017, the Fund held loan assignments categorized as Level 3 securities with a value of $18,864,952 that were valued by utilizing significant unobservable inputs.
Temporary cash investments acquired in excess of 60 days to maturity at the time of purchase 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 using the amortized cost method of valuation, unless the use of such method would be inappropriate. 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 using the amortized cost method are not valued using quoted prices in an active market and are generally categorized as Level 2 in the hierarchy.
Swaps are marked to market daily based upon quotations from pricing agents, brokers, or market makers. These securities are generally categorized as Level 2 in the hierarchy.
The information above is not intended to reflect an exhaustive list of the methodologies that may be used to value portfolio investments. The valuation procedures permit the use of a variety of valuation methodologies in connection with valuing portfolio investments. The methodology used for a specific type of investment may vary based on the market data available or other considerations. The methodologies summarized above may not represent the specific means by which portfolio investments are valued on any particular business day.
A Fund security or other asset may be determined to be illiquid under procedures approved by the Board. Illiquidity of a security 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 the 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 materially 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 determines 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 are often valued in accordance with methods deemed by the Board in good faith to be reasonable and appropriate to accurately reflect their fair value. The liquidity of the Fund’s investments, as shown in the Portfolio of Investments, was determined as of April 30, 2017 and can change at any time in response to, among other relevant factors, market conditions or events or developments with respect to an individual issuer or instrument. As of April 30, 2017 securities deemed to be illiquid under procedure approved by the Board are shown in the Portfolio of Investments.
(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 its 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
32 | MainStay Unconstrained Bond Fund |
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 permitted only to the extent 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 it invests. 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 and includes any realized gains and losses from repayments of principal on mortgage-backed securities. 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. 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 accreted daily based on the effective interest method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated pro rata to separate classes of shares 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 security on non-accrual status and reduce related interest income by ceasing current accruals and writing off all or a portion of any interest receivables when the collection of all or a portion of such interest has become doubtful. A debt security 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/or 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 (i.e., buy a security from another party with the agreement that it be sold back in the future) to earn income. The Fund may enter into repurchase agreements only with counterparties, usually 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 the Fund to the counterparty secured by the securities transferred to the Fund.
Repurchase agreements are subject to counterparty risk, meaning the Fund could lose money by the counterparty’s failure to perform under the terms of the agreement. The Fund mitigates this risk by ensuring the repurchase agreement is collateralized by cash, U.S. government securities, fixed income securities and/or other securities. The collateral is held by the Fund’s custodian 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 counterparty’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, realization and/or retention of the collateral may be limited or subject to delay, 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 risks such as market price risk and/or interest rate risk in the normal course of investing in these transactions. Upon entering into a futures contract, the Fund is required to pledge to the broker or futures commission merchant an amount of cash and/or U.S. Government securities equal to a certain percentage of the collateral amount, known as the “initial margin.” 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 or futures commission merchant an amount of cash equal to the daily fluctuation
33 |
Notes to Financial Statements (Unaudited) (continued)
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. There are several risks associated with the use of futures contracts as hedging techniques. There can be no assurance that a liquid market will exist at the time when the Fund seeks to close out a futures contract. If no liquid market exists, the Fund would remain obligated to meet margin requirements until the position is closed. Futures may involve a small initial investment relative to the risk assumed, which could result in losses greater than if they had not been used. Futures may be more volatile than direct investments in the instrument underlying the futures, and may not correlate to the underlying instrument, causing a given hedge not to achieve its objectives. 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 the entire 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 NAVs and may result in a loss to the Fund. As of April 30, 2017, all open futures contracts are shown in the Portfolio of Investments.
(J) Loan Assignments, Participations and Commitments. The Fund may invest in loan assignments and participations (“loans”). Commitments are agreements to make money available to a borrower in a specified amount, at a specified rate and within a specified time. The Fund records an investment when the borrower withdraws money on a commitment or when a funded loan is purchased (trade date) 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. If the Fund purchases an assignment from a lender, the Fund will generally have direct contractual rights against the borrower in favor of the lender. If the Fund purchases a participation interest either from a lender or a participant, the Fund typically will have established a direct contractual relationship with the seller of the participation interest, but not with the borrower. Consequently, the Fund is subject to the credit risk of the lender or participant who sold the participation interest to the Fund, in addition to the usual credit risk of the borrower. 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. Unfunded amounts, if any, are marked to market and any unrealized gains or losses are recorded in the Statement of Assets and Liabilities. As of April 30, 2017, the Fund did not hold any unfunded commitments.
(K) Swap Contracts. The Fund may enter into credit default, interest rate, equity, index and currency exchange rate contracts (“swaps”). In a typical swap transaction, two parties agree to exchange the future returns (or differentials in rates of future returns) earned or realized at periodic intervals on a particular investment or instrument based on a notional principal amount. Generally, the Fund will enter into a swap on a net basis, which means that the two payment streams under the swap are netted, with the Fund receiving or paying (as the case may be) only the net amount of the two payment streams. Therefore, the Fund’s current obligation under a swap generally will be equal to the net amount to be paid or received under the swap, based on the relative value of notional positions attributable to each counterparty to the swap. 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 terms of the swap. Swap 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”).
Certain standardized swaps, including certain credit default and interest rate swaps, are subject to mandatory clearing and exchange-trading, and more types of standardized swaps are expected to be subject to mandatory clearing and exchange-trading, in the future. The counterparty risk for exchange-traded and cleared derivatives is expected to be generally lower than for uncleared derivatives, but cleared contracts are not risk-free. In a cleared derivative transaction, the Fund typically enters into the transaction with a financial institution counterparty, and performance of the transaction is effectively guaranteed by a central 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. As of April 30, 2017, all swap positions outstanding are shown in the Portfolio of Investments.
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 into 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 Statement of Assets and Liabilities.
34 | MainStay Unconstrained Bond Fund |
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 credit-worthy 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.
Interest Rate Swaps: An interest rate swap is an agreement between two parties where one stream of future interest payments is exchanged for another based on a specified principal amount. Interest rate swaps often exchange a fixed payment for a floating payment that is linked to an interest rate (most often the London InterBank Offered Rate (“LIBOR”)). The Fund will typically use interest rate swaps to limit, or manage, its exposure to fluctuations in interest rates, or to obtain a marginally lower interest rate than it would have been able to get without the swap.
Credit Default Swaps: The Fund may enter into credit default swaps to simulate long and short bond positions or to take an active long or short position with respect to the likelihood of a default or credit event by the issuer of the underlying reference obligation. The types of reference obligations underlying the swaps that may be entered into by the Fund include debt obligations of a single issuer of corporate or sovereign debt, a basket of obligations of different issuers or a credit index. A credit index is an equally-weighted credit default swap index that is designed to track a representative segment of the credit default swap market (e.g., investment grade, high volatility, below investment grade or emerging markets) and provides an investor with exposure to specific “baskets” of issuers of certain debt instruments. Index credit default swaps have standardized terms including a fixed spread and standard maturity dates. The composition of the obligations within a particular index changes periodically. Credit default swaps involve one party, the protection buyer, making a stream of payments to another party, the protection seller, in exchange for the right to receive a contingent payment if there is a credit event related to the underlying reference obligation. In the event that the reference obligation matures prior to the termination date of the contract, a similar security will be substituted for the duration of the contract term. Credit events are defined under individual swap agreements and generally include bankruptcy, failure to pay, restructuring, repudiation/moratorium, obligation acceleration and obligation default. Selling protection effectively adds leverage to a portfolio up to the notional amount of the swap agreement. Potential liabilities under these contracts may be reduced by: the auction rates of the underlying reference obligations; upfront payments received at the inception of a swap; and net amounts received from credit default swaps purchased with the identical reference obligation.
(L) Foreign Currency Forward Contracts. The Fund may enter into foreign currency forward contracts, which are agreements to buy or sell foreign currencies 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 risk in excess of the amount recognized in the Statement of Assets and Liabilities, including counterparty risk, market risk, and illiquidity risk. Counterparty risk is heightened for these instruments because foreign currency forward contracts are not exchange-traded and therefore no clearinghouse or exchange stands ready to meet the obligations under such contracts. Thus, the Fund faces the risk that its counterparties under such contracts may not perform their obligations. Market risk is the risk that the value of a foreign currency forward contract will depreciate due to unfavorable changes in exchange rates. Illiquidity risk arises because the secondary market for foreign currency forward contracts may have less liquidity relative to markets for other securities and financial instruments. Risks also 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 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 also reflects the Fund’s exposure at the valuation date to credit loss in the event of a counterparty’s failure to perform its obligations.
(M) Foreign Currency Transactions. The Fund’s books and records are maintained 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. |
35 |
Notes to Financial Statements (Unaudited) (continued)
The assets and liabilities that are denominated in foreign currency amounts are presented at the exchange rates and market values at the close of the period. The realized and unrealized changes in net assets arising from fluctuations in exchange rates and market prices of securities are not separately presented.
Net realized gain (loss) on foreign currency transactions represents net gains and losses on foreign currency forward contracts, net currency gains or losses realized as a result of differences between the amounts of securities sale proceeds or purchase cost, dividends, interest and withholding taxes as recorded on the Fund’s books, and the U.S. dollar equivalent amount actually received or paid. Net currency gains or losses from valuing such foreign currency denominated assets and liabilities, other than investments at valuation date exchange rates, are reflected in unrealized foreign exchange gains or losses.
(N) Rights and Warrants. Rights are certificates that permit the holder to purchase a certain number of shares, or a fractional share, of a new stock from the issuer at a specific price. Warrants are instruments that entitle the holder to buy an equity security at a specific price for a specific period of time. 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, 2017, the Fund did not hold any rights or warrants.
(O) Securities Sold Short. The Fund engages in sales of securities it does not own (“short sales”) as part of its investment strategy. When the Fund enters into a short sale, it must segregate or maintain with a broker 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, a short position is reflected as a liability and is 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 as a dividend expense in the Statement of Operations. Broker fees and other expenses related to securities sold short are disclosed in the Statement of Operations. Short sales involve risk of loss in excess of the related amounts reflected in 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 (“SEC”). 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 collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund against counterparty risk. The loans will be collateralized by U.S. Treasury securities at least equal at all times to the market value of the securities loaned. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record a realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund bears the risk of any loss on investment of the collateral. The Fund will receive compensation for lending its securities in the form of fees or it will retain a portion of interest on the investment of any cash received as collateral. The Fund will also 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. During the six-month period ended April 30, 2017, the Fund did not have any portfolio securities on loan.
(Q) Restricted Securities. Restricted securities, as disclosed in Note 5, are securities which have 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.
(R) Securities Risk. The Fund’s principal investments include high-yield debt securities (commonly referred to as “junk bonds”), which are considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities pay investors a premium—a higher interest rate or yield than investment grade debt securities—because of the increased risk of loss. These securities can also be subject to greater price volatility. In times of unusual or adverse market, economic or political conditions, these securities may experience higher than normal default rates.
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 rated debt securities. These investments pay investors a higher interest rate than investment grade debt securities 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 investments could decline significantly. As a result of these and other events, the Fund’s NAVs could go down and you could lose money.
In addition, loans generally are subject to the extended settlement periods that may be longer than seven days. As a result, the Fund may be adversely affected by selling other investments at an unfavorable time and/or under unfavorable conditions or engaging in borrowing transactions, such as borrowing against its credit facility, to raise cash to meet redemption obligations or pursue other investment opportunities. In certain circumstances, floating rate loans may not be deemed to be securities. As a result, the Fund may not have the protection of anti-fraud provisions of the federal securities laws. In such
36 | MainStay Unconstrained Bond Fund |
cases, the Fund generally must rely on the contractual provisions in the loan agreement and common-law fraud protections under applicable state law.
The Fund may invest in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic securities. 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) Counterparty Credit Risk. In order to better define its contractual rights and to secure rights that will help the Fund mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains collateral posting terms and netting provisions. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. Bankruptcy or insolvency laws of a particular jurisdiction may restrict or prohibit the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels or if the Fund fails to meet the terms of its ISDA Master Agreements. The result would cause the Fund to accelerate
payment of any net liability owed to the counterparty. For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements, if any, in the Statement of Assets and Liabilities.
(T) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
(U) Quantitative Disclosure of Derivative Holdings. The following tables show additional disclosures related to 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. The Fund entered into futures contracts to help manage the duration and yield curve positioning of the portfolio while minimizing the exposure to wider bid/ask spreads in traditional bonds. The Fund entered into interest rate and credit default swap contracts in order 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. The Fund also entered into foreign currency forward contracts to gain exposure to a particular currency or to hedge against the risk of loss due to changing currency exchange rates. These derivatives are not accounted for as hedging instruments.
Fair value of derivative instruments as of April 30, 2017:
Asset 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 (a) | $ | — | $ | — | $ | 757,094 | $ | 757,094 | |||||||||
Swap Contracts | Net Assets—Net unrealized appreciation (depreciation) on investments and futures contracts (b) | — | — | 8,058,758 | 8,058,758 | |||||||||||||
Forward Contracts | Unrealized appreciation on foreign currency forward contracts | — | 829,292 | — | 829,292 | |||||||||||||
|
| |||||||||||||||||
Total Fair Value | $ | — | $ | 829,292 | $ | 8,815,852 | $ | 9,645,144 | ||||||||||
|
|
37 |
Notes to Financial Statements (Unaudited) (continued)
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 (a) | $ | — | $ | — | $ | (1,191,246 | ) | $ | (1,191,246 | ) | |||||||
Swap Contracts | Premiums paid for swap contracts | 208,739 | — | — | 208,739 | |||||||||||||
Swap Contracts | Net Assets—Net unrealized appreciation (depreciation) on investments and futures contracts (b) | (315,224 | ) | — | — | (315,224 | ) | |||||||||||
Forward Contracts | Unrealized depreciation on foreign currency forward contracts | — | (1,424,925 | ) | — | (1,424,925 | ) | |||||||||||
|
| |||||||||||||||||
Total Fair Value | $ | (106,485 | ) | $ | (1,424,925 | ) | $ | (1,191,246 | ) | $ | (2,722,656 | ) | ||||||
|
|
(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. |
(b) | Includes cumulative appreciation (depreciation) of centrally cleared swap agreements 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. |
The effect of derivative instruments on the Statement of Operations for the year ended April 30, 2017:
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 | $ | — | $ | — | $ | 2,142,263 | $ | 2,142,263 | |||||||||
Swap Contracts | Net realized gain (loss) on swap transactions | (35,194 | ) | — | 1,790,742 | 1,755,548 | ||||||||||||
Forward Contracts | Net realized gain (loss) on foreign currency transactions | — | 1,433,363 | — | 1,433,363 | |||||||||||||
|
| |||||||||||||||||
Total Realized Gain (Loss) | $ | (35,194 | ) | $ | 1,433,363 | $ | 3,933,005 | $ | 5,331,174 | |||||||||
|
|
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 | $ | — | $ | — | $ | (1,828,235 | ) | $ | (1,828,235 | ) | |||||||
Swap Contracts | Net change in unrealized appreciation (depreciation) on swap contracts | (50,192 | ) | — | (3,031,359 | ) | (2,981,167 | ) | ||||||||||
Forward Contracts | Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | — | (2,090,578 | ) | — | (2,090,578 | ) | |||||||||||
|
| |||||||||||||||||
Total Change in Unrealized Appreciation (Depreciation) | $ | (315,224 | ) | $ | (2,090,578 | ) | $ | (6,855,634 | ) | $ | (6,899,980 | ) | ||||||
|
|
38 | MainStay Unconstrained Bond Fund |
Average Notional Amount
Credit Contracts Risk | Foreign Exchange Contracts Risk | Interest Rate Contracts Risk | Total | |||||||||||||
Futures Contracts Long | $ | $ | — | $ | 60,926,401 | $ | 60,926,401 | |||||||||
Futures Contracts Short | $ | — | $ | — | $ | (542,309,963 | ) | $ | (542,309,963 | ) | ||||||
Swap Contracts | $ | 7,000,000 | $ | — | $ | 2,352,166,667 | $ | 2,359,166,667 | ||||||||
Forward Contracts Long (a) | $ | — | $ | 27,270,931 | $ | — | $ | 27,270,931 | ||||||||
Forward Contracts Short | $ | — | $ | (55,762,800 | ) | $ | — | $ | (55,762,800 | ) | ||||||
|
|
(a) | Positions were open four months during the reporting period. |
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 attributable to 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 Amended and Restated Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and MacKay Shields, New York Life Investments pays for the services of the Subadvisor.
Under the Management Agreement, 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; 0.50% from $1 billion to $5 billion; and 0.475% in excess of $5 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. During the six-month period ended April 30, 2017, the effective management fee rate was 0.57% inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets.
During the six-month period ended April 30, 2017, New York Life Investments earned fees from the Fund in the amount of $3,910,479.
State Street 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 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 Class A, Investor Class, Class T and Class R2 Plans, the Distributor receives a monthly distribution fee from the Class A, Investor Class, Class T and Class R2 shares at an annual rate of 0.25% of the average daily net assets of the Class A, Investor Class, Class T 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 R6 shares are not subject to a distribution and/or service fee.
The Plans provide that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund’s shares and service activities.
In accordance with the Shareholder Services Plan for the Class 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. During the six-month period ended April 30, 2017, the Fund was advised by the Distributor that the amount of initial sales charges retained on sales of Class A and Investor Class shares were $25,474 and $5,996, respectively.
During the six-month period ended April 30, 2017, the Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Class B and Class C shares of $5,964, $17,678 and $5,253, respectively.
39 |
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. During the six-month period ended April 30, 2017, transfer agent expenses incurred by the Fund were as follows:
Class A | $ | 280,297 | ||
Investor Class | 27,978 | |||
Class B | 15,584 | |||
Class C | 181,917 | |||
Class I | 608,090 | |||
Class R2 | 481 | |||
Class R3 | 53 |
(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, 2017, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class A | $ | 7,464,324 | 2.4 | % | ||||
Class R3 | 28,063 | 33.5 |
Note 4–Federal Income Tax
During the year ended October 31, 2016, the tax character of distributions paid as reflected in the Statements of Changes in Net Assets was as follows:
2016 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 61,146,057 |
Note 5–Restricted Securities
As of April 30, 2017 the Fund held the following restricted security:
Security | Date of Acquisition | Number of Shares | Cost | 4/30/17 Value | Percent of Net Assets | |||||||||||||||
ION Media Networks, Inc. | 3/11/14 | 22 | $ | 34 | $ | 14,929 | 0.0‡ |
‡ | 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 transactions incurred by the Fund.
Note 7–Line of Credit
The Fund and certain other funds managed by New York Life Investments, 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 2, 2016, under an amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $600,000,000 with an additional uncommitted amount of $100,000,000. The commitment fee is an annual rate of 0.15% 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 their respective 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 1, 2017, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 2, 2016, the aggregate commitment amount was $600,000,000 with an additional uncommitted amount of $100,000,000, and the commitment fee was at an annual rate of 0.10% of the average commitment amount. During the six-month period ended April 30, 2017, there were no borrowings made or outstanding with respect to the Fund under the Credit Agreement.
Note 8–Interfund Lending Program
Pursuant to an exemptive order issued by the SEC, the Fund, along with certain other funds managed by New York Life Investments, may participate in an interfund lending program. The interfund lending program provides an alternative credit facility that permits the Fund and certain other funds managed by New York Life Investments to lend or borrow money for temporary purposes directly to or from one another, subject to the conditions of the exemptive order. During the six-month period ended April 30, 2017, there were no interfund loans made or outstanding with respect to the Fund.
40 | MainStay Unconstrained Bond Fund |
Note 9–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2017, purchases and sales of securities, other than short-term securities, were $326,648 and $485,974, respectively.
Note 10–Capital Share Transactions
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 4,214,699 | $ | 37,013,580 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 795,155 | 6,955,985 | ||||||
Shares redeemed | (9,934,549 | ) | (87,138,552 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (4,924,695 | ) | (43,168,987 | ) | ||||
Shares converted into Class A (See Note 1) | 150,462 | 1,317,926 | ||||||
Shares converted from Class A (See Note 1) | (6,248,681 | ) | (54,922,606 | ) | ||||
|
| |||||||
Net increase (decrease) | (11,022,914 | ) | $ | (96,773,667 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 9,689,567 | $ | 82,882,860 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,776,445 | 15,146,253 | ||||||
Shares redeemed | (31,183,466 | ) | (265,172,868 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (19,717,454 | ) | (167,143,755 | ) | ||||
Shares converted into Class A (See Note 1) | 338,252 | 2,910,604 | ||||||
Shares converted from Class A (See Note 1) | (779,019 | ) | (6,726,023 | ) | ||||
|
| |||||||
Net increase (decrease) | (20,158,221 | ) | $ | (170,959,174 | ) | |||
|
| |||||||
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 195,621 | $ | 1,731,169 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 74,833 | 659,972 | ||||||
Shares redeemed | (311,937 | ) | (2,761,529 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (41,483 | ) | (370,388 | ) | ||||
Shares converted into Investor Class (See Note 1) | 120,190 | 1,064,507 | ||||||
Shares converted from Investor Class (See Note 1) | (141,415 | ) | (1,248,396 | ) | ||||
|
| |||||||
Net increase (decrease) | (62,708 | ) | $ | (554,277 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 402,584 | $ | 3,472,246 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 132,076 | 1,136,141 | ||||||
Shares redeemed | (570,340 | ) | (4,903,575 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (35,680 | ) | (295,188 | ) | ||||
Shares converted into Investor Class (See Note 1) | 237,630 | 2,063,359 | ||||||
Shares converted from Investor Class (See Note 1) | (314,544 | ) | (2,729,075 | ) | ||||
|
| |||||||
Net increase (decrease) | (112,594 | ) | $ | (960,904 | ) | |||
|
|
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 68,873 | $ | 600,757 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 30,552 | 265,929 | ||||||
Shares redeemed | (249,947 | ) | (2,182,737 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (150,522 | ) | (1,316,051 | ) | ||||
Shares converted from Class B (See Note 1) | (47,910 | ) | (418,606 | ) | ||||
|
| |||||||
Net increase (decrease) | (198,432 | ) | $ | (1,734,657 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 257,316 | $ | 2,217,439 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 55,629 | 472,172 | ||||||
Shares redeemed | (407,095 | ) | (3,461,954 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (94,150 | ) | (772,343 | ) | ||||
Shares converted from Class B (See Note 1) | (102,988 | ) | (877,313 | ) | ||||
|
| |||||||
Net increase (decrease) | (197,138 | ) | $ | (1,649,656 | ) | |||
|
| |||||||
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 1,187,488 | $ | 10,356,189 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 347,902 | 3,026,567 | ||||||
Shares redeemed | (5,057,931 | ) | (44,131,712 | ) | ||||
|
| |||||||
Net increase (decrease) | (3,522,541 | ) | $ | (30,748,956 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 3,156,329 | $ | 26,785,970 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 722,783 | 6,125,064 | ||||||
Shares redeemed | (15,059,753 | ) | (127,522,835 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (11,180,641 | ) | (94,611,801 | ) | ||||
Shares converted from Class I (See Note 1) | (1,045 | ) | (8,594 | ) | ||||
|
| |||||||
Net increase (decrease) | (11,181,686 | ) | $ | (94,620,395 | ) | |||
|
| |||||||
41 |
Notes to Financial Statements (Unaudited) (continued)
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 16,995,065 | $ | 149,247,001 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,784,322 | 15,635,516 | ||||||
Shares redeemed | (14,459,964 | ) | (127,085,703 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 4,319,423 | 37,796,814 | ||||||
Shares converted into Class I (See Note 1) | 6,160,291 | 54,207,175 | ||||||
|
| |||||||
Net increase (decrease) | 10,479,714 | $ | 92,003,989 | |||||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 20,252,896 | $ | 173,334,533 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 3,482,882 | 29,727,201 | ||||||
Shares redeemed | (85,800,191 | ) | (726,642,179 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (62,064,413 | ) | (523,580,445 | ) | ||||
Shares converted into Class I (See Note 1) | 621,620 | 5,366,742 | ||||||
|
| |||||||
Net increase (decrease) | (61,442,793 | ) | $ | (518,213,703 | ) | |||
|
| |||||||
Class R2 | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 18,602 | $ | 164,260 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,526 | 13,356 | ||||||
Shares redeemed | (9,802 | ) | (85,898 | ) | ||||
|
| |||||||
Net increase (decrease) | 10,326 | $ | 91,718 | |||||
|
| |||||||
Period ended October 31, 2016: | ||||||||
Shares sold | 72,683 | $ | 641,451 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 616 | 5,314 | ||||||
Shares redeemed | (10,934 | ) | (91,821 | ) | ||||
|
| |||||||
Net increase (decrease) | 62,365 | $ | 554,944 | |||||
|
|
Class R3 | Shares | Amount | ||||||
Period ended April 30, 2017: | ||||||||
Shares sold | 7,130 | $ | 62,568 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 171 | 1,495 | ||||||
Shares redeemed | (1,422 | ) | (12,500 | ) | ||||
|
| |||||||
Net increase (decrease) | 5,879 | $ | 51,563 | |||||
|
| |||||||
Year ended October 31, 2016(a): | ||||||||
Shares sold | 3,536 | $ | 29,179 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 72 | 626 | ||||||
|
| |||||||
Net increase (decrease) | 3,608 | $ | 29,805 | |||||
|
|
(a) | Inception date was February 29, 2016. |
Note 11–Recent Accounting Pronouncement
In October 2016, the SEC adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the Fund’s financial statements and related disclosures.
Note 12–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, 2017, events and transactions subsequent to April 30, 2017, 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 Unconstrained Bond Fund |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited)
Section 15 of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of trustees initially approve and, following an initial term of up to two years, annually review and approve the fund’s investment advisory agreement(s). At its December 12-14, 2016 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 2016 and December 2016, as well as other relevant information furnished to the Board throughout the year. 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 fee and total expenses. The Board also considered information on the fees charged to any other investment advisory clients of New York Life Investments and MacKay Shields (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 Trustees who are not “interested persons” (as such term is defined under the 1940 Act) of the Fund (the “Independent Trustees”). Information provided to the Board in advance of and during meetings throughout the year included, among other items, information regarding the legal standards applicable to their consideration of the Agreements and 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, risk management, portfolio turnover, and sales and marketing activity. At various meetings, the Independent Trustees also met in executive session with their independent legal counsel, and met with senior management of New York Life Investments without other representatives of New York Life Investments present.
Throughout the year and specifically in connection with its June meeting each year, the Board also received an overview of the Funds’ distribution arrangements. In addition, the Board received information regarding the Fund’s asset levels, share purchase and redemption activity and the payment of Rule 12b-1 distribution and service fees by the Fund. New York Life Investments also provided the Board with information regarding the revenue sharing payments made to inter-
mediaries that promote the sale, distribution, and/or servicing of Fund shares.
In considering the Agreements, the Trustees comprehensively 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 described in greater detail below and included, among other items: (i) the nature, extent 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 relationship with the Fund; (iv) the extent to which economies of scale have been realized or may be realized if the Fund grows and the extent to which economies of scale have benefited or may benefit Fund shareholders; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to any similar funds and accounts managed by New York Life Investments and MacKay Shields. Although the Board recognized that the comparisons between the Fund’s fees and expenses and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Board also considered the reasonableness of the Fund’s management fee and overall total ordinary operating expenses as compared to the peer funds identified by Strategic Insight.
While individual Trustees may have weighed certain factors or information differently, the Board’s decision to approve the Agreements was based on a consideration of the information provided to the Trustees throughout the year, as well as information furnished specifically in connection with the contract review process. Throughout the year, the Trustees are also afforded an opportunity to ask questions of and request additional information or materials from New York Life Investments and MacKay Shields. The Board’s conclusions with respect to the Agreements may have been based, in part, on the Board’s knowledge of New York Life Investments and MacKay Shields resulting from, among other things, the Board’s consideration of the MainStay Group of Funds’ advisory 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. The factors that figured prominently in the Board’s decision to approve the Agreements are summarized in more detail below.
Nature, Extent and Quality of Services to Be Provided by New York Life Investments and MacKay Shields
The Board examined the nature, extent and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience and capabilities 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
43 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
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 observed that New York Life Investments devotes significant resources and time to providing advisory and non-advisory services to the Fund, including its extensive oversight of MacKay Shields. The Board also considered the full range of services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and on-going oversight services provided by New York Life Investments’ Fund Administration and Accounting 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; (iv) legal services provided by New York Life Investments’ Office of the General Counsel; and (v) risk management and portfolio trading oversight and analysis by compliance and investment personnel. 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, infrastructure, technology, operational enhancements, cyber security, information security and shareholder privacy resources 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, extent and quality of the investment 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 records 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 further considered New York Life Investments’ policies, procedures and systems to reasonably assure compliance with applicable laws and regulations. In addition, the Board considered the policies and procedures in place with respect to matters that may involve conflicts of interest between the Fund’s investments and those of other accounts managed by MacKay Shields. 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, extent 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, and in light of market conditions. 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’s Investment Committee that occur regularly, generally on an annual basis, and with the Board’s Alternative and Closed-End Funds Oversight Committee that occur regularly with respect to the Fund. 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 of the services provided by New York Life Investments and MacKay Shields and profits realized by 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
44 | MainStay Unconstrained Bond Fund |
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 recognized that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds, among other benefits resulting from its relationships with New York Life Investments.
In addition, the Board acknowledged 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. In connection with the annual fund profitability analysis that New York Life Investments presents to the Board, the Board in 2014 engaged Bobroff Consulting, Inc., an independent third-party consultant, to review the methods used to allocate costs to the MainStay Funds, and among individual Funds. As part of this engagement, the consultant analyzed: (i) the various New York Life Investments’ business units and affiliated Subadvisers that provide services to the MainStay Funds; (ii) how costs are allocated to the Fund and other funds managed by New York Life Investments, and to other lines of businesses; and (iii) how New York Life Investments’ cost allocation methods and profitability reports compare to industry practices. The Board noted that the independent consultant had concluded that New York Life Investments’ methods for allocating costs and procedures for estimating overall profitability of the funds in the MainStay Group of Funds, including the Fund, are reasonable, consistent with industry practice and likely to produce reasonable profitability estimates. Although the Board recognized 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 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’ relationships with the Fund on a pre-tax basis and without regard to distribution expenses incurred by New York Life Investments from its own resources.
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 Fund and other funds in the MainStay Group of Funds. 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, initially setting relatively low management fees or making additional investments to enhance shareholder services. 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. Additionally, the Board considered New York Life Investments’ assessment of the extent economies of scale existed for Funds that had experienced significant increases of assets during the year.
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, because 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 that follow similar investment strategies as the Fund. The Board particularly considered differences in the contractual management fee schedules of the retail
45 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
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 registered investment companies 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 demonstrating 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 also noted information received from NYLIM Service Company LLC regarding the sub-transfer agency payments it made to intermediaries in connection with the 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 a number of 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 recognized 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) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iii) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (iv) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (v) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vi) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. The Board also considered that NYLIM Service Company LLC had waived its
cost of living adjustments in 2015, 2016 and 2017. In addition, the Board acknowledged New York Life Investments’ continued 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 and factors summarized above and the evaluation thereof, the Board as a whole, including the Independent Trustees who are not parties to the Agreements or “interested persons” of any such party voting separately, unanimously voted to approve the Agreements.
46 | 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; and (ii) on the Securities and Exchange Commission’s (“SEC”) 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 or proxy voting record is available free of charge upon request by calling 800-MAINSTAY (624-6782); by visiting the Fund’s website at mainstayinvestments.com; or 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).
47 |
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MainStay Funds
Equity
U.S. Equity
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay Epoch U.S. Small Cap Fund
MainStay ICAP Equity Fund1
MainStay ICAP Select Equity Fund1
MainStay Large Cap Growth Fund
MainStay MAP Equity Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
International/Global Equity
MainStay Emerging Markets Equity Fund
MainStay Epoch Capital Growth Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Choice Fund
MainStay Epoch International Small Cap Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond
MainStay Emerging Markets Debt Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay Indexed Bond Fund
MainStay Short Duration High Yield Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal/Tax Advantaged Bond
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Advantaged Short Term Bond Fund
MainStay Tax Free Bond Fund
Money Market
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
Alternative
MainStay Absolute Return Multi-Strategy Fund
MainStay Cushing Energy Income Fund
MainStay Cushing MLP Premier Fund
MainStay Cushing Renaissance Advantage 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
MainStay Retirement 2060 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Candriam France S.A.S.4
Paris, France
Cornerstone Capital Management Holdings LLC4
New York, New York
Cushing Asset Management, LP
Dallas, Texas
Epoch Investment Partners, Inc.
New York, New York
MacKay Shields LLC4
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC4
New York, New York
Winslow Capital Management, LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Washington, District of Columbia
Independent Registered Public Accounting Firm
KPMG LLP
Philadelphia, Pennsylvania
1. On May 8, 2017, the Fund merged into MainStay Epoch U.S. Equity Yield Fund. Former shareholders of this Fund can request the Fund’s Semiannual Report by calling 800-MAINSTAY (624-6782).
2. Class A and Class I shares of this Fund are registered for sale in AZ, CA, MI, NV, OR, TX, UT and WA. Class I shares are registered for sale in CO, FL, GA, HI, ID, MA, MD, NH, NJ and NY.
3. This Fund is registered for sale in CA, CT, DE, FL, MA, NJ, NY and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Semiannual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
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. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
©2017 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 |
1738547 MS144-17 | MSUB10-06/17 (NYLIM) NL016 |
MainStay Government Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2017
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Message from the President
The six months ended April 30, 2017, proved to be a strong period for many equity investors but presented challenges for some bond investors.
The reporting period began with considerable uncertainty about the outcome of the U.S. election. Once the Republicans gained control of the White House, the Senate and the House of Representatives, however, many investors hoped to see an end to political gridlock; and although debate has continued on a number of issues, the U.S. stock market steadily climbed through the end of the reporting period.
According to FTSE-Russell U.S. market data, stocks at all capitalization levels earned double-digit overall returns during the reporting period. Although growth stocks outperformed value stocks at most capitalization levels, value stocks outperformed growth stocks among micro-cap stocks.
In December 2016 and March 2017, the Federal Reserve announced increases in the target range for the federal funds rate. These moves, which brought the federal funds target range to 0.75% to 1.00%, were felt across the bond market. During the reporting period, yields rose on U.S. Treasury securities of all maturities, with the largest absolute increase on the 5-year U.S. Treasury note. On a percentage basis, however, the largest increases were at the short end of the maturity spectrum, with yields on the 1- and 3-month U.S. Treasury bills more than doubling during the reporting period.
When interest rates rise, bond prices tend to decline (and vice versa). As a result, several broad fixed-income asset classes—including U.S. government and agency bonds, mortgage-backed securities, investment-grade debt and municipal bonds—recorded negative total returns for the reporting period. Convertible securities, high-yield bonds and floating-rate loans, which tend to be less sensitive to interest-rate changes, provided positive total returns.
International stock markets generally advanced during the reporting period, with European stocks providing strong
double-digit returns. The Pacific region and Japan were weaker but provided positive returns in the single digits. Emerging markets also provided solid performance for the reporting period, despite modest commodity prices.
Many short-term political, economic and world events affected the markets during the reporting period. Nevertheless, at MainStay, we believe that the primary concern of our portfolio managers should be the long-term welfare of our shareholders, and we appreciate the discipline our portfolio managers seek to apply in their long-term investment decisions.
Our portfolio managers seek to pursue the investment objectives of their respective MainStay Funds using the various investment strategies outlined in the Fund’s Prospectus. Utilizing their years of professional market experience, they seek to enhance returns when possible, manage risk as necessary and view short-term events in light of long-term investment goals. At MainStay, we believe that shareholders who maintain a long-term perspective may be better able to weather turbulent markets, avoid selling when prices are low and stay focused on their reasons for choosing MainStay Funds.
The report that follows provides more detailed information about the markets, securities and decisions that affected your MainStay Fund during the six months ended April 30, 2017. We invite you to read it carefully and use the information as part of your ongoing portfolio evaluation and review.
Sincerely,
Stephen P. Fisher
President
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, 30 Hudson Street, Jersey City, NJ 07302 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 and other factors, 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, 2017
Class | Sales Charge | Inception Date | Six Months | One Year | Five Years or Since Inception | Ten Years or Since Inception | Gross Expense Ratio2 | |||||||||||||||||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges | | 1/3/1995 | | | –5.86 –1.42 | %
| | –4.77 –0.28 | %
| | 0.15 1.08 | %
| | 2.74 3.22 | %
| | 0.99 0.99 | %
| ||||||||
Investor Class Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges | | 2/28/2008 | | | –5.98 –1.55 |
| | –5.02 –0.54 |
| | –0.09 0.83 | | | 2.15 2.66 | | | 1.24 1.24 |
| ||||||||
Class B Shares3 | Maximum 5% CDSC if Redeemed Within the First | With sales charges Excluding sales charges | | 5/1/1986 | | | –6.81 –1.93 |
| | –6.18 –1.29 | | | –0.30 0.08 | | | 2.27 2.27 | | | 1.99 1.99 |
| ||||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges | | 9/1/1998 | | | –2.91 –1.93 |
| | –2.39 –1.41 | | | 0.08 0.08 | | | 2.27 2.27 | | | 1.99 1.99 |
| ||||||||
Class I Shares | No Sales Charge | 1/2/2004 | –1.29 | –0.03 | 1.32 | 3.55 | 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, if any, 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 may 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 (if any), 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. | Class B shares are closed to all new purchases as well as additional investments by existing Class B shareholders. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
5 |
Benchmark Performance | Six Months | One Year | Five Years or Since Inception | Ten Years or Since Inception | ||||||||||||
Bloomberg Barclays U.S. Government Bond Index4 | –1.36 | % | –0.57 | % | 1.45 | % | 3.80 | % | ||||||||
Morningstar Intermediate Government Category Average5 | –0.99 | –0.13 | 1.18 | 3.45 |
4. | The Bloomberg Barclays U.S. Government Bond Index is the Fund’s primary broad-based securities market index for comparison purposes. The Bloomberg Barclays U.S. Government Bond Index consists of publicly issued debt of the U.S. Treasury and government agencies. Results assume 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 average total returns of similar funds 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, 2016, to April 30, 2017, 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, 2016, to April 30, 2017.
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, 2017. 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 11/1/16 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/17 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/17 | Expenses Paid During Period1 | Net Expense Ratio During Period2 | ||||||||||||||||||
Class A Shares | $ | 1,000.00 | $ | 985.80 | $ | 4.92 | $ | 1,019.80 | $ | 5.01 | 1.00 | % | ||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 984.50 | $ | 6.30 | $ | 1,018.40 | $ | 6.41 | 1.28 | % | ||||||||||||
Class B Shares | $ | 1,000.00 | $ | 980.70 | $ | 9.97 | $ | 1,014.70 | $ | 10.14 | 2.03 | % | ||||||||||||
Class C Shares | $ | 1,000.00 | $ | 980.70 | $ | 9.97 | $ | 1,014.70 | $ | 10.14 | 2.03 | % | ||||||||||||
Class I Shares | $ | 1,000.00 | $ | 987.10 | $ | 3.70 | $ | 1,021.10 | $ | 3.76 | 0.75 | % |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class 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. |
2. | Expenses are equal to the Fund’s annualized expense ratio to reflect the six-month period. |
7 |
Portfolio Composition as of April 30, 2017 (Unaudited)
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
Top Ten Holdings as of April 30, 2017 (excluding short-term investment) (Unaudited)
1. | Tennessee Valley Authority, 4.65%, due 6/15/35 |
2. | Federal Home Loan Mortgage Corporation (Mortgage Pass-Through Securities), 4.00%, due 3/1/41 |
3. | Federal Home Loan Mortgage Corporation (Mortgage Pass-Through Securities), 4.00%, due 2/1/41 |
4. | Government National Mortgage Association (Mortgage Pass-Through Securities), 4.00%, due 10/15/41 |
5. | United States Treasury Notes, 2.375%, due 8/15/24 |
6. | Federal National Mortgage Association (Mortgage Pass-Through Securities), 4.50%, due 1/1/41 |
7. | Federal Home Loan Mortgage Corporation (Mortgage Pass-Through Securities), 3.00%, due 6/1/45 |
8. | Federal National Mortgage Association (Mortgage Pass-Through Securities), 3.50%, due 11/1/41 |
9. | Federal Home Loan Mortgage Corporation (Mortgage Pass-Through Securities), 3.50%, due 8/1/43 |
10. | Federal National Mortgage Association (Mortgage Pass-Through Securities), 3.00%, due 4/1/43 |
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 primary benchmark and peers during the six months ended April 30, 2017?
Excluding all sales charges, MainStay Government Fund returned –1.42% for Class A shares, –1.55% for Investor Class shares and –1.93% for Class B and Class C shares for the six months ended April 30, 2017. Over the same period, the Fund’s Class I shares returned –1.29%. For the six months ended April 30, 2017, Class I shares outperformed—and all other share classes underperformed—the –1.36% return of the Bloomberg Barclays U.S. Government Bond Index,1 which is the Fund’s broad-based securities-market index. Over the same period, all share classes underperformed the –0.99% return of the Morningstar Intermediate Government Category Average.2 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 Bloomberg 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 shorter than that of the Bloomberg Barclays U.S. Government Bond Index during the reporting period. With a shorter duration, the Fund was less sensitive than the benchmark and longer-duration peers to changes in U.S. Treasury yields. The short-duration posture was beneficial for the Fund’s relative performance, as yields rose, on average, across the yield curve.
During the reporting period, the spread5 between the 2- and 30-year U.S. Treasury benchmark yields narrowed. This flattening of the curve benefited the Fund’s peers that were more concentrated in longer-duration securities and hurt the Fund’s relative performance.
Agency mortgage pass-through securities6 were the largest class of securities in the Fund. The Fund’s commitment to agency mortgage pass-throughs imparted a yield advantage over lower-yielding U.S. Treasury securities and agency debentures. This benefit was, however, offset by the underperformance of agency mortgage-backed securities relative to comparable-duration U.S. Treasury securities, as the mortgage
sector was unnerved by the rapid jump in U.S. Treasury yields after the election in the United States. In light of the Fund’s commitment to mortgage-backed securities, the Fund’s performance was slowed relative to the Bloomberg Barclays U.S. Government Bond Index, which holds no mortgage-backed securities, and relative to peers with less exposure to the mortgage sector.
The Fund’s mortgage allocation favored mortgage-backed securities issued by Fannie Mae and Freddie Mac. Relative to its peers, the Fund may have been underweight Ginnie Mae issues. Given the outperformance of Fannie Mae and Freddie Mac issues during the reporting period, the Fund benefited relative to peers with larger Ginnie Mae commitments. Ginnie Mae securities exhibited faster prepayment speeds than equivalent Fannie Mae and Freddie Mac issues because of policies that accelerated refinancing rates for borrowers eligible for Ginnie Mae loans. Investors anticipated that higher mortgage rates during the reporting period would moderate this effect. Faster prepayment rates can hamper returns of mortgage-backed securities because the majority of the mortgage market is currently priced above par and prepayments return principal to investors at par.
Low portfolio turnover benefited the Fund relative to peers with higher turnover by limiting transaction costs. In an effort to preserve yield, the Fund remained nearly fully invested, which avoided large cash balances that can detract from performance.
What was the Fund’s duration strategy during the reporting period?
The Fund’s 4.7 year-duration at the end of the reporting period was shorter than the duration of the Bloomberg Barclays U.S. Government Bond Index. Under market conditions during the reporting period, the Fund’s duration favored the shorter side because this positioning typically helps the Fund relative to its benchmark and relative to peer funds with longer durations if U.S. Treasury yields rise.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
The reporting period illustrated that the housing market was on a cusp. The market’s principal driver migrated from refinancing to purchase activity, as sharply higher mortgage rates cut
1. | See footnote on page 6 for more information on the Bloomberg 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 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. |
9 |
refinancing activity and rising home prices promoted turnover. To mute the impact of these changes, we emphasized mortgage pass-through securities whose underlying loan pools are less sensitive to mortgage-rate changes. We believe that these “call-protected” pass-through securities can be a source of better value because the loan pools tend to be less responsive to mortgage-rate volatility. This, in turn, may help stabilize prepayment speeds and enable investors to preserve more of the security’s yield. A loan pool comprised of smaller-balance loans (e.g., a loan pool where no mortgage is larger than $110,000) is one instance of a mortgage-backed security with superior call protection.
Shallow—rather than rapid—macroeconomic improvement prompted us to extend the Fund’s duration. This was accomplished by reinvesting principal runoff from the Fund’s mortgage position in intermediate-duration U.S. Treasury securities. The trade also enhanced the diversification and liquidity of the Fund’s holdings.
During the reporting period, which aspects of the Fund’s positioning were the strongest positive contributors to the Fund’s performance and which aspects detracted the most?
Duration was the principal contributor to the Fund’s performance relative to the Bloomberg Barclays U.S. Government Bond Index. Because the Fund was positioned to be less sensitive to changes in U.S. Treasury yields, it benefited as yields rose during the reporting period. Another performance tailwind for the Fund was the yield advantage of mortgage-backed securities relative to comparable-duration U.S. Treasury securities. This contributed to performance both on an absolute and a relative basis.
The primary performance headwind for the reporting period was the Fund’s commitment to mortgage-backed securities. They underperformed comparable-duration U.S. Treasury securities as U.S. Treasury yields trended sharply higher after the election in the United States. We offset some of this drag on performance by favoring mortgage securities with stable cash flows, which better positioned the Fund to withstand higher mortgage
rates. Issue selection, specifically our willingness to underweight Ginnie Mae securities in favor of Fannie Mae and Freddie Mac pass-through securities may have detracted from performance relative to the Fund’s peers, as Ginnie Mae securities rebounded as mortgage rates rose during the reporting period. Our willingness to favor 30-year loan terms over shorter (15- and 20-year) loan terms may also have been a performance headwind relative to the Fund’s peers. Loans with 15- and 20-year terms tended to outperform loans with 30-year terms during the reporting period because shorter-duration loans were less sensitive to rising interest rates.
Did the Fund make any significant purchases or sales during the reporting period?
In certain prior periods, we were inclined to recycle mortgage prepayments back to the mortgage sector. During this reporting period, however, rising interest-rate volatility drained some of the value from mortgage-backed securities. For this reason, we diverted mortgage prepayments to purchase U.S. Treasury securities. We believed that doing so strengthened the Fund’s diversification and liquidity.
How did the Fund’s sector weightings change during the reporting period?
The Fund’s sectors weights were relatively stable throughout the reporting period.
How was the Fund positioned at the end of the reporting period?
As of April 30, 2017, the Fund held underweight positions relative to the Bloomberg Barclays U.S. Government Bond Index in U.S. Treasury securities and agency debentures and an overweight position in agency mortgage pass-through securities. As of the same date, the Fund held modestly overweight positions relative to the Index in asset-backed securities and commercial mortgage-backed securities. As of April 30, 2017, the Fund’s collective non-government exposure was about 3% of net assets and the Fund held about 3% of net assets in cash.
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 forecasts 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, 2017 (Unaudited)
Principal Amount | Value | |||||||
Long-Term Bonds 97.7%† Asset-Backed Securities 1.4% | ||||||||
Other ABS 0.2% | ||||||||
Small Business Administration Participation Certificates | $ | 301,891 | $ | 305,576 | ||||
|
| |||||||
Utilities 1.2% | ||||||||
Atlantic City Electric Transition Funding LLC | 1,487,061 | 1,606,186 | ||||||
|
| |||||||
Total Asset-Backed Securities | 1,911,762 | |||||||
|
| |||||||
Corporate Bonds 0.7% | ||||||||
Electric 0.7% | ||||||||
Duke Energy Florida Project Finance LLC | 1,100,000 | 1,062,771 | ||||||
|
| |||||||
Total Corporate Bonds | 1,062,771 | |||||||
|
| |||||||
Mortgage-Backed Securities 1.2% | ||||||||
Commercial Mortgage Loans |
| |||||||
Four Times Square Trust | 614,274 | 676,204 | ||||||
|
| |||||||
Residential Mortgages (Collateralized Mortgage Obligations) 0.7% |
| |||||||
Citigroup Mortgage Loan Trust, Inc. | 186,489 | 163,436 | ||||||
Mortgage Equity Conversion Asset Trust | 1,037,569 | 885,127 | ||||||
|
| |||||||
1,048,563 | ||||||||
|
| |||||||
Total Mortgage-Backed Securities | 1,724,767 | |||||||
|
| |||||||
U.S. Government & Federal Agencies 94.4% | ||||||||
Fannie Mae Strip (Collateralized Mortgage Obligations) 0.0%‡ |
| |||||||
Series 360, Class 2, IO | 179,063 | 36,643 | ||||||
Series 361, Class 2, IO | 37,192 | 7,473 | ||||||
|
| |||||||
44,116 | ||||||||
|
|
Principal Amount | Value | |||||||
Federal Home Loan Mortgage Corporation |
| |||||||
2.50%, due 8/1/46 | $ | 1,201,376 | $ | 1,158,278 | ||||
2.756%, due 6/1/35 (d) | 132,828 | 139,819 | ||||||
2.914%, due 2/1/37 (d) | 49,429 | 52,007 | ||||||
3.00%, due 4/1/45 | 2,432,695 | 2,430,985 | ||||||
¨3.00%, due 6/1/45 | 3,005,712 | 3,003,600 | ||||||
3.00%, due 7/1/45 | 1,342,953 | 1,342,009 | ||||||
3.00%, due 5/1/46 | 832,153 | 831,568 | ||||||
3.351%, due 3/1/35 (d) | 26,948 | 28,383 | ||||||
3.50%, due 10/1/25 | 298,352 | 313,555 | ||||||
3.50%, due 11/1/25 | 1,916,672 | 2,014,215 | ||||||
3.50%, due 4/1/42 | 842,426 | 870,879 | ||||||
3.50%, due 5/1/42 | 672,799 | 694,900 | ||||||
3.50%, due 7/1/42 | 331,441 | 342,329 | ||||||
3.50%, due 6/1/43 | 867,169 | 895,654 | ||||||
¨3.50%, due 8/1/43 | 2,780,037 | 2,872,301 | ||||||
3.50%, due 1/1/44 | 917,273 | 947,385 | ||||||
3.50%, due 5/1/44 | 297,384 | 307,414 | ||||||
3.50%, due 3/1/45 | 1,170,858 | 1,204,996 | ||||||
3.50%, due 12/1/45 | 492,014 | 506,359 | ||||||
3.50%, due 5/1/46 | 711,607 | 732,355 | ||||||
4.00%, due 3/1/25 | 757,875 | 796,995 | ||||||
4.00%, due 7/1/25 | 305,465 | 321,322 | ||||||
4.00%, due 8/1/31 | 113,248 | 120,741 | ||||||
4.00%, due 8/1/39 | 229,016 | 243,856 | ||||||
4.00%, due 12/1/40 | 2,495,703 | 2,659,573 | ||||||
¨4.00%, due 2/1/41 | 4,041,207 | 4,299,120 | ||||||
¨4.00%, due 3/1/41 | 4,437,353 | 4,730,257 | ||||||
4.00%, due 4/1/41 | 416,670 | 441,291 | ||||||
4.00%, due 1/1/42 | 2,259,095 | 2,408,269 | ||||||
4.00%, due 12/1/42 | 712,030 | 756,212 | ||||||
4.00%, due 11/1/43 | 210,435 | 221,725 | ||||||
4.00%, due 2/1/46 | 1,130,431 | 1,190,958 | ||||||
4.50%, due 3/1/41 | 553,628 | 602,445 | ||||||
4.50%, due 8/1/41 | 837,385 | 911,713 | ||||||
5.00%, due 1/1/20 | 48,083 | 49,461 | ||||||
5.00%, due 6/1/33 | 361,175 | 398,193 | ||||||
5.00%, due 8/1/33 | 297,606 | 328,056 | ||||||
5.00%, due 5/1/36 | 283,213 | 310,511 | ||||||
5.00%, due 10/1/39 | 740,508 | 824,085 | ||||||
5.50%, due 1/1/21 | 159,834 | 167,726 | ||||||
5.50%, due 11/1/35 | 328,686 | 372,756 | ||||||
5.50%, due 11/1/36 | 87,450 | 100,142 | ||||||
6.50%, due 4/1/37 | 71,148 | 81,459 | ||||||
|
| |||||||
43,025,857 | ||||||||
|
|
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings, as of April 30, 2017, 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. | 11 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
U.S. Government & Federal Agencies (continued) | ||||||||
Federal National Mortgage Association |
| |||||||
2.00%, due 11/1/31 | $ | 962,998 | $ | 943,880 | ||||
2.50%, due 2/1/43 | 824,897 | 797,516 | ||||||
2.731%, due 4/1/34 (d) | 258,893 | 275,937 | ||||||
2.831%, due 11/1/34 (d) | 114,954 | 119,551 | ||||||
3.00%, due 10/1/32 | 792,329 | 816,207 | ||||||
¨3.00%, due 4/1/43 | 2,776,488 | 2,788,794 | ||||||
3.00%, due 3/1/46 | 936,494 | 936,050 | ||||||
3.00%, due 9/1/46 | 2,413,106 | 2,401,471 | ||||||
3.00%, due 10/1/46 | 1,768,461 | 1,759,935 | ||||||
3.50%, due 11/1/25 | 922,064 | 967,041 | ||||||
3.50%, due 11/1/32 | 612,534 | 640,559 | ||||||
3.50%, due 2/1/41 | 1,727,266 | 1,786,602 | ||||||
¨3.50%, due 11/1/41 | 2,896,899 | 2,998,882 | ||||||
3.50%, due 12/1/41 | 307,764 | 318,410 | ||||||
3.50%, due 1/1/42 | 1,526,573 | 1,584,971 | ||||||
3.50%, due 3/1/42 | 1,889,365 | 1,952,977 | ||||||
3.50%, due 8/1/42 | 1,240,884 | 1,280,186 | ||||||
3.50%, due 12/1/42 | 737,613 | 763,811 | ||||||
3.50%, due 2/1/43 | 1,036,260 | 1,073,057 | ||||||
3.50%, due 5/1/43 | 648,621 | 669,942 | ||||||
3.50%, due 6/1/43 | 768,643 | 792,983 | ||||||
4.00%, due 9/1/31 | 1,095,676 | 1,164,284 | ||||||
4.00%, due 2/1/41 | 1,248,073 | 1,326,161 | ||||||
4.00%, due 3/1/41 | 1,860,071 | 1,986,773 | ||||||
4.00%, due 10/1/41 | 422,795 | 451,630 | ||||||
4.00%, due 3/1/42 | 1,177,217 | 1,251,635 | ||||||
4.00%, due 4/1/42 | 550,867 | 585,803 | ||||||
4.00%, due 6/1/42 | 1,590,328 | 1,688,861 | ||||||
4.00%, due 7/1/42 | 1,497,582 | 1,590,879 | ||||||
4.50%, due 11/1/18 | 198,039 | 203,258 | ||||||
4.50%, due 6/1/23 | 263,848 | 278,388 | ||||||
4.50%, due 5/1/39 | 542,919 | 592,651 | ||||||
4.50%, due 6/1/39 | 1,583,109 | 1,726,377 | ||||||
4.50%, due 7/1/39 | 1,729,712 | 1,890,734 | ||||||
4.50%, due 8/1/39 | 1,415,199 | 1,544,255 | ||||||
4.50%, due 9/1/40 | 1,178,466 | 1,287,630 | ||||||
4.50%, due 12/1/40 | 1,735,542 | 1,879,933 | ||||||
¨4.50%, due 1/1/41 | 2,778,637 | 3,033,051 | ||||||
4.50%, due 2/1/41 | 926,872 | 1,007,666 | ||||||
4.50%, due 8/1/41 | 645,283 | 699,971 | ||||||
4.50%, due 12/1/43 | 414,973 | 447,403 | ||||||
5.00%, due 9/1/17 | 23,160 | 23,789 | ||||||
5.00%, due 9/1/20 | 4,713 | 4,841 | ||||||
5.00%, due 11/1/33 | 369,245 | 406,049 | ||||||
5.00%, due 6/1/35 | 334,075 | 365,654 | ||||||
5.00%, due 10/1/35 | 139,769 | 153,404 | ||||||
5.00%, due 1/1/36 | 72,253 | 79,281 | ||||||
5.00%, due 2/1/36 | 520,651 | 571,477 | ||||||
5.00%, due 5/1/36 | 353,733 | 388,237 |
Principal Amount | Value | |||||||
Federal National Mortgage Association |
| |||||||
5.00%, due 6/1/36 | $ | 57,277 | $ | 62,752 | ||||
5.00%, due 9/1/36 | 96,703 | 106,135 | ||||||
5.00%, due 3/1/40 | 871,898 | 962,036 | ||||||
5.00%, due 2/1/41 | 1,915,713 | 2,144,602 | ||||||
5.50%, due 6/1/19 | 154,994 | 158,996 | ||||||
5.50%, due 11/1/19 | 198,403 | 204,199 | ||||||
5.50%, due 4/1/21 | 316,892 | 331,788 | ||||||
5.50%, due 6/1/33 | 1,045,632 | 1,171,442 | ||||||
5.50%, due 11/1/33 | 610,549 | 684,492 | ||||||
5.50%, due 12/1/33 | 729,198 | 817,461 | ||||||
5.50%, due 6/1/34 | 183,337 | 205,556 | ||||||
5.50%, due 12/1/34 | 50,660 | 56,727 | ||||||
5.50%, due 3/1/35 | 313,293 | 350,888 | ||||||
5.50%, due 12/1/35 | 72,523 | 81,175 | ||||||
5.50%, due 4/1/36 | 216,747 | 242,330 | ||||||
5.50%, due 9/1/36 | 78,143 | 87,489 | ||||||
5.50%, due 7/1/37 | 212,649 | 243,558 | ||||||
6.00%, due 11/1/32 | 194,745 | 223,349 | ||||||
6.00%, due 1/1/33 | 142,090 | 162,357 | ||||||
6.00%, due 3/1/33 | 152,208 | 172,730 | ||||||
6.00%, due 9/1/34 | 69,427 | 79,067 | ||||||
6.00%, due 9/1/35 | 466,748 | 539,005 | ||||||
6.00%, due 10/1/35 | 229,694 | 265,010 | ||||||
6.00%, due 6/1/36 | 156,539 | 177,253 | ||||||
6.00%, due 11/1/36 | 247,892 | 280,694 | ||||||
6.00%, due 4/1/37 | 41,871 | 44,388 | ||||||
6.50%, due 10/1/31 | 115,610 | 131,529 | ||||||
6.50%, due 2/1/37 | 52,478 | 58,599 | ||||||
|
| |||||||
62,344,444 | ||||||||
|
| |||||||
Government National Mortgage Association |
| |||||||
3.00%, due 6/20/46 | 892,729 | 900,044 | ||||||
3.50%, due 12/20/46 | 1,430,723 | 1,493,828 | ||||||
3.50%, due 5/18/47 TBA (g) | 750,000 | 779,473 | ||||||
4.00%, due 7/15/39 | 335,650 | 355,079 | ||||||
4.00%, due 9/20/40 | 1,524,582 | 1,628,887 | ||||||
4.00%, due 11/20/40 | 258,715 | 276,293 | ||||||
4.00%, due 1/15/41 | 1,508,681 | 1,600,566 | ||||||
¨4.00%, due 10/15/41 | 3,059,043 | 3,310,314 | ||||||
4.50%, due 5/20/40 | 1,425,462 | 1,536,980 | ||||||
5.00%, due 2/20/41 | 333,352 | 366,675 | ||||||
6.00%, due 8/15/32 | 277,983 | 322,658 | ||||||
6.00%, due 12/15/32 | 152,002 | 173,574 | ||||||
6.50%, due 8/15/28 | 97,515 | 109,323 | ||||||
6.50%, due 4/15/31 | 283,100 | 331,188 | ||||||
|
| |||||||
13,184,882 | ||||||||
|
| |||||||
Overseas Private Investment Corporation 1.9% |
| |||||||
5.142%, due 12/15/23 | 2,474,951 | 2,665,839 | ||||||
|
|
12 | MainStay Government Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
U.S. Government & Federal Agencies (continued) | ||||||||
¨Tennessee Valley Authority 4.6% |
| |||||||
4.65%, due 6/15/35 | $ | 5,605,000 | $ | 6,563,023 | ||||
|
| |||||||
United States Treasury Notes 3.6% | ||||||||
2.00%, due 8/15/25 | 2,000,000 | 1,965,782 | ||||||
¨2.375%, due 8/15/24 | 3,000,000 | 3,049,923 | ||||||
|
| |||||||
5,015,705 | ||||||||
|
| |||||||
Total U.S. Government & Federal Agencies | 132,843,866 | |||||||
|
| |||||||
Total Long-Term Bonds | 137,543,166 | |||||||
|
| |||||||
Short-Term Investment 3.2% | ||||||||
Repurchase Agreement 3.2% | ||||||||
Fixed Income Clearing Corp. | 4,508,339 | 4,508,339 | ||||||
|
| |||||||
Total Short-Term Investment | 4,508,339 | |||||||
|
| |||||||
Total Investments | 100.9 | % | 142,051,505 | |||||
|
| |||||||
Other Assets, Less Liabilities | (0.9 | ) | (1,295,360 | ) | ||||
Net Assets | 100.0 | % | $ | 140,756,145 |
‡ | 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, 2017. |
(c) | Illiquid security—As of April 30, 2017, the total market value of this security deemed illiquid under procedures approved by the Board of Trustees was $885,127, which represented 0.6% of the Fund’s net assets. |
(d) | Floating rate—Rate shown was the rate in effect as of April 30, 2017. |
(e) | Fair valued security—Represents fair value as measured in good faith under procedures approved by the Board of Trustees. As of April 30, 2017, the total market value of this security was $885,127, 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) | TBA—Securities purchased on a forward commitment basis with an approximate principal amount and maturity date. The actual principal amount and maturity date will be determined upon settlement. As of April 30, 2017, the total net market value of these securities was $779,473, which represented 0.6% of the Fund’s net assets. All or a portion of these securities are a part of a mortgage dollar roll agreement. |
(h) | As of April 30, 2017, cost was $138,359,966 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 4,808,490 | ||
Gross unrealized depreciation | (1,116,951 | ) | ||
|
| |||
Net unrealized appreciation | $ | 3,691,539 | ||
|
|
The following abbreviation is used in the preceding pages:
IO—Interest Only
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 13 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
The following is a summary of the fair valuations according to the inputs used as of April 30, 2017, 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 | ||||||||||||||||
Asset-Backed Securities | $ | — | $ | 1,911,762 | $ | — | $ | 1,911,762 | ||||||||
Corporate Bonds | — | 1,062,771 | — | 1,062,771 | ||||||||||||
Mortgage-Backed Securities (b) | — | 839,640 | 885,127 | 1,724,767 | ||||||||||||
U.S. Government & Federal Agencies | — | 132,843,866 | — | 132,843,866 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Long-Term Bonds | — | 136,658,039 | 885,127 | 137,543,166 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 4,508,339 | — | 4,508,339 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | — | $ | 141,166,378 | $ | 885,127 | $ | 142,051,505 | ||||||||
|
|
|
|
|
|
|
|
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The Level 3 security valued at $885,127 is held in Residential Mortgage (Collateralized Mortgage Obligation) within the Mortgage-Backed Securities section of the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the year.
For the period ended April 30, 2017, the Fund did not have any transfers among levels. (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, 2016 | 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, 2017 | Change in Unrealized Appreciation (Depreciation) from Investments Still Held at April 30, 2017 (b) | ||||||||||||||||||||||||||||||
Long-Term Bonds | ||||||||||||||||||||||||||||||||||||||||
Mortgage-Backed Securities | ||||||||||||||||||||||||||||||||||||||||
Residential Mortgages (Collateralized Mortgage Obligations) | $ | 931,266 | $ | 509 | $ | 1,848 | $ | 9,542 | $ | — | $ | (58,038 | ) | $ | — | $ | — | $ | 885,127 | $ | 31,514 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total | $ | 931,266 | $ | 509 | $ | 1,848 | $ | 9,542 | $ | — | $ | (58,038 | ) | $ | — | $ | — | $ | 885,127 | $ | 31,514 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Sales include principal reductions. |
(b) | Included in “Net change in unrealized appreciation (depreciation) on investments” in the Statement of Operations. |
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, 2017 (Unaudited)
Assets | ||||
Investment in securities, at value (identified cost $138,359,966) | $ | 142,051,505 | ||
Receivables: | ||||
Interest | 525,061 | |||
Fund shares sold | 39,159 | |||
Investment securities sold | 9,329 | |||
Other assets | 46,863 | |||
|
| |||
Total assets | 142,671,917 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Fund shares redeemed | 894,509 | |||
Investment securities purchased | 778,887 | |||
Transfer agent (See Note 3) | 55,853 | |||
Manager (See Note 3) | 54,970 | |||
NYLIFE Distributors (See Note 3) | 38,486 | |||
Professional fees | 36,882 | |||
Shareholder communication | 23,114 | |||
Custodian | 11,702 | |||
Trustees | 352 | |||
Accrued expenses | 1,464 | |||
Dividend payable | 19,553 | |||
|
| |||
Total liabilities | 1,915,772 | |||
|
| |||
Net assets | $ | 140,756,145 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 168,340 | ||
Additional paid-in capital | 137,923,303 | |||
|
| |||
138,091,643 | ||||
Undistributed net investment income | 4,861 | |||
Accumulated net realized gain (loss) on investments | (1,031,898 | ) | ||
Net unrealized appreciation (depreciation) on investments | 3,691,539 | |||
|
| |||
Net assets | $ | 140,756,145 | ||
|
|
Class A | ||||
Net assets applicable to outstanding shares | $ | 76,560,167 | ||
|
| |||
Shares of beneficial interest outstanding | 9,172,359 | |||
|
| |||
Net asset value per share outstanding | $ | 8.35 | ||
Maximum sales charge (4.50% of offering price) | 0.39 | |||
|
| |||
Maximum offering price per share outstanding | $ | 8.74 | ||
|
| |||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 37,404,209 | ||
|
| |||
Shares of beneficial interest outstanding | 4,462,165 | |||
|
| |||
Net asset value per share outstanding | $ | 8.38 | ||
Maximum sales charge (4.50% of offering price) | 0.39 | |||
|
| |||
Maximum offering price per share outstanding | $ | 8.77 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 5,596,173 | ||
|
| |||
Shares of beneficial interest outstanding | 670,407 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 8.35 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 12,089,908 | ||
|
| |||
Shares of beneficial interest outstanding | 1,449,050 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 8.34 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 9,105,688 | ||
|
| |||
Shares of beneficial interest outstanding | 1,079,993 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 8.43 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 15 |
Statement of Operations for the six months ended April 30, 2017 (Unaudited)
Investment Income (Loss) | ||||
Income |
| |||
Interest | $ | 2,298,492 | ||
Other income | 93 | |||
|
| |||
Total income | 2,298,585 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 379,210 | |||
Distribution/Service—Class A (See Note 3) | 102,834 | |||
Distribution/Service—Investor Class (See Note 3) | 47,066 | |||
Distribution/Service—Class B (See Note 3) | 30,581 | |||
Distribution/Service—Class C (See Note 3) | 72,453 | |||
Transfer agent (See Note 3) | 164,681 | |||
Registration | 41,809 | |||
Professional fees | 31,951 | |||
Shareholder communication | 20,571 | |||
Custodian | 8,019 | |||
Trustees | 2,045 | |||
Miscellaneous | 6,545 | |||
|
| |||
Total expenses before waiver/reimbursement | 907,765 | |||
Expense waiver/reimbursement from Manager (See Note 3) | (5,059 | ) | ||
|
| |||
Net expenses | 902,706 | |||
|
| |||
Net investment income (loss) | 1,395,879 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments | (456,650 | ) | ||
Net change in unrealized appreciation (depreciation) on investments | (3,706,820 | ) | ||
|
| |||
Net realized and unrealized gain (loss) on investments | (4,163,470 | ) | ||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | (2,767,591 | ) | |
|
|
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, 2017 (Unaudited) and the year ended October 31, 2016
2017 | 2016 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 1,395,879 | $ | 2,938,702 | ||||
Net realized gain (loss) on investments | (456,650 | ) | 89,722 | |||||
Net change in unrealized appreciation (depreciation) on investments | (3,706,820 | ) | 777,765 | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | (2,767,591 | ) | 3,806,189 | |||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Class A | (862,126 | ) | (1,808,126 | ) | ||||
Investor Class | (343,213 | ) | (717,921 | ) | ||||
Class B | (32,228 | ) | (77,285 | ) | ||||
Class C | (75,280 | ) | (200,490 | ) | ||||
Class I | (137,088 | ) | (135,148 | ) | ||||
|
| |||||||
Total dividends to shareholders | (1,449,935 | ) | (2,938,970 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 19,190,098 | 43,966,459 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 1,337,906 | 2,705,385 | ||||||
Cost of shares redeemed | (49,442,097 | ) | (36,142,554 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | (28,914,093 | ) | 10,529,290 | |||||
|
| |||||||
Net increase (decrease) in net assets | (33,131,619 | ) | 11,396,509 | |||||
Net Assets | ||||||||
Beginning of period | 173,887,764 | 162,491,255 | ||||||
|
| |||||||
End of period | $ | 140,756,145 | $ | 173,887,764 | ||||
|
| |||||||
Undistributed (distributions in excess of) net investment income at end of period | $ | 4,861 | $ | 58,917 | ||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 17 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class A | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 8.56 | $ | 8.51 | $ | 8.63 | $ | 8.57 | $ | 9.02 | $ | 8.86 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.08 | 0.17 | 0.20 | 0.21 | 0.19 | 0.22 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.20 | ) | 0.05 | (0.10 | ) | 0.08 | (0.41 | ) | 0.19 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | (0.12 | ) | 0.22 | 0.10 | 0.29 | (0.22 | ) | 0.41 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.09 | ) | (0.17 | ) | (0.20 | ) | (0.21 | ) | (0.20 | ) | (0.23 | ) | ||||||||||||||||
From net realized gain on investments | — | — | (0.02 | ) | (0.02 | ) | (0.03 | ) | (0.02 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.09 | ) | (0.17 | ) | (0.22 | ) | (0.23 | ) | (0.23 | ) | (0.25 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 8.35 | $ | 8.56 | $ | 8.51 | $ | 8.63 | $ | 8.57 | $ | 9.02 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | (1.42 | %) | 2.60 | % | 1.17 | % | 3.46 | % | (2.50 | %) | 4.70 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 2.03 | % †† | 1.99 | %(c) | 2.38 | % | 2.47 | % | 2.17 | % | 2.46 | % | ||||||||||||||||
Net expenses | 1.00 | % †† | 0.98 | %(d) | 1.00 | % | 0.98 | % | 1.03 | % | 1.03 | % | ||||||||||||||||
Expenses (before waiver/reimbursement) | 1.01 | % †† | 0.99 | % | 1.00 | % | 0.98 | % | 1.09 | % | 1.14 | % | ||||||||||||||||
Portfolio turnover rate (e) | 13 | % | 41 | % | 13 | % | 14 | % | 28 | % | 37 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 76,560 | $ | 93,242 | $ | 90,119 | $ | 100,212 | $ | 143,234 | $ | 174,621 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been 1.98%. |
(d) | Without the custody fee reimbursement, net expenses would have been 0.99%. |
(e) | The portfolio turnover rates not including mortgage dollar rolls were 4%, 16%, 7% and 16% for the period ended April 30, 2017 and for the years ended October 31, 2016, 2013, and 2012, respectively. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Investor Class | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 8.59 | $ | 8.54 | $ | 8.66 | $ | 8.60 | $ | 9.05 | $ | 8.90 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.07 | 0.15 | 0.18 | 0.19 | 0.18 | 0.21 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.20 | ) | 0.05 | (0.10 | ) | 0.08 | (0.42 | ) | 0.17 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | (0.13 | ) | 0.20 | 0.08 | 0.27 | (0.24 | ) | 0.38 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.08 | ) | (0.15 | ) | (0.18 | ) | (0.19 | ) | (0.18 | ) | (0.21 | ) | ||||||||||||||||
From net realized gain on investments | — | — | (0.02 | ) | (0.02 | ) | (0.03 | ) | (0.02 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.08 | ) | (0.15 | ) | (0.20 | ) | (0.21 | ) | (0.21 | ) | (0.23 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 8.38 | $ | 8.59 | $ | 8.54 | $ | 8.66 | $ | 8.60 | $ | 9.05 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | (1.55 | %) | 2.34 | % | 0.88 | % | 3.15 | % | (2.66 | %) | 4.42 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 1.76 | % †† | 1.74 | %(c) | 2.11 | % | 2.19 | % | 2.01 | % | 2.32 | % | ||||||||||||||||
Net expenses | 1.28 | % †† | 1.23 | %(d) | 1.28 | % | 1.26 | % | 1.19 | % | 1.17 | % | ||||||||||||||||
Expenses (before waiver/reimbursement) | 1.29 | % †† | 1.24 | % | 1.28 | % | 1.26 | % | 1.25 | % | 1.28 | % | ||||||||||||||||
Portfolio turnover rate (e) | 13 | % | 41 | % | 13 | % | 14 | % | 28 | % | 37 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 37,404 | $ | 40,094 | $ | 42,444 | $ | 45,947 | $ | 50,200 | $ | 57,666 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been 1.73%. |
(d) | Without the custody fee reimbursement, net expenses would have been 1.24%. |
(e) | The portfolio turnover rates not including mortgage dollar rolls were 4%, 16%, 7% and 16% for the period ended April 30, 2017 and for the years ended October 31, 2016, 2013, and 2012, 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 | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 8.56 | $ | 8.51 | $ | 8.63 | $ | 8.57 | $ | 9.02 | $ | 8.86 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.04 | 0.08 | 0.12 | 0.12 | 0.11 | 0.14 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.21 | ) | 0.05 | (0.10 | ) | 0.08 | (0.42 | ) | 0.19 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | (0.17 | ) | 0.13 | 0.02 | 0.20 | (0.31 | ) | 0.33 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.04 | ) | (0.08 | ) | (0.12 | ) | (0.12 | ) | (0.11 | ) | (0.15 | ) | ||||||||||||||||
From net realized gain on investments | — | — | (0.02 | ) | (0.02 | ) | (0.03 | ) | (0.02 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.04 | ) | (0.08 | ) | (0.14 | ) | (0.14 | ) | (0.14 | ) | (0.17 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 8.35 | $ | 8.56 | $ | 8.51 | $ | 8.63 | $ | 8.57 | $ | 9.02 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | (1.93 | %) | 1.59 | % | 0.14 | % | 2.38 | % | (3.40 | %) | 3.77 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 1.00 | % †† | 0.99 | %(c) | 1.35 | % | 1.44 | % | 1.26 | % | 1.57 | % | ||||||||||||||||
Net expenses | 2.03 | % †† | 1.98 | %(d) | 2.03 | % | 2.01 | % | 1.94 | % | 1.92 | % | ||||||||||||||||
Expenses (before waiver/reimbursement) | 2.03 | % †† | 1.99 | % | 2.03 | % | 2.01 | % | 2.00 | % | 2.03 | % | ||||||||||||||||
Portfolio turnover rate (e) | 13 | % | 41 | % | 13 | % | 14 | % | 28 | % | 37 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 5,596 | $ | 7,154 | $ | 8,363 | $ | 10,550 | $ | 14,783 | $ | 21,826 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been 0.98%. |
(d) | Without the custody fee reimbursement, net expenses would have been 1.99%. |
(e) | The portfolio turnover rates not including mortgage dollar rolls were 4%, 16%, 7% and 16% for the period ended April 30, 2017 and for the years ended October 31, 2016, 2013, and 2012, respectively. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class C | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 8.55 | $ | 8.50 | $ | 8.62 | $ | 8.56 | $ | 9.01 | $ | 8.86 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.04 | 0.08 | 0.12 | 0.12 | 0.11 | 0.14 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.21 | ) | 0.05 | (0.10 | ) | 0.08 | (0.42 | ) | 0.18 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | (0.17 | ) | 0.13 | 0.02 | 0.20 | (0.31 | ) | 0.32 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.04 | ) | (0.08 | ) | (0.12 | ) | (0.12 | ) | (0.11 | ) | (0.15 | ) | ||||||||||||||||
From net realized gain on investments | — | — | (0.02 | ) | (0.02 | ) | (0.03 | ) | (0.02 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.04 | ) | (0.08 | ) | (0.14 | ) | (0.14 | ) | (0.14 | ) | (0.17 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 8.34 | $ | 8.55 | $ | 8.50 | $ | 8.62 | $ | 8.56 | $ | 9.01 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | (1.93 | %) | 1.59 | % | 0.14 | % | 2.39 | % | (3.41 | %) | 3.66 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 0.98 | % †† | 0.99 | %(c) | 1.34 | % | 1.44 | % | 1.24 | % | 1.57 | % | ||||||||||||||||
Net expenses | 2.03 | % †† | 1.98 | %(d) | 2.03 | % | 2.01 | % | 1.94 | % | 1.92 | % | ||||||||||||||||
Expenses (before waiver/reimbursement) | 2.03 | % †† | 1.99 | % | 2.03 | % | 2.01 | % | 2.00 | % | 2.03 | % | ||||||||||||||||
Portfolio turnover rate (e) | 13 | % | 41 | % | 13 | % | 14 | % | 28 | % | 37 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 12,090 | $ | 19,338 | $ | 17,073 | $ | 11,226 | $ | 12,593 | $ | 27,610 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been 0.98%. |
(d) | Without the custody fee reimbursement, net expenses would have been 1.99%. |
(e) | The portfolio turnover rates not including mortgage dollar rolls were 4%, 16%, 7% and 16% for the period ended April 30, 2017 and for the years ended October 31, 2016, 2013, and 2012, respectively. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 19 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class I | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 8.64 | $ | 8.59 | $ | 8.71 | $ | 8.65 | $ | 9.10 | $ | 8.94 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.10 | 0.19 | 0.22 | 0.23 | 0.21 | 0.24 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.21 | ) | 0.05 | (0.09 | ) | 0.09 | (0.41 | ) | 0.19 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | (0.11 | ) | 0.24 | 0.13 | 0.32 | (0.20 | ) | 0.43 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.10 | ) | (0.19 | ) | (0.23 | ) | (0.24 | ) | (0.22 | ) | (0.25 | ) | ||||||||||||||||
From net realized gain on investments | — | — | (0.02 | ) | (0.02 | ) | (0.03 | ) | (0.02 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.10 | ) | (0.19 | ) | (0.25 | ) | (0.26 | ) | (0.25 | ) | (0.27 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 8.43 | $ | 8.64 | $ | 8.59 | $ | 8.71 | $ | 8.65 | $ | 9.10 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | (1.29 | %) | 2.83 | % | 1.41 | % | 3.69 | % | (2.24 | %) | 4.92 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 2.29 | % †† | 2.16 | %(c) | 2.57 | % | 2.70 | % | 2.42 | % | 2.69 | % | ||||||||||||||||
Net expenses | 0.75 | % †† | 0.73 | %(d) | 0.75 | % | 0.73 | % | 0.78 | % | 0.78 | % | ||||||||||||||||
Expenses (before waiver/reimbursement) | 0.76 | % †† | 0.74 | % | 0.75 | % | 0.73 | % | 0.84 | % | 0.89 | % | ||||||||||||||||
Portfolio turnover rate (e) | 13 | % | 41 | % | 13 | % | 14 | % | 28 | % | 37 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 9,106 | $ | 14,061 | $ | 4,492 | $ | 10,020 | $ | 3,561 | $ | 5,753 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been 2.15%. |
(d) | Without the custody fee reimbursement, net expenses would have been 0.74%. |
(e) | The portfolio turnover rates not including mortgage dollar rolls were 4%, 16%, 7% and 16% for the period ended April 30, 2017 and for the years ended October 31, 2016, 2013, and 2012, 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, and is governed by a Declaration of 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, as that term is defined in the 1940 Act, as interpreted or modified by regulatory authorities having jurisdiction, from time to time.
The Fund currently offers seven 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 R6 and Class T shares of the Fund were registered for sale effective as of February 28, 2017. As of the period ended April 30, 2017, Class R6 and Class T shares had no investment operations. Investor Class shares commenced operations on February 28, 2008. Effective February 28, 2017, Class B shares of the MainStay Group of Funds were closed to all new purchases as well as additional investments by existing Class B shareholders. Existing Class B shareholders may continue to reinvest dividends and capital gains distributions, as well as exchange their Class B shares for Class B shares of other Funds as permitted by the current exchange privileges. Class B shareholders continue to be subject to any applicable contingent deferred sales charge (“CDSC”) at the time of redemption. All other features of the Class B shares, including but not limited to the fees and expenses applicable to Class B shares, remain unchanged. Unless redeemed, Class B shareholders will remain in Class B shares of their respective Fund until the Class B shares are converted to Class A or Investor Class shares pursuant to the applicable conversion schedule.
Class A and Investor Class shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No initial sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Class A and Investor Class shares. Effective August 1, 2017, a CDSC of 1.00% may be imposed on certain redemptions of Class A and Investor Class shares made within 18 months of the date of purchase on shares that were purchased without an initial sales charge. For purchases of Class A and Investor Class shares made from January 1, 2017, through July 31, 2017, a CDSC of 1.00% may be imposed on certain redemptions made within 24 months of the date of purchase on shares that were purchased without an initial sales charge. For purchases of Class A and Investor Class shares made prior to January 1, 2017, a CDSC of 1.00% may be imposed on certain redemptions made within one year of the date of purchase on shares that were purchased without an initial sales charge. Class C shares are offered at NAV without an initial sales charge, although a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. When Class B shares were offered, they were offered at NAV without an initial sales charge, although a CDSC that declines depending on the number of years a shareholder has held its Class B share may be imposed on redemptions made within six years of the date of purchase of such shares. Class T shares are offered at NAV per share plus an initial sales charge. Class I 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 Class A or Investor Class shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Class A shares may convert to Investor Class shares and Investor Class shares may convert to Class A shares. Under certain circumstances and as may be permitted by the Trust’s multiple class plan under Rule 18f-3 of the 1940 Act, an exchange/conversion may be made from specified share classes of the Fund to one or more other share classes of the Fund as disclosed in the capital share transactions within these notes. The seven 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 under distribution plans pursuant to Rule 12b-1 under the 1940 Act, Class B and Class C shares are subject to higher distribution and/or service fee rates than Class A, Investor Class and Class T shares. Class I Class R6 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 is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services—Investment Companies. 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 usually valued as of the close of regular trading on the New York Stock Exchange (the “Exchange”) (usually 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 establishing methodologies for the valuation of the Fund’s securities and other assets and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Trust (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 establishing the prices of securities for which market quotations are not readily available or the prices of which are not otherwise readily determinable under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. Subsequently, the Valuation Committee meets 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 the day-to-day valuation of portfolio assets (including fair value measurements for the Fund’s assets and liabilities) 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, Subadvisor 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 with changes exceeding certain tolerance
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Notes to Financial Statements (Unaudited) (continued)
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, if appropriate, 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 or other asset is submitted by the Valuation Committee to the Board for its review and ratification, if appropriate, at its next regularly scheduled meeting.
“Fair value” is defined as the price the Fund would reasonably expect to 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 establishes 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 assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities. 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) |
The level of an asset or liability within the fair value hierarchy is based on the lowest level of an input, both individually and in the aggregate, that is significant to the fair value measurement. As of April 30, 2017, the aggregate value by input level of the Fund’s assets and 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 is valued by methods deemed reasonable 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. Fair value represents a good faith approximation of the value of a security. Fair value determinations involve the consideration of a number of subjective factors, an analysis of applicable facts and circumstances and the exercise of judgment. As a result, it is possible that the fair value for a security determined in good faith in accordance with the Fund’s valuation procedures may differ from valuations for the same security determined by other funds using their own valuation procedures. Although the Fund’s valuation procedures are designed to value a security at the price the Fund may reasonably expect to receive upon its sale in an orderly transaction, there can be no assurance that any fair value determination thereunder would, in fact, approximate the amount that the Fund would actually realize upon the sale of the security or the price at which the security would trade if a reliable market price were readily available. During the six-month period ended April 30, 2017, there were 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, 2017, a security that was fair valued in such a manner is shown in the Portfolio of Investments.
Futures contracts are valued at the last posted settlement price on the market where such futures are primarily traded. Investments in mutual
22 | MainStay Government Fund |
funds, including money market 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 brokers selected by the Manager, in consultation with the Subadvisor. Those values reflect broker/dealer supplied prices and electronic data processing techniques, if the evaluated bid or mean 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, 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 at the time of purchase 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 using the amortized cost method of valuation, unless the use of such method would be inappropriate. 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 using the amortized cost method are not valued using quoted prices in an active market and are generally categorized as Level 2 in the hierarchy.
The information above is not intended to reflect an exhaustive list of the methodologies that may be used to value portfolio investments. The valuation procedures permit the use of a variety of valuation methodologies in connection with valuing portfolio investments. The methodology used for a specific type of investment may vary based on the market data available or other considerations. The methodologies summarized above may not represent the specific means by which portfolio investments are valued on any particular business day.
A Fund security or other asset may be determined to be illiquid under procedures approved by the Board. Illiquidity of a security 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 the 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 materially 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 determines 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 are often valued in accordance with methods deemed by the Board in good faith to be reasonable and appropriate to accurately reflect their fair value. The liquidity of the Fund’s investments, as shown in the Portfolio of Investments, was determined as of April 30, 2017 and can change at any time in response to, among other relevant factors, market conditions or events or developments with respect to an individual issuer or instrument. As of April 30, 2017, securities deemed to be illiquid under procedures approved by the Board are shown in the Portfolio of Investments.
(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 its 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 permitted only to the extent 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. Interest income is accrued as earned using the effective interest rate method and includes any realized gains and losses from repayments of principal on mortgage-backed securities. 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. 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.
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Notes to Financial Statements (Unaudited) (continued)
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated pro rata to separate classes of shares 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 security on non-accrual status and reduce related interest income by ceasing current accruals and writing off all or a portion of any interest receivables when the collection of all or a portion of such interest has become doubtful. A debt security 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/or 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 (i.e., buy a security from another party with the agreement that it be sold back in the future) to earn income. The Fund may enter into repurchase agreements only with counterparties, usually 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 the Fund to the counterparty secured by the securities transferred to the Fund.
Repurchase agreements are subject to counterparty risk, meaning the Fund could lose money by the counterparty’s failure to perform under the terms of the agreement. The Fund mitigates this risk by ensuring the repurchase agreement is collateralized by cash, U.S. government securities, fixed income securities and/or other securities. The collateral is held by the Fund’s custodian 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 counterparty’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, realization and/or retention of the collateral may be limited or subject to delay, 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 risks
such as market price risk and/or interest rate risk in the normal course of investing in these transactions. Upon entering into a futures contract, the Fund is required to pledge to the broker or futures commission merchant an amount of cash and/or U.S. Government securities equal to a certain percentage of the collateral amount, known as the “initial margin.” 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 or futures commission merchant 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. There are several risks associated with the use of futures contracts as hedging techniques. There can be no assurance that a liquid market will exist at the time when the Fund seeks to close out a futures contract. If no liquid market exists, the Fund would remain obligated to meet margin requirements until the position is closed. Futures may involve a small initial investment relative to the risk assumed, which could result in losses greater than if they had not been used. Futures may be more volatile than direct investments in the instrument underlying the futures, and may not correlate to the underlying instrument, causing a given hedge not to achieve its objectives. 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 the entire 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 NAVs and may result in a loss to the Fund. As of April 30, 2017, all open futures contracts are shown in the Portfolio of Investments.
(I) Dollar Rolls. The Fund may enter into dollar roll transactions in which it sells mortgage-backed securities (“MBS”) from its portfolio to a counterparty from whom it simultaneously agrees to buy a similar security on a delayed delivery basis. The Fund generally transfers MBS where the MBS are “to be announced,” therefore, the Fund accounts for these transactions as purchases and sales.
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
24 | MainStay Government Fund |
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 security 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.
The Fund accounts for a dollar roll transaction as a purchase and sale whereby the difference in the sales price and purchase price of the security sold is recorded as a realized gain (loss).
(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 (“SEC”). 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 collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund against counterparty risk. The loans will be collateralized by U.S. Treasury securities at least equal at all times to the market value of the securities loaned. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record a realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund bears the risk of any loss on investment of the collateral. The Fund will receive compensation for lending its securities in the form of fees or it will retain a portion of interest on the investment of any cash received as collateral. The Fund will also 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. During the six-month period ended April 30, 2017, the Fund did not have any portfolio securities on loan.
(K) Government Risk. Investments in the Fund are not guaranteed, even though some of the Fund’s underlying investments are guaranteed by the U.S. government or its agencies or instrumentalities. The principal risk of mortgage-related and asset-backed securities is that the underlying debt may be prepaid ahead of schedule if interest rates fall, thereby reducing the value of the Fund’s investment. If interest rates rise, less of the debt may be prepaid and the Fund may lose money because the Fund may be unable to invest in higher yielding assets. Funds that invest in bonds are subject to interest-rate risk and can lose principal value when interest rates rise. Bonds are also subject to credit risk, in which the bond issuer may fail to pay interest and principal in a timely manner.
(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.
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 attributable to 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 Amended and Restated Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and MacKay Shields, New York Life Investments pays for the services of the Subadvisor.
Under the Management Agreement, 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.
During the six-month period ended April 30, 2017, the effective management fee rate was 0.50%.
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, except Class R6. 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. This agreement will remain in effect until February 28, 2018, 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 by the Board.
During the six-month period ended April 30, 2017, New York Life Investments earned fees from the Fund in the amount of $379,210 and waived its fees and/or reimbursed expenses in the amount of $5,059.
State Street 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 NAVs, and assisting New York Life Investments in
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Notes to Financial Statements (Unaudited) (continued)
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 Class A, Investor Class and Class T Plans, the Distributor receives a monthly distribution fee from the Class A, Investor Class and Class T shares at an annual rate of 0.25% of the average daily net assets of the Class A, Investor Class and Class T 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 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.
(C) Sales Charges. During the six-month period ended April 30, 2017, the Fund was advised by the Distributor that the amount of initial sales charges retained on sales of Class A and Investor Class shares were $2,856 and $2,323, respectively.
During the six-month period ended April 30, 2017, the Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Investor Class, Class B and Class C shares of $10,501, $1, $10,341 and $1,829, respectively.
(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. During the six-month period ended April 30, 2017, transfer agent expenses incurred by the Fund were as follows:
Class A | $ | 45,520 | ||
Investor Class | 73,123 | |||
Class B | 11,865 | |||
Class C | 28,042 | |||
Class I | 6,131 |
(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
During the year ended October 31, 2016, the tax character of distributions paid as reflected in the Statement of Changes in Net Assets was as follows:
2016 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 2,938,970 |
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 transactions incurred by the Fund.
Note 6–Line of Credit
The Fund and certain other funds managed by New York Life Investments, 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 2, 2016, under an amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $600,000,000 with an additional uncommitted amount of $100,000,000. The commitment fee is an annual rate of 0.15% 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 their respective 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 1, 2017, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 2, 2016, the aggregate commitment amount was $600,000,000 with an additional uncommitted amount of $100,000,000, and the commitment fee was at an annual rate of 0.10% of the average commitment amount. During the six-month period ended April 30, 2017, there were no borrowings made or outstanding with respect to the Fund under the Credit Agreement.
Note 7–Interfund Lending Program
Pursuant to an exemptive order issued by the SEC, the Fund, along with certain other funds managed by New York Life Investments, may participate in an interfund lending program. The interfund lending program provides an alternative credit facility that permits the Fund and certain other funds managed by New York Life Investments to lend or borrow money for temporary purposes directly to or from one another subject to the conditions of the exemptive order. During the six-month period ended April 30, 2017, there were no interfund loans made or outstanding with respect to the Fund.
26 | MainStay Government Fund |
Note 8–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2017, purchases and sales of U.S. government securities were $19,972 and $48,671, respectively. Purchases and sales of securities, other than U.S. government securities and short-term securities, were $0 and $299, respectively.
Note 9–Capital Share Transactions
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 237,765 | $ | 1,985,365 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 94,540 | 786,468 | ||||||
Shares redeemed | (2,075,467 | ) | (17,285,353 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (1,743,162 | ) | (14,513,520 | ) | ||||
Shares converted into Class A (See Note 1) | 98,270 | 815,204 | ||||||
Shares converted from Class A (See Note 1) | (81,680 | ) | (679,743 | ) | ||||
|
| |||||||
Net increase (decrease) | (1,726,572 | ) | $ | (14,378,059 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 1,671,833 | $ | 14,300,084 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 193,141 | 1,650,198 | ||||||
Shares redeemed | (1,755,494 | ) | (14,999,000 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 109,480 | 951,282 | ||||||
Shares converted into Class A (See Note 1) | 281,575 | 2,406,374 | ||||||
Shares converted from Class A (See Note 1) | (84,395 | ) | (722,690 | ) | ||||
|
| |||||||
Net increase (decrease) | 306,660 | $ | 2,634,966 | |||||
|
| |||||||
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 85,847 | $ | 722,171 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 39,572 | 330,467 | ||||||
Shares redeemed | (358,413 | ) | (3,003,915 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (232,994 | ) | (1,951,277 | ) | ||||
Shares converted into Investor Class (See Note 1) | 115,441 | 963,921 | ||||||
Shares converted from Investor Class (See Note 1) | (87,147 | ) | (726,233 | ) | ||||
|
| |||||||
Net increase (decrease) | (204,700 | ) | $ | (1,713,589 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 283,003 | $ | 2,429,081 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 80,330 | 688,984 | ||||||
Shares redeemed | (607,459 | ) | (5,214,634 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (244,126 | ) | (2,096,569 | ) | ||||
Shares converted into Investor Class (See Note 1) | 189,526 | 1,626,591 | ||||||
Shares converted from Investor Class (See Note 1) | (246,625 | ) | (2,116,170 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (301,225 | ) | $ | (2,586,148 | ) | |||
|
|
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 39,077 | $ | 326,228 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 3,586 | 29,833 | ||||||
Shares redeemed | (156,607 | ) | (1,308,601 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (113,944 | ) | (952,540 | ) | ||||
Shares converted from Class B (See Note 1) | (51,829 | ) | (430,400 | ) | ||||
|
| |||||||
Net increase (decrease) | (165,773 | ) | $ | (1,382,940 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 194,937 | $ | 1,665,656 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 8,341 | 71,211 | ||||||
Shares redeemed | (210,091 | ) | (1,795,096 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (6,813 | ) | (58,229 | ) | ||||
Shares converted from Class B (See Note 1) | (139,939 | ) | (1,194,105 | ) | ||||
|
| |||||||
Net increase (decrease) | (146,752 | ) | $ | (1,252,334 | ) | |||
|
| |||||||
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 91,827 | $ | 764,457 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 7,292 | 60,634 | ||||||
Shares redeemed | (911,456 | ) | (7,591,298 | ) | ||||
|
| |||||||
Net increase (decrease) | (812,337 | ) | $ | (6,766,207 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 1,197,365 | $ | 10,197,898 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 19,643 | 167,630 | ||||||
Shares redeemed | (963,265 | ) | (8,238,085 | ) | ||||
|
| |||||||
Net increase (decrease) | 253,743 | $ | 2,127,443 | |||||
|
| |||||||
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 1,830,379 | $ | 15,391,877 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 15,549 | 130,504 | ||||||
Shares redeemed | (2,400,123 | ) | (20,252,930 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (554,195 | ) | (4,730,549 | ) | ||||
Shares converted into Class I (See Note 1) | 6,807 | 57,251 | ||||||
|
| |||||||
Net increase (decrease) | (547,388 | ) | $ | (4,673,298 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 1,769,610 | $ | 15,373,740 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 14,742 | 127,362 | ||||||
Shares redeemed | (679,762 | ) | (5,895,739 | ) | ||||
|
| |||||||
Net increase (decrease) | 1,104,590 | $ | 9,605,363 | |||||
|
|
27 |
Notes to Financial Statements (Unaudited) (continued)
Note 10–Recent Accounting Pronouncement
In October 2016, the SEC adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the Fund’s financial statements and related disclosures.
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, 2017, events and transactions subsequent to April 30, 2017, through the date the financial statements were issued have been evaluated by the Fund’s management for possible adjustment and/or disclosure. No subsequent events requiring financial statement adjustment or disclosure have been identified.
28 | MainStay Government Fund |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited)
Section 15 of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of trustees initially approve and, following an initial term of up to two years, annually review and approve the fund’s investment advisory agreement(s). At its December 12-14, 2016 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 2016 and December 2016, as well as other relevant information furnished to the Board throughout the year. 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 fee and total expenses. The Board also considered information on the fees charged to any other investment advisory clients of New York Life Investments and MacKay Shields (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 Trustees who are not “interested persons” (as such term is defined under the 1940 Act) of the Fund (the “Independent Trustees”). Information provided to the Board in advance of and during meetings throughout the year included, among other items, information regarding the legal standards applicable to their consideration of the Agreements and 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, risk management, portfolio turnover, and sales and marketing activity. At various meetings, the Independent Trustees also met in executive session with their independent legal counsel, and met with senior management of New York Life Investments without other representatives of New York Life Investments present.
Throughout the year and specifically in connection with its June meeting each year, the Board also received an overview of the Funds’ distribution arrangements. In addition, the Board received information regarding the Fund’s asset levels, share purchase and redemption activity and the payment of Rule 12b-1 distribution and service fees by the Fund. New York Life Investments also provided the Board with
information regarding the revenue sharing payments made to intermediaries that promote the sale, distribution, and/or servicing of Fund shares.
In considering the Agreements, the Trustees comprehensively 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 described in greater detail below and included, among other items: (i) the nature, extent 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 have been realized or may be realized if the Fund grows and the extent to which economies of scale have benefited or may benefit Fund shareholders; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to any similar funds and accounts managed by New York Life Investments and MacKay Shields. Although the Board recognized that the comparisons between the Fund’s fees and expenses and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Board also considered the reasonableness of the Fund’s management fee and overall total ordinary operating expenses as compared to the peer funds identified by Strategic Insight.
While individual Trustees may have weighed certain factors or information differently, the Board’s decision to approve the Agreements was based on a consideration of the information provided to the Trustees throughout the year, as well as information furnished specifically in connection with the contract review process. Throughout the year, the Trustees are also afforded an opportunity to ask questions of and request additional information or materials from New York Life Investments and MacKay Shields. The Board’s conclusions with respect to the Agreements may have been based, in part, on the Board’s knowledge of New York Life Investments and MacKay Shields resulting from, among other things, the Board’s consideration of the MainStay Group of Funds’ advisory 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. The factors that figured prominently in the Board’s decision to approve the Agreements are summarized in more detail below.
Nature, Extent and Quality of Services to Be Provided by New York Life Investments and MacKay Shields
The Board examined the nature, extent and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience and capabilities 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
29 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
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 observed that New York Life Investments devotes significant resources and time to providing advisory and non-advisory services to the Fund, including its extensive oversight of MacKay Shields. The Board also considered the full range of services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and on-going oversight services provided by New York Life Investments’ Fund Administration and Accounting 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; (iv) legal services provided by New York Life Investments’ Office of the General Counsel; and (v) risk management and portfolio trading oversight and analysis by compliance and investment personnel. 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, infrastructure, technology, operational enhancements, cyber security, information security and shareholder privacy resources 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, extent and quality of the investment 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 records 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 further considered New York Life Investments’ policies, procedures and systems to reasonably assure compliance with applicable laws and regulations. In addition, the Board considered the policies and procedures in place with respect to matters that may involve conflicts of interest between the Fund’s investments and those of other accounts managed by MacKay Shields. 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, extent 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, and in light of market conditions. 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’s Investment Committee that occur regularly, generally 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 of the services provided by New York Life Investments and MacKay Shields and profits realized by 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
30 | MainStay Government Fund |
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 recognized that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds, among other benefits resulting from its relationship with New York Life Investments.
In addition, the Board acknowledged 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. In connection with the annual fund profitability analysis that New York Life Investments presents to the Board, the Board in 2014 engaged Bobroff Consulting, Inc., an independent third-party consultant, to review the methods used to allocate costs to the MainStay Funds, and among individual Funds. As part of this engagement, the consultant analyzed: (i) the various New York Life Investments’ business units and affiliated Subadvisers that provide services to the MainStay Funds; (ii) how costs are allocated to the Fund and other funds managed by New York Life Investments, and to other lines of businesses; and (iii) how New York Life Investments’ cost allocation methods and profitability reports compare to industry practices. The Board noted that the independent consultant had concluded that New York Life Investments’ methods for allocating costs and procedures for estimating overall profitability of the funds in the MainStay Group of Funds, including the Fund, are reasonable, consistent with industry practice and likely to produce reasonable profitability estimates. Although the Board recognized 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 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 incurred by New York Life Investments from its own resources.
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 Fund and other funds in the MainStay Group of Funds. 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, initially setting relatively low management fees or making additional investments to enhance shareholder services. 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. Additionally, the Board considered New York Life Investments’ assessment of the extent economies of scale existed for Funds that had experienced significant increases of assets during the year.
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, because 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 that follow similar investment strategies 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
31 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
fee schedules. The Board also took into account explanations provided by New York Life Investments about the different scope of services provided to registered investment companies 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 also considered its discussions with representatives from New York Life Investments regarding the Fund’s total net 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 demonstrating 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 also noted information received from NYLIM Service Company LLC regarding the sub-transfer agency payments it made to intermediaries in connection with the 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 a number of 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 recognized 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) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iii) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (iv) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (v) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vi) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. The
Board also considered that NYLIM Service Company LLC had waived its cost of living adjustments in 2015, 2016 and 2017. In addition, the Board acknowledged New York Life Investments’ continued 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 and factors summarized above and the evaluation thereof, the Board as a whole, including the Independent Trustees who are not parties to the Agreements or “interested persons” of any such party voting separately, unanimously voted to approve the Agreements.
32 | MainStay Government 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 or proxy voting record 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).
33 |
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MainStay Funds
Equity
U.S. Equity
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay Epoch U.S. Small Cap Fund
MainStay ICAP Equity Fund1
MainStay ICAP Select Equity Fund1
MainStay Large Cap Growth Fund
MainStay MAP Equity Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
International/Global Equity
MainStay Emerging Markets Equity Fund
MainStay Epoch Capital Growth Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Choice Fund
MainStay Epoch International Small Cap Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond
MainStay Emerging Markets Debt Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay Indexed Bond Fund
MainStay Short Duration High Yield Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal/Tax Advantaged Bond
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Advantaged Short Term Bond Fund
MainStay Tax Free Bond Fund
Money Market
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
Alternative
MainStay Absolute Return Multi-Strategy Fund
MainStay Cushing Energy Income Fund
MainStay Cushing MLP Premier Fund
MainStay Cushing Renaissance Advantage 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
MainStay Retirement 2060 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Candriam France S.A.S.4
Paris, France
Cornerstone Capital Management Holdings LLC4
New York, New York
Cushing Asset Management, LP
Dallas, Texas
Epoch Investment Partners, Inc.
New York, New York
MacKay Shields LLC4
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC4
New York, New York
Winslow Capital Management, LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Washington, District of Columbia
Independent Registered Public Accounting Firm
KPMG LLP
Philadelphia, Pennsylvania
1. On May 8, 2017, the Fund merged into MainStay Epoch U.S. Equity Yield Fund. Former shareholders of this Fund can request the Fund’s Semiannual Report by calling 800-MAINSTAY (624-6782).
2. Class A and Class I shares of this Fund are registered for sale in AZ, CA, MI, NV, OR, TX, UT and WA. Class I shares are registered for sale in CO, FL, GA, HI, ID, MA, MD, NH, NJ and NY.
3. This Fund is registered for sale in CA, CT, DE, FL, MA, NJ, NY and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Semiannual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
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. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
©2017 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 |
1737431 MS144-17 | MSG10-06/17 (NYLIM) NL007 |
MainStay High Yield Corporate Bond Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2017
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Message from the President
The six months ended April 30, 2017, proved to be a strong period for many equity investors but presented challenges for some bond investors.
The reporting period began with considerable uncertainty about the outcome of the U.S. election. Once the Republicans gained control of the White House, the Senate and the House of Representatives, however, many investors hoped to see an end to political gridlock; and although debate has continued on a number of issues, the U.S. stock market steadily climbed through the end of the reporting period.
According to FTSE-Russell U.S. market data, stocks at all capitalization levels earned double-digit overall returns during the reporting period. Although growth stocks outperformed value stocks at most capitalization levels, value stocks outperformed growth stocks among micro-cap stocks.
In December 2016 and March 2017, the Federal Reserve announced increases in the target range for the federal funds rate. These moves, which brought the federal funds target range to 0.75% to 1.00%, were felt across the bond market. During the reporting period, yields rose on U.S. Treasury securities of all maturities, with the largest absolute increase on the 5-year U.S. Treasury note. On a percentage basis, however, the largest increases were at the short end of the maturity spectrum, with yields on the 1- and 3-month U.S. Treasury bills more than doubling during the reporting period.
When interest rates rise, bond prices tend to decline (and vice versa). As a result, several broad fixed-income asset classes—including U.S. government and agency bonds, mortgage-backed securities, investment-grade debt and municipal bonds—recorded negative total returns for the reporting period. Convertible securities, high-yield bonds and floating-rate loans, which tend to be less sensitive to interest-rate changes, provided positive total returns.
International stock markets generally advanced during the reporting period, with European stocks providing strong
double-digit returns. The Pacific region and Japan were weaker but provided positive returns in the single digits. Emerging markets also provided solid performance for the reporting period, despite modest commodity prices.
Many short-term political, economic and world events affected the markets during the reporting period. Nevertheless, at MainStay, we believe that the primary concern of our portfolio managers should be the long-term welfare of our shareholders, and we appreciate the discipline our portfolio managers seek to apply in their long-term investment decisions.
Our portfolio managers seek to pursue the investment objectives of their respective MainStay Funds using the various investment strategies outlined in the Fund’s Prospectus. Utilizing their years of professional market experience, they seek to enhance returns when possible, manage risk as necessary and view short-term events in light of long-term investment goals. At MainStay, we believe that shareholders who maintain a long-term perspective may be better able to weather turbulent markets, avoid selling when prices are low and stay focused on their reasons for choosing MainStay Funds.
The report that follows provides more detailed information about the markets, securities and decisions that affected your MainStay Fund during the six months ended April 30, 2017. We invite you to read it carefully and use the information as part of your ongoing portfolio evaluation and review.
Sincerely,
Stephen P. Fisher
President
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, 30 Hudson Street, Jersey City, NJ 07302 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 and other factors, 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, 2017
Class | Sales Charge | Inception | Six Months | One Year | Five Years | Ten Years | Gross | |||||||||||||||||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges | 1/3/1995 | | –0.65 4.03 | %
| | 7.20 12.25 | %
| | 5.24 6.21 | %
| | 5.58 6.07 | %
| | 0.95 0.95 | %
| ||||||||||
Investor Class Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges | | 2/28/2008 | | | –0.66 4.02 |
| | 7.14 12.18 |
| | 5.21 6.18 |
| | 6.52 7.05 |
| | 1.03 1.03 |
| ||||||||
Class B Shares3 | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges | 5/1/1986 | | –1.38 3.62 |
| | 6.37 11.37 |
| | 5.06 5.38 |
| | 5.23 5.23 |
| | 1.78 1.78 |
| ||||||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges | 9/1/1998 | | 2.44 3.44 |
| | 10.17 11.17 |
| | 5.38 5.38 |
| | 5.21 5.21 |
| | 1.78 1.78 |
| ||||||||||
Class I Shares | No Sales Charge | 1/2/2004 | 4.16 | 12.51 | 6.51 | 6.33 | 0.70 | |||||||||||||||||||||
Class R1 Shares | No Sales Charge | 6/29/2012 | 4.11 | 12.41 | 6.44 | N/A | 0.80 | |||||||||||||||||||||
Class R2 Shares | No Sales Charge | 5/1/2008 | 3.98 | 12.13 | 6.11 | 6.87 | 1.05 | |||||||||||||||||||||
Class R3 Shares | No Sales Charge | 2/29/2016 | 3.87 | 11.90 | 16.96 | N/A | 1.30 | |||||||||||||||||||||
Class R6 Shares | No Sales Charge | 6/17/2013 | 4.25 | 12.72 | 5.75 | N/A | 0.58 |
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, if any, 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 may 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 (if any), 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. | Class B shares are closed to all new purchases as well as additional investments by existing Class B shareholders. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
5 |
Benchmark Performance | Six Months | One Year | Five Years | Ten Years | ||||||||||||
BofA Merrill Lynch U.S. High Yield Master II Constrained Index4 | 5.49 | % | 13.65 | % | 6.87 | % | 7.41 | % | ||||||||
Credit Suisse High Yield Index5 | 5.62 | 14.35 | 6.68 | 7.07 | ||||||||||||
Average Lipper High Yield Fund6 | 4.80 | 11.23 | 5.62 | 5.88 |
4. | The BofA Merrill Lynch U.S. High Yield Master II Constrained Index is the Fund’s primary broad-based securities market index for comparison purposes. The BofA Merrill Lynch U.S. High Yield Master II Constrained Index is a market value-weighted index of all domestic and Yankee high-yield bonds, including deferred interest bonds and payment-in-kind securities. Issuers included in the Index have maturities of one year or more and have a credit rating lower than BBB-/Baa3, but are not in default. No single issuer may constitute greater than 2% of the Index. Results assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
5. | The Credit Suisse High Yield Index is the Fund’s secondary benchmark. 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. Results assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
6. | 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 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 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, 2016, to April 30, 2017, 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, 2016, to April 30, 2017.
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, 2017. 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 11/1/16 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/17 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/17 | Expenses Paid During Period1 | Net Expense Ratio During Period2 | ||||||||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,040.30 | $ | 4.91 | $ | 1,020.00 | $ | 4.86 | 0.97 | % | ||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,040.20 | $ | 5.11 | $ | 1,019.80 | $ | 5.06 | 1.01 | % | ||||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,036.20 | $ | 8.89 | $ | 1,016.10 | $ | 8.80 | 1.76 | % | ||||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,034.40 | $ | 8.88 | $ | 1,016.10 | $ | 8.80 | 1.76 | % | ||||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,041.60 | $ | 3.64 | $ | 1,021.20 | $ | 3.61 | 0.72 | % | ||||||||||||
Class R1 Shares | $ | 1,000.00 | $ | 1,041.10 | $ | 4.15 | $ | 1,020.70 | $ | 4.11 | 0.82 | % | ||||||||||||
Class R2 Shares | $ | 1,000.00 | $ | 1,039.80 | $ | 5.41 | $ | 1,019.50 | $ | 5.36 | 1.07 | % | ||||||||||||
Class R3 Shares | $ | 1,000.00 | $ | 1,038.70 | $ | 6.67 | $ | 1,018.20 | $ | 6.61 | 1.32 | % | ||||||||||||
Class R6 Shares | $ | 1,000.00 | $ | 1,042.50 | $ | 2.94 | $ | 1,021.90 | $ | 2.91 | 0.58 | % |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class 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. |
2. | Expenses are equal to the Fund’s annualized expense ratio to reflect the six-month period. |
7 |
Portfolio Composition as of April 30, 2017 (Unaudited)
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
Top Ten Holdings or Issuers Held as of April 30, 2017 (excluding short-term investment) (Unaudited)
1. | T-Mobile USA, Inc., 4.00%–6.836%, due 1/15/22–4/15/27 |
2. | HCA, Inc., 4.25%–8.36%, due 10/15/19–11/6/33 |
3. | Equinix, Inc., 5.375%–5.875%, due 1/1/22-5/15/27 |
4. | CCO Holdings LLC / CCO Holdings Capital Corp., 5.125%–5.875%, due 9/30/22–5/1/27 |
5. | Freeport-McMoRan, Inc., 6.125%–6.875%, due 6/15/19–2/15/23 |
6. | Micron Technology, Inc., 5.25%–7.50%, due 2/15/22–2/1/25 |
7. | Comstock Resources, Inc. |
8. | Exide Technologies |
9. | Carlson Travel, Inc., 6.75%–9.50%, due 12/15/23–12/15/24 |
10. | MPLX, L.P., 4.875%–5.50%, due 2/15/23–6/1/25 |
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 primary benchmark and peers during the six months ended April 30, 2017?
Excluding all sales charges, MainStay High Yield Corporate Bond Fund returned 4.03% for Class A shares, 4.02% for Investor Class shares, 3.62% for Class B shares and 3.44% for Class C shares for the six months ended April 30, 2017. Over the same period, Class I shares returned 4.16%, Class R1 shares returned 4.11%, Class R2 shares returned 3.98%, Class R3 shares returned 3.87% and Class R6 shares returned 4.25%. For the six months ended April 30, 2017, all share classes underperformed the 5.49% return of the BofA Merrill Lynch U.S. High Yield Master II Constrained Index,1 which is the Fund’s primary benchmark; the 5.62% return of the Credit Suisse High Yield Index,1 which is the Fund’s secondary benchmark (formerly the Fund’s primary benchmark); and the 4.80% 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, 2017, the Fund selected the BofA Merrill Lynch U.S. High Yield Master II Constrained Index as its primary benchmark as a replacement for the Credit Suisse High Yield Index. The Fund selected the BofA Merrill Lynch U.S. High Yield Master II Constrained Index as its primary benchmark because it believes that this index is more reflective of its current investment style than the Credit Suisse High Yield Index.
What factors affected the Fund’s relative performance during the reporting period?
The U.S. high-yield bond market reacted positively to the results of the U.S. presidential election in November 2016. Sectors that were expected to benefit from the new administration, mainly those engaged in commodity and industrial-related activities, drove performance in the asset class at the beginning of the reporting period. The market’s strong performance continued in an environment of higher equity markets, stable interest rates and positive technicals. In this environment, decreased net new issuance was coupled with stable investor demand. This environment supported lower-quality CCC-rated3 bonds and distressed credits, which outperformed the BofA Merrill Lynch U.S. High Yield Master II Constrained Index during the reporting period.
What was the Fund’s duration4 strategy during the reporting period?
The Fund is not managed to a duration strategy, and the Fund’s duration positioning resulted from our bottom-up investment process. During the reporting period, the Fund’s duration was shorter than that of the BofA Merrill Lynch U.S. High Yield Master II Constrained Index. As of April 30, 2017, the Fund’s modified duration to worst5 was approximately 2.98 years, which was shorter than the 3.05-year duration of the BofA Merrill Lynch U.S. High Yield Master II Constrained Index on the same date.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
The high-yield rally that began in early 2016 continued throughout the reporting period. Spreads6 have continued to tighten across the whole market, and particularly in CCC-rated sectors, which outperformed the BofA Merrill Lynch U.S. High Yield Master II Constrained Index in 2016. As a result, the Fund began to reduce positions in these sectors, which have appreciated in price because of relative value, and has added to higher-quality positions at risk-adjusted yields that we believed to be relatively attractive.
Which sectors were the strongest contributors to the Fund’s relative performance and which sectors were particularly weak?
The Fund’s underweight position in the banking sector contributed positively to performance during the reporting period, as the sector lagged the BofA Merrill Lynch U.S. High Yield Master II Constrained Index. (Contributions take weightings and total returns into account.) Positioning and positive security selection in health care also helped returns, as the Fund held underweight positions in pharmaceutical companies and hospital operators, both of which underperformed the Index during the reporting period. Security selection in the retail sector also contributed positively to the Fund’s performance, as the Fund avoided department-store bonds that fell in price.
The Fund’s underweight position in energy—oil field equipment & services companies detracted from relative performance, as the sector outperformed the BofA Merrill Lynch
1. | See footnote on page 6 for more information on this index. |
2. | See footnote on page 6 for more information on Lipper Inc. |
3. | 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. |
4. | Duration is a measure of the price sensitivity of a fixed-income investment to changes in interest rates. Duration is expressed as a number of years and is considered a more accurate sensitivity gauge than average maturity. |
5. | 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. |
6. | 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. |
9 |
U.S. High Yield Master II Constrained Index during the reporting period. In telecommunications, the Fund did not own a stressed satellite operator that recovered on the announcement of a planned merger. Security selection in the utilities sector had a negative impact on performance because the Fund owned a Texas-based electricity provider that underperformed during the reporting period.
Did the Fund make any significant purchases or sales during the reporting period?
During the reporting period, the Fund purchased a new issue of Moly-Cop, a manufacturer and supplier of grinding materials for mining operations. The bonds came at a yield that we found attractive and carried a first lien on most of the company’s no-working-capital assets. In addition, there is no debt ahead of these bonds in the capital structure. The company had a leading position in a growing industry, and it has had stable margins and free cash flow. The Fund also purchased the bonds of OpenText, a developer of enterprise information-management software. OpenText generated a steady and meaningful amount of free cash flow, and sector trends remained positive as the world became more data-intensive and complex.
During the reporting period, the Fund sold its entire position in Halcon Resources, an energy exploration and production company. The Fund decreased its energy exposure as spreads
in the sector narrowed, moving closer to those in the broader market. The Fund also sold its position in musical-instrument retailer Guitar Center. The company continued to see declining same-store sales as well as weakening margin trends across its businesses.
How did the Fund’s sector weightings change during the reporting period?
During the reporting period, there were no material changes to the Fund’s sector weightings. The Fund’s credit risk profile was moderately reduced by trimming the Fund’s CCC exposure. There were small increases in the Fund’s weightings in media and technology because of attractive valuations and yields. During the reporting period, the Fund reduced its weightings in energy and basic industries.
How was the Fund positioned at the end of the reporting period?
As of April 30, 2017, the Fund held overweight positions relative to the BofA Merrill Lynch U.S. High Yield Master II Constrained Index in the automotive, basic industry and consumer goods sectors. As of the same date, the Fund held underweight positions relative to the Index in the banking and health care 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 forecasts 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, 2017 (Unaudited)
Principal Amount | Value | |||||||
Long-Term Bonds 92.4%† Convertible Bonds 2.3% | ||||||||
Auto Parts & Equipment 0.5% | ||||||||
¨Exide Technologies | $ | 77,187,215 | $ | 49,399,817 | ||||
|
| |||||||
Media 0.4% |
| |||||||
DISH Network Corp. | 32,385,000 | 39,793,069 | ||||||
|
| |||||||
Mining 0.6% |
| |||||||
Aleris International, Inc. | 11,797 | 10,388 | ||||||
Detour Gold Corp. | 60,973,000 | 62,040,028 | ||||||
|
| |||||||
62,050,416 | ||||||||
|
| |||||||
Oil & Gas 0.4% |
| |||||||
¨Comstock Resources, Inc. (a) | ||||||||
7.75% (7.75% PIK), | 13,397,930 | 11,974,400 | ||||||
9.50% (9.50% PIK), | 31,261,687 | 27,979,210 | ||||||
|
| |||||||
39,953,610 | ||||||||
|
| |||||||
Real Estate Investment Trusts 0.4% |
| |||||||
VEREIT, Inc. | 43,380,000 | 44,302,042 | ||||||
|
| |||||||
Total Convertible Bonds | 235,498,954 | |||||||
|
| |||||||
Corporate Bonds 89.4% | ||||||||
Advertising 0.4% | ||||||||
Lamar Media Corp. | ||||||||
5.00%, due 5/1/23 | 2,500,000 | 2,613,800 | ||||||
5.75%, due 2/1/26 | 2,455,000 | 2,672,881 | ||||||
5.88%, due 2/1/22 | 21,972,000 | 22,795,950 | ||||||
Outfront Media Capital LLC / Outfront Media Capital Corp. | ||||||||
5.25%, due 2/15/22 | 14,600,000 | 15,165,750 | ||||||
5.63%, due 2/15/24 | 3,000,000 | 3,150,000 | ||||||
|
| |||||||
46,398,381 | ||||||||
|
| |||||||
Aerospace & Defense 1.2% |
| |||||||
KLX, Inc. | 40,610,000 | 42,691,262 | ||||||
Orbital ATK, Inc. | ||||||||
5.25%, due 10/1/21 | 5,235,000 | 5,418,225 | ||||||
5.50%, due 10/1/23 | 14,115,000 | 14,644,313 |
Principal Amount | Value | |||||||
Aerospace & Defense (continued) |
| |||||||
Spirit AeroSystems, Inc. | $ | 10,000,000 | $ | 10,392,070 | ||||
TransDigm, Inc. | ||||||||
5.50%, due 10/15/20 | 4,000,000 | 4,090,000 | ||||||
6.00%, due 7/15/22 | 6,920,000 | 7,127,600 | ||||||
6.50%, due 7/15/24 | 26,781,000 | 27,517,477 | ||||||
6.50%, due 5/15/25 | 15,020,000 | 15,357,950 | ||||||
|
| |||||||
127,238,897 | ||||||||
|
| |||||||
Apparel 0.4% | ||||||||
Hanesbrands, Inc. (d) | ||||||||
4.63%, due 5/15/24 | 5,000,000 | 4,962,500 | ||||||
4.88%, due 5/15/26 | 13,575,000 | 13,507,125 | ||||||
William Carter Co. | 17,520,000 | 18,089,400 | ||||||
|
| |||||||
36,559,025 | ||||||||
|
| |||||||
Auto Manufacturers 0.7% | ||||||||
BCD Acquisition, Inc. | 22,585,000 | 24,335,337 | ||||||
Ford Holdings LLC | ||||||||
9.30%, due 3/1/30 | 18,155,000 | 25,165,934 | ||||||
9.34%, due 3/1/20 | 1,695,000 | 1,992,561 | ||||||
Ford Motor Co. | 980,000 | 1,507,999 | ||||||
General Motors Financial Co., Inc. | 15,000,000 | 15,761,715 | ||||||
|
| |||||||
68,763,546 | ||||||||
|
| |||||||
Auto Parts & Equipment 3.6% | ||||||||
Adient Global Holdings, Ltd. | 22,000,000 | 22,055,000 | ||||||
Allison Transmission, Inc. | 3,000,000 | 3,056,250 | ||||||
American Axle & Manufacturing, Inc. (d) | ||||||||
6.25%, due 4/1/25 | 18,601,000 | 18,507,995 | ||||||
6.50%, due 4/1/27 | 18,275,000 | 18,137,938 | ||||||
Cooper-Standard Automotive, Inc. | 8,970,000 | 9,093,338 | ||||||
Dana Financing Luxembourg S.A.R.L. | 13,175,000 | 13,496,207 | ||||||
¨Exide Technologies | 71,141,125 | 62,248,484 | ||||||
¨Exide Technologies (Escrow Claim Shares) | 64,863,000 | 64,863 | ||||||
Goodyear Tire & Rubber Co. | ||||||||
4.88%, due 3/15/27 | 12,390,000 | 12,390,000 | ||||||
5.13%, due 11/15/23 | 5,000,000 | 5,259,900 | ||||||
7.00%, due 5/15/22 | 2,500,000 | 2,591,250 |
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings or issuers held, as of April 30, 2017, 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. | 11 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Auto Parts & Equipment (continued) |
| |||||||
IHO Verwaltungs GmbH (a)(d) | ||||||||
4.13% (4.125% Cash or 4.875% PIK), | $ | 28,735,000 | $ | 29,130,106 | ||||
4.50% (4.50% Cash or 5.25% PIK), | 28,000,000 | 27,965,000 | ||||||
4.75% (4.75% Cash or 5.50% PIK), | 20,145,000 | 19,943,550 | ||||||
International Automotive Components Group S.A. | 13,960,000 | 13,576,100 | ||||||
Meritor, Inc. | 11,900,000 | 12,346,250 | ||||||
Nexteer Automotive Group, Ltd. | 24,000,000 | 24,960,000 | ||||||
Schaeffler Finance B.V. (d) | ||||||||
4.25%, due 5/15/21 | 21,610,000 | 22,091,903 | ||||||
4.75%, due 5/15/23 | 22,195,000 | 23,138,287 | ||||||
Tenneco, Inc. | 17,378,000 | 17,397,463 | ||||||
Titan International, Inc. | 4,442,000 | 4,564,155 | ||||||
ZF North America Capital, Inc. | 10,800,000 | 11,232,756 | ||||||
|
| |||||||
373,246,795 | ||||||||
|
| |||||||
Banks 0.2% |
| |||||||
Bank of America Corp. | 805,000 | 886,506 | ||||||
Citigroup, Inc. | 3,750,000 | 3,957,375 | ||||||
Provident Funding Associates, L.P. / PFG Finance Corp. | 8,950,000 | 9,173,750 | ||||||
Wachovia Capital Trust III | 1,000,000 | 1,003,750 | ||||||
Wells Fargo & Co. | 1,715,000 | 1,822,188 | ||||||
|
| |||||||
16,843,569 | ||||||||
|
| |||||||
Biotechnology 0.2% |
| |||||||
AMAG Pharmaceuticals, Inc. | 24,220,000 | 23,009,000 | ||||||
|
| |||||||
Building Materials 1.4% |
| |||||||
Airxcel, Inc. | 9,625,000 | 9,913,750 | ||||||
BMC East LLC | 10,000,000 | 10,412,500 | ||||||
Gibraltar Industries, Inc. | 11,580,000 | 11,979,510 |
Principal Amount | Value | |||||||
Building Materials (continued) |
| |||||||
James Hardie International Finance, Ltd. | $ | 31,915,000 | $ | 33,430,962 | ||||
RSI Home Products, Inc. | 11,000,000 | 11,385,000 | ||||||
Standard Industries, Inc. | 7,630,000 | 7,982,888 | ||||||
Summit Materials LLC / Summit Materials Finance Corp. | ||||||||
6.13%, due 7/15/23 | 32,510,000 | 34,054,225 | ||||||
8.50%, due 4/15/22 | 17,500,000 | 19,643,750 | ||||||
USG Corp. | 2,200,000 | 2,307,250 | ||||||
|
| |||||||
141,109,835 | ||||||||
|
| |||||||
Chemicals 1.8% |
| |||||||
Blue Cube Spinco, Inc. |
| |||||||
9.75%, due 10/15/23 | 31,550,000 | 38,175,500 | ||||||
10.00%, due 10/15/25 | 22,945,000 | 28,279,712 | ||||||
GCP Applied Technologies, Inc. | 26,740,000 | 30,483,600 | ||||||
Kissner Holdings, L.P. / Kissner Milling Co., Ltd. / BSC Holding, Inc. / Kissner USA | 23,500,000 | 24,351,875 | ||||||
Momentive Performance Materials, Inc. (Escrow Claim Shares) | 2,510,000 | 3 | ||||||
NOVA Chemicals Corp. | 3,000,000 | 3,082,500 | ||||||
Olin Corp. | 19,094,000 | 20,239,640 | ||||||
PolyOne Corp. | 23,350,000 | 23,992,125 | ||||||
PQ Corp. | 1,385,000 | 1,502,711 | ||||||
Trinseo Materials Operating SCA / Trinseo Materials Finance, Inc. | 13,000,000 | 13,715,000 | ||||||
Westlake Chemical Corp. | 3,650,000 | 3,777,750 | ||||||
|
| |||||||
187,600,416 | ||||||||
|
| |||||||
Coal 0.5% |
| |||||||
CONSOL Energy, Inc. | ||||||||
5.88%, due 4/15/22 | 16,000,000 | 15,600,000 | ||||||
8.00%, due 4/1/23 | 28,035,000 | 29,208,966 | ||||||
Peabody Securities Finance Corp. | 2,000,000 | 2,040,000 | ||||||
|
| |||||||
46,848,966 | ||||||||
|
|
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 5.0% |
| |||||||
Ashtead Capital, Inc. (d) | ||||||||
5.63%, due 10/1/24 | $ | 15,590,000 | $ | 16,660,098 | ||||
6.50%, due 7/15/22 | 47,444,000 | 49,282,455 | ||||||
Avis Budget Car Rental LLC / Avis Budget Finance, Inc. | ||||||||
5.50%, due 4/1/23 | 40,118,000 | 39,516,230 | ||||||
6.38%, due 4/1/24 (d) | 22,960,000 | 22,931,300 | ||||||
Booz Allen Hamilton, Inc. | 3,000,000 | 3,052,530 | ||||||
Cimpress N.V. | 37,800,000 | 38,886,750 | ||||||
Flexi-Van Leasing, Inc. | 14,975,000 | 13,851,875 | ||||||
Gartner, Inc. | 29,406,000 | 30,435,210 | ||||||
Great Lakes Dredge & Dock Corp. | 46,601,000 | 46,134,990 | ||||||
Herc Rentals, Inc. | 2,007,000 | 2,182,613 | ||||||
IHS Markit, Ltd. (d) | ||||||||
4.75%, due 2/15/25 | 12,520,000 | 13,099,050 | ||||||
5.00%, due 11/1/22 | 64,925,000 | 69,388,594 | ||||||
Jaguar Holding Co. II / Pharmaceutical Product Development LLC | 14,966,000 | 15,602,055 | ||||||
Laureate Education, Inc. | 11,000,000 | 11,302,500 | ||||||
Nielsen Co. Luxembourg S.A.R.L. (d) | ||||||||
5.00%, due 2/1/25 | 27,000,000 | 27,033,750 | ||||||
5.50%, due 10/1/21 | 4,500,000 | 4,674,375 | ||||||
Nielsen Finance LLC / Nielsen Finance Co. | ||||||||
4.50%, due 10/1/20 | 13,665,000 | 13,921,219 | ||||||
5.00%, due 4/15/22 (d) | 61,860,000 | 63,638,475 | ||||||
Ritchie Bros Auctioneers, Inc. | 10,080,000 | 10,407,600 | ||||||
Service Corp. International | 2,005,000 | 2,117,781 | ||||||
United Rentals North America, Inc. | ||||||||
4.63%, due 7/15/23 | 10,600,000 | 11,003,330 | ||||||
6.13%, due 6/15/23 | 3,485,000 | 3,641,825 | ||||||
7.63%, due 4/15/22 | 3,790,000 | 3,955,812 | ||||||
WEX, Inc. | 9,823,000 | 9,700,212 | ||||||
|
| |||||||
522,420,629 | ||||||||
|
| |||||||
Computers 0.9% |
| |||||||
Conduent Finance, Inc. / Xerox Business Services LLC | 10,000,000 | 11,600,000 |
Principal Amount | Value | |||||||
Computers (continued) |
| |||||||
NCR Corp. | $ | 28,345,000 | $ | 30,385,840 | ||||
NeuStar, Inc. | 50,730,000 | 52,125,075 | ||||||
|
| |||||||
94,110,915 | ||||||||
|
| |||||||
Cosmetics & Personal Care 0.6% |
| |||||||
Edgewell Personal Care Co. |
| |||||||
4.70%, due 5/19/21 | 33,905,000 | 35,939,300 | ||||||
4.70%, due 5/24/22 | 19,378,000 | 20,644,158 | ||||||
First Quality Finance Co., Inc. | 10,803,000 | 10,600,444 | ||||||
|
| |||||||
67,183,902 | ||||||||
|
| |||||||
Distribution & Wholesale 0.3% |
| |||||||
American Tire Distributors, Inc. | 16,760,000 | 17,199,950 | ||||||
H&E Equipment Services, Inc. | 16,750,000 | 17,513,800 | ||||||
|
| |||||||
34,713,750 | ||||||||
|
| |||||||
Diversified Financial Services 2.6% |
| |||||||
AerCap Ireland Capital DAC / AerCap Global Aviation Trust | ||||||||
4.63%, due 10/30/20 | 9,240,000 | 9,809,859 | ||||||
5.00%, due 10/1/21 | 16,320,000 | 17,678,346 | ||||||
Ally Financial, Inc. | 901,000 | 1,072,190 | ||||||
CFG Holdings, Ltd. / CFG Finance LLC | 25,895,000 | 26,218,687 | ||||||
Credit Acceptance Corp. | ||||||||
6.13%, due 2/15/21 | 5,102,000 | 5,076,490 | ||||||
7.38%, due 3/15/23 | 23,365,000 | 23,365,000 | ||||||
E*TRADE Financial Corp. | ||||||||
4.63%, due 9/15/23 | 15,000,000 | 15,431,250 | ||||||
5.375%, due 11/15/22 | 20,000,000 | 21,123,100 | ||||||
KCG Holdings, Inc. | 30,135,000 | 31,340,400 | ||||||
Ladder Capital Finance Holdings LLLP / Ladder Capital Finance Corp. (d) | ||||||||
5.25%, due 3/15/22 | 22,055,000 | 22,633,944 | ||||||
5.88%, due 8/1/21 | 25,665,000 | 26,049,975 | ||||||
Lincoln Finance, Ltd. | 18,055,000 | 19,251,144 | ||||||
Nationstar Mortgage LLC / Nationstar Capital Corp. | ||||||||
6.50%, due 8/1/18 | 12,000,000 | 12,120,000 | ||||||
7.88%, due 10/1/20 | 6,000,000 | 6,240,000 | ||||||
Ocwen Loan Servicing LLC | 17,000,000 | 14,662,500 | ||||||
OneMain Financial Holdings LLC (d) | ||||||||
6.75%, due 12/15/19 | 6,645,000 | 6,985,556 | ||||||
7.25%, due 12/15/21 | 2,705,000 | 2,813,498 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 13 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Diversified Financial Services (continued) |
| |||||||
Springleaf Finance Corp. | $ | 3,075,000 | $ | 3,369,278 | ||||
|
| |||||||
265,241,217 | ||||||||
|
| |||||||
Electric 1.8% |
| |||||||
Calpine Corp. | ||||||||
5.75%, due 1/15/25 | 3,485,000 | 3,371,738 | ||||||
5.88%, due 1/15/24 (d) | 19,441,000 | 20,413,050 | ||||||
6.00%, due 1/15/22 (d) | 34,773,000 | 36,337,785 | ||||||
GenOn Energy, Inc. | ||||||||
7.88%, due 6/15/17 | 78,037,000 | 53,650,437 | ||||||
9.50%, due 10/15/18 | 54,980,000 | 34,362,500 | ||||||
NRG REMA LLC | ||||||||
Series B | 3,060,715 | 2,571,001 | ||||||
Series C | 38,625,000 | 27,810,000 | ||||||
Public Service Co. of New Mexico | 2,927,000 | 3,108,193 | ||||||
|
| |||||||
181,624,704 | ||||||||
|
| |||||||
Electrical Components & Equipment 1.1% |
| |||||||
Belden, Inc. | 48,348,000 | 49,556,700 | ||||||
General Cable Corp. | 44,660,000 | 44,213,400 | ||||||
WESCO Distribution, Inc. | 20,519,000 | 21,083,272 | ||||||
|
| |||||||
114,853,372 | ||||||||
|
| |||||||
Electronics 0.5% |
| |||||||
Allegion PLC | 8,500,000 | 9,073,750 | ||||||
Allegion U.S. Holding Co., Inc. | 19,800,000 | 20,653,875 | ||||||
Kemet Corp. | 27,014,000 | 27,115,303 | ||||||
|
| |||||||
56,842,928 | ||||||||
|
| |||||||
Engineering & Construction 0.6% |
| |||||||
Broadspectrum, Ltd. | 27,490,000 | 28,685,815 | ||||||
Tutor Perini Corp. | 10,000,000 | 10,500,000 | ||||||
Weekley Homes LLC / Weekley Finance Corp. | 26,349,000 | 25,558,530 | ||||||
|
| |||||||
64,744,345 | ||||||||
|
| |||||||
Entertainment 1.2% |
| |||||||
Churchill Downs, Inc. | 23,570,000 | 24,542,263 |
Principal Amount | Value | |||||||
Entertainment (continued) |
| |||||||
Eagle II Acquisition Co. LLC | $ | 1,935,000 | $ | 2,000,306 | ||||
GLP Capital, L.P. / GLP Financing II, Inc. | ||||||||
4.88%, due 11/1/20 | 2,000,000 | 2,130,000 | ||||||
5.38%, due 4/15/26 | 6,845,000 | 7,221,475 | ||||||
Jacobs Entertainment, Inc. | 14,594,000 | 15,250,730 | ||||||
NAI Entertainment Holdings / NAI Entertainment Holdings Finance Corp. | 17,990,000 | 18,124,925 | ||||||
Rivers Pittsburgh Borrower, L.P. / Rivers Pittsburgh Finance Corp. | 14,840,000 | 15,000,717 | ||||||
Sterling Entertainment Enterprises LLC | 35,000,000 | 36,312,500 | ||||||
|
| |||||||
120,582,916 | ||||||||
|
| |||||||
Food 2.1% |
| |||||||
B&G Foods, Inc. | ||||||||
5.25%, due 4/1/25 | 16,230,000 | 16,615,949 | ||||||
4.63%, due 6/1/21 | 16,500,000 | 16,747,500 | ||||||
C&S Group Enterprises LLC | 51,715,000 | 51,068,563 | ||||||
Ingles Markets, Inc. | 14,142,000 | 14,212,710 | ||||||
KeHE Distributors LLC / KeHE Finance Corp. | 23,855,000 | 24,093,550 | ||||||
Lamb Weston Holdings, Inc. (d) | ||||||||
4.63%, due 11/1/24 | 3,000,000 | 3,097,500 | ||||||
4.88%, due 11/1/26 | 5,085,000 | 5,243,906 | ||||||
Land O’ Lakes, Inc. | 26,365,000 | 29,133,325 | ||||||
Land O’Lakes Capital Trust I | 15,963,000 | 17,798,745 | ||||||
TreeHouse Foods, Inc. | 17,265,000 | 18,387,225 | ||||||
Wells Enterprises, Inc. | 21,607,000 | 22,282,219 | ||||||
|
| |||||||
218,681,192 | ||||||||
|
| |||||||
Forest Products & Paper 0.7% |
| |||||||
Mercer International, Inc. | 14,408,000 | 14,876,260 | ||||||
Smurfit Kappa Treasury Funding, Ltd. | 51,820,000 | 61,406,700 | ||||||
|
| |||||||
76,282,960 | ||||||||
|
| |||||||
Gas 0.7% |
| |||||||
AmeriGas Partners, L.P. / AmeriGas Finance Corp. | ||||||||
5.50%, due 5/20/25 | 8,010,000 | 8,090,100 |
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) | ||||||||
Gas (continued) |
| |||||||
AmeriGas Partners, L.P. / AmeriGas Finance Corp. (continued) | ||||||||
5.63%, due 5/20/24 | $ | 24,476,000 | $ | 24,904,330 | ||||
5.75%, due 5/20/27 | 19,035,000 | 19,082,588 | ||||||
5.88%, due 8/20/26 | 24,400,000 | 24,766,000 | ||||||
|
| |||||||
76,843,018 | ||||||||
|
| |||||||
Health Care—Products 0.5% |
| |||||||
Alere, Inc. | ||||||||
6.38%, due 7/1/23 (d) | 7,970,000 | 8,677,337 | ||||||
6.50%, due 6/15/20 | 895,000 | 915,138 | ||||||
Halyard Health, Inc. | 11,331,000 | 11,784,240 | ||||||
Hill-Rom Holdings, Inc. | 13,750,000 | 14,368,750 | ||||||
Hologic, Inc. | 12,715,000 | 13,398,431 | ||||||
|
| |||||||
49,143,896 | ||||||||
|
| |||||||
Health Care—Services 4.3% |
| |||||||
Acadia Healthcare Co., Inc. | ||||||||
5.63%, due 2/15/23 | 23,677,000 | 24,499,539 | ||||||
6.50%, due 3/1/24 | 11,565,000 | 12,258,900 | ||||||
Centene Corp. | ||||||||
4.75%, due 1/15/25 | 11,945,000 | 12,139,106 | ||||||
5.63%, due 2/15/21 | 14,905,000 | 15,668,881 | ||||||
6.13%, due 2/15/24 | 22,782,000 | 24,547,605 | ||||||
CHS / Community Health Systems, Inc. | 9,465,000 | 9,630,637 | ||||||
Fresenius Medical Care U.S. Finance II, Inc. (d) | ||||||||
5.63%, due 7/31/19 | 11,680,000 | 12,468,400 | ||||||
5.88%, due 1/31/22 | 4,030,000 | 4,417,888 | ||||||
6.50%, due 9/15/18 | 4,730,000 | 4,990,150 | ||||||
¨HCA, Inc. | ||||||||
4.25%, due 10/15/19 | 6,000,000 | 6,217,500 | ||||||
5.00%, due 3/15/24 | 9,944,000 | 10,553,070 | ||||||
5.25%, due 4/15/25 | 19,000,000 | 20,419,110 | ||||||
5.25%, due 6/15/26 | 11,780,000 | 12,560,425 | ||||||
5.38%, due 2/1/25 | 24,495,000 | 25,505,419 | ||||||
5.88%, due 3/15/22 | 12,010,000 | 13,316,087 | ||||||
5.88%, due 5/1/23 | 4,603,000 | 5,008,985 | ||||||
5.88%, due 2/15/26 | 19,470,000 | 20,686,875 | ||||||
7.50%, due 2/15/22 | 9,407,000 | 10,821,813 | ||||||
7.50%, due 12/15/23 | 1,500,000 | 1,713,750 | ||||||
7.50%, due 11/6/33 | 2,000,000 | 2,200,000 | ||||||
7.58%, due 9/15/25 | 8,000,000 | 8,980,000 | ||||||
7.69%, due 6/15/25 | 20,780,000 | 23,689,200 | ||||||
8.36%, due 4/15/24 | 4,524,000 | 5,338,320 | ||||||
HealthSouth Corp. | 13,345,000 | 13,595,219 |
Principal Amount | Value | |||||||
Health Care—Services (continued) |
| |||||||
IASIS Healthcare LLC / IASIS Capital Corp. | $ | 8,770,000 | $ | 8,550,750 | ||||
Molina Healthcare, Inc. | 22,000,000 | 22,990,000 | ||||||
MPH Acquisition Holdings LLC | 52,380,000 | 56,308,500 | ||||||
Quorum Health Corp. | 6,000,000 | 5,325,000 | ||||||
Tenet Healthcare Corp. | ||||||||
6.00%, due 10/1/20 | 8,000,000 | 8,420,000 | ||||||
6.75%, due 6/15/23 | 7,000,000 | 6,685,000 | ||||||
7.50%, due 1/1/22 (d) | 3,785,000 | 4,049,950 | ||||||
8.13%, due 4/1/22 | 14,295,000 | 14,509,425 | ||||||
WellCare Health Plans, Inc. | 15,865,000 | 16,499,600 | ||||||
|
| |||||||
444,565,104 | ||||||||
|
| |||||||
Home Builders 2.6% | ||||||||
Ashton Woods USA LLC / Ashton Woods Finance Co. | 35,515,000 | 35,870,150 | ||||||
AV Homes, Inc. | 24,860,000 | 25,854,400 | ||||||
Brookfield Residential Properties, Inc. (d) | ||||||||
6.38%, due 5/15/25 | 6,665,000 | 6,948,263 | ||||||
6.50%, due 12/15/20 | 23,765,000 | 24,656,188 | ||||||
Brookfield Residential Properties, Inc. / Brookfield Residential U.S. Corp. | 37,941,000 | 39,553,492 | ||||||
Century Communities, Inc. | 34,751,000 | 36,401,672 | ||||||
Mattamy Group Corp. | 32,997,000 | 33,904,417 | ||||||
New Home Co., Inc. | 17,000,000 | 17,680,000 | ||||||
Shea Homes, L.P. / Shea Homes Funding Corp. (d) | ||||||||
5.88%, due 4/1/23 | 358,000 | 361,580 | ||||||
6.13%, due 4/1/25 | 500,000 | 505,000 | ||||||
Toll Brothers Finance Corp. | 5,000,000 | 5,516,250 | ||||||
WCI Communities, Inc. / Lennar Corp. | 12,355,000 | 12,941,863 | ||||||
Woodside Homes Co. LLC / Woodside Homes Finance, Inc. | 30,741,000 | 32,297,417 | ||||||
|
| |||||||
272,490,692 | ||||||||
|
| |||||||
Household Products & Wares 0.7% |
| |||||||
Prestige Brands, Inc. | 23,073,000 | 24,688,110 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 15 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Household Products & Wares (continued) |
| |||||||
Spectrum Brands, Inc. | ||||||||
5.75%, due 7/15/25 | $ | 17,450,000 | $ | 18,704,830 | ||||
6.63%, due 11/15/22 | 27,055,000 | 28,475,387 | ||||||
|
| |||||||
71,868,327 | ||||||||
|
| |||||||
Housewares 0.3% |
| |||||||
Radio Systems Corp. | 33,225,000 | 34,512,469 | ||||||
|
| |||||||
Insurance 1.7% |
| |||||||
American Equity Investment Life Holding Co. | 31,660,000 | 32,886,825 | ||||||
Fairfax Financial Holdings, Ltd. | ||||||||
7.38%, due 4/15/18 | 9,092,000 | 9,550,973 | ||||||
8.30%, due 4/15/26 | 5,395,000 | 6,513,934 | ||||||
Fidelity & Guaranty Life Holdings, Inc. | 29,148,000 | 29,876,700 | ||||||
Ironshore Holdings (U.S.), Inc. | 12,890,000 | 14,692,718 | ||||||
MGIC Investment Corp. | 30,550,000 | 32,764,875 | ||||||
USI, Inc. | 29,460,000 | 30,063,930 | ||||||
USIS Merger Sub, Inc. | 20,000,000 | 20,350,000 | ||||||
|
| |||||||
176,699,955 | ||||||||
|
| |||||||
Internet 1.8% |
| |||||||
Cogent Communications Group, Inc. | 17,006,000 | 17,558,695 | ||||||
Match Group, Inc. | ||||||||
6.38%, due 6/1/24 | 4,760,000 | 5,182,450 | ||||||
6.75%, due 12/15/22 | 55,624,000 | 58,162,123 | ||||||
Netflix, Inc. | ||||||||
5.38%, due 2/1/21 | 10,580,000 | 11,320,600 | ||||||
5.50%, due 2/15/22 | 17,265,000 | 18,473,550 | ||||||
5.75%, due 3/1/24 | 27,951,000 | 30,047,325 | ||||||
5.88%, due 2/15/25 | 9,601,000 | 10,417,085 | ||||||
Symantec Corp. | 7,090,000 | 7,329,288 | ||||||
VeriSign, Inc. | ||||||||
4.63%, due 5/1/23 | 5,000,000 | 5,117,500 | ||||||
5.25%, due 4/1/25 | 21,026,000 | 21,998,452 | ||||||
|
| |||||||
185,607,068 | ||||||||
|
| |||||||
Investment Management/Advisory Services 0.4% |
| |||||||
Drawbridge Special Opportunities Fund, L.P. / Drawbridge Special Opportunities Finance | 24,475,000 | 24,502,118 |
Principal Amount | Value | |||||||
Investment Management/Advisory Services (continued) |
| |||||||
NFP Corp. | $ | 19,882,000 | $ | 21,025,215 | ||||
|
| |||||||
45,527,333 | ||||||||
|
| |||||||
Iron & Steel 1.0% |
| |||||||
Allegheny Ludlum LLC | 11,518,000 | 10,942,100 | ||||||
Allegheny Technologies, Inc. | ||||||||
7.88%, due 8/15/23 | 18,150,000 | 18,717,187 | ||||||
9.38%, due 6/1/19 | 7,250,000 | 7,993,125 | ||||||
BlueScope Steel Finance, Ltd. / BlueScope Steel Finance USA LLC | 40,050,000 | 42,453,000 | ||||||
Evraz, Inc. N.A. | 22,270,000 | 23,105,125 | ||||||
|
| |||||||
103,210,537 | ||||||||
|
| |||||||
Leisure Time 1.6% |
| |||||||
Brunswick Corp. | 22,408,000 | 22,889,234 | ||||||
¨Carlson Travel, Inc. (d) | ||||||||
6.75%, due 12/15/23 | 67,321,000 | 69,550,672 | ||||||
9.50%, due 12/15/24 | 38,605,000 | 39,859,662 | ||||||
Vista Outdoor, Inc. | 35,362,000 | 35,185,190 | ||||||
|
| |||||||
167,484,758 | ||||||||
|
| |||||||
Lodging 0.7% |
| |||||||
Boyd Gaming Corp. | 8,000,000 | 8,620,000 | ||||||
Choice Hotels International, Inc. | 29,235,000 | 32,085,413 | ||||||
Hilton Domestic Operating Co., Inc. | 12,200,000 | 12,291,500 | ||||||
Jack Ohio Finance LLC / Jack Ohio Finance 1 Corp. | 16,590,000 | 17,336,550 | ||||||
MGM Resorts International | 2,664,000 | 2,963,700 | ||||||
|
| |||||||
73,297,163 | ||||||||
|
| |||||||
Machinery—Construction & Mining 0.2% |
| |||||||
BlueLine Rental Finance Corp. / BlueLine Rental LLC | 10,000,000 | 10,450,000 | ||||||
Terex Corp. | 4,755,000 | 4,861,988 | ||||||
|
| |||||||
15,311,988 | ||||||||
|
| |||||||
Machinery—Diversified 0.5% |
| |||||||
Briggs & Stratton Corp. | 10,570,000 | 11,627,000 | ||||||
Tennant Co. | 10,345,000 | 10,745,869 |
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) | ||||||||
Machinery—Diversified (continued) |
| |||||||
Zebra Technologies Corp. | $ | 29,100,000 | $ | 31,464,375 | ||||
|
| |||||||
53,837,244 | ||||||||
|
| |||||||
Media 6.1% |
| |||||||
Altice Financing S.A. | 15,300,000 | 16,524,000 | ||||||
Altice Luxembourg S.A. | 3,495,000 | 3,713,892 | ||||||
Altice U.S. Finance I Corp. | 20,195,000 | 21,078,531 | ||||||
Block Communications, Inc. | 30,802,000 | 33,189,155 | ||||||
Cablevision Systems Corp. | 11,000,000 | 11,508,750 | ||||||
¨CCO Holdings LLC / CCO Holdings Capital Corp. | ||||||||
5.13%, due 2/15/23 | 24,000,000 | 24,960,000 | ||||||
5.13%, due 5/1/23 (d) | 14,873,000 | 15,523,694 | ||||||
5.13%, due 5/1/27 (d) | 37,200,000 | 37,944,000 | ||||||
5.25%, due 9/30/22 | 3,000,000 | 3,112,500 | ||||||
5.38%, due 5/1/25 (d) | 7,100,000 | 7,401,750 | ||||||
5.75%, due 2/15/26 (d) | 23,725,000 | 25,200,220 | ||||||
5.88%, due 4/1/24 (d) | 23,695,000 | 25,383,269 | ||||||
5.88%, due 5/1/27 (d) | 12,615,000 | 13,419,206 | ||||||
Charter Communications Operating LLC / Charter Communications Operating Capital | ||||||||
3.58%, due 7/23/20 | 4,000,000 | 4,133,208 | ||||||
4.46%, due 7/23/22 | 6,165,000 | 6,547,378 | ||||||
Cogeco Communications, Inc. | 10,685,000 | 10,938,769 | ||||||
CSC Holdings LLC | 5,935,000 | 6,884,600 | ||||||
DISH DBS Corp. | ||||||||
5.13%, due 5/1/20 | 5,000,000 | 5,225,000 | ||||||
5.88%, due 7/15/22 | 9,000,000 | 9,533,610 | ||||||
5.88%, due 11/15/24 | 21,100,000 | 22,155,000 | ||||||
6.75%, due 6/1/21 | 3,065,000 | 3,333,188 | ||||||
Midcontinent Communications / Midcontinent Finance Corp. (d) | ||||||||
6.25%, due 8/1/21 | 4,000,000 | 4,160,000 | ||||||
6.88%, due 8/15/23 | 15,125,000 | 16,221,563 | ||||||
Quebecor Media, Inc. | 52,765,000 | 55,535,162 | ||||||
SFR Group S.A. (d) | ||||||||
6.00%, due 5/15/22 | 39,375,000 | 41,048,437 | ||||||
6.25%, due 5/15/24 | 9,700,000 | 10,039,500 | ||||||
7.38%, due 5/1/26 | 22,770,000 | 23,936,963 |
Principal Amount | Value | |||||||
Media (continued) |
| |||||||
UPCB Finance IV, Ltd. | $ | 2,690,000 | $ | 2,737,075 | ||||
Videotron, Ltd. | ||||||||
5.00%, due 7/15/22 | 25,254,000 | 26,771,765 | ||||||
5.13%, due 4/15/27 (d) | 21,735,000 | 22,163,180 | ||||||
5.38%, due 6/15/24 (d) | 29,095,000 | 30,658,856 | ||||||
Virgin Media Secured Finance PLC | 83,145,000 | 88,549,425 | ||||||
|
| |||||||
629,531,646 | ||||||||
|
| |||||||
Metal Fabricate & Hardware 1.2% |
| |||||||
Grinding Media, Inc. / MC Grinding Media Canada, Inc. | 39,245,000 | 41,866,566 | ||||||
Novelis Corp. (d) | ||||||||
5.88%, due 9/30/26 | 30,875,000 | 31,724,062 | ||||||
6.25%, due 8/15/24 | 21,225,000 | 22,339,313 | ||||||
Optimas OE Solutions Holding LLC / Optimas OE Solutions, Inc. | 16,720,000 | 15,800,400 | ||||||
Park-Ohio Industries, Inc. | 16,000,000 | 16,400,000 | ||||||
|
| |||||||
128,130,341 | ||||||||
|
| |||||||
Mining 3.7% |
| |||||||
Alcoa Nederland Holding B.V. (d) | ||||||||
6.75%, due 9/30/24 | 7,875,000 | 8,615,250 | ||||||
7.00%, due 9/30/26 | 12,000,000 | 13,260,000 | ||||||
Aleris International, Inc. | ||||||||
7.88%, due 11/1/20 | 32,762,000 | 32,434,380 | ||||||
9.50%, due 4/1/21 (d) | 38,205,000 | 40,974,862 | ||||||
Anglo American Capital PLC | 1,007,000 | 1,049,798 | ||||||
First Quantum Minerals, Ltd. | 18,220,000 | 18,550,237 | ||||||
¨Freeport-McMoRan, Inc. (d) | ||||||||
6.13%, due 6/15/19 | 2,200,000 | 2,238,500 | ||||||
6.50%, due 11/15/20 | 34,940,000 | 35,900,850 | ||||||
6.63%, due 5/1/21 | 15,620,000 | 16,010,500 | ||||||
6.75%, due 2/1/22 | 20,996,000 | 21,914,575 | ||||||
6.88%, due 2/15/23 | 68,026,000 | 71,597,365 | ||||||
Hecla Mining Co. | 42,803,000 | 44,412,393 | ||||||
Joseph T. Ryerson & Son, Inc. | 4,405,000 | 4,972,188 | ||||||
Lundin Mining Corp. (d) | ||||||||
7.50%, due 11/1/20 | 3,500,000 | 3,710,000 | ||||||
7.88%, due 11/1/22 | 2,000,000 | 2,197,500 | ||||||
New Gold, Inc. | 38,534,000 | 39,039,759 | ||||||
Petra Diamonds U.S. Treasury PLC | 23,110,000 | 24,149,950 | ||||||
|
| |||||||
381,028,107 | ||||||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 17 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Miscellaneous—Manufacturing 1.1% |
| |||||||
Amsted Industries, Inc. | $ | 18,225,000 | $ | 18,680,625 | ||||
CTP Transportation Products LLC / CTP Finance, Inc. | 28,910,000 | 26,705,612 | ||||||
EnPro Industries, Inc. | ||||||||
5.88%, due 9/15/22 | 17,465,000 | 18,338,250 | ||||||
5.88%, due 9/15/22 (d) | 6,800,000 | 7,140,000 | ||||||
Gates Global LLC / Gates Global Co. | 31,769,000 | 31,927,845 | ||||||
Koppers, Inc. | 9,250,000 | 9,689,375 | ||||||
|
| |||||||
112,481,707 | ||||||||
|
| |||||||
Oil & Gas 7.7% |
| |||||||
Ascent Resources Utica Holdings LLC / ARU Finance Corp. | 14,250,000 | 14,730,938 | ||||||
California Resources Corp. | ||||||||
5.00%, due 1/15/20 | 53,105,000 | 43,280,575 | ||||||
8.00%, due 12/15/22 (d) | 16,000,000 | 12,240,000 | ||||||
Callon Petroleum Co. | 12,930,000 | 13,544,175 | ||||||
Calumet Specialty Products Partners, L.P. / Calumet Finance Corp. | ||||||||
6.50%, due 4/15/21 | 6,658,000 | 5,626,010 | ||||||
7.63%, due 1/15/22 | 4,146,000 | 3,524,100 | ||||||
7.75%, due 4/15/23 | 2,840,000 | 2,385,600 | ||||||
11.50%, due 1/15/21 (d) | 33,240,000 | 38,558,400 | ||||||
Carrizo Oil & Gas, Inc. | ||||||||
6.25%, due 4/15/23 | 7,000,000 | 7,052,500 | ||||||
7.50%, due 9/15/20 | 14,480,000 | 14,914,400 | ||||||
Cheniere Corpus Christi Holdings LLC | 1,500,000 | 1,676,070 | ||||||
¨Comstock Resources, Inc. | 71,520,000 | 73,308,000 | ||||||
Concho Resources, Inc. | 16,000,000 | 16,604,800 | ||||||
Continental Resources, Inc. | ||||||||
3.80%, due 6/1/24 | 5,000,000 | 4,700,000 | ||||||
4.50%, due 4/15/23 | 7,200,000 | 7,092,000 | ||||||
5.00%, due 9/15/22 | 22,000,000 | 22,192,500 | ||||||
Gulfport Energy Corp. (d) | ||||||||
6.00%, due 10/15/24 | 40,880,000 | 40,266,800 | ||||||
6.38%, due 5/15/25 | 20,585,000 | 20,507,806 | ||||||
Jones Energy Holdings LLC / Jones Energy Finance Corp. | 15,000,000 | 12,600,000 |
Principal Amount | Value | |||||||
Oil & Gas (continued) |
| |||||||
Matador Resources Co. | $ | 12,650,000 | $ | 13,345,750 | ||||
Murphy Oil Corp. | 9,575,000 | 10,197,375 | ||||||
Murphy Oil USA, Inc. | ||||||||
5.63%, due 5/1/27 | 2,800,000 | 2,870,000 | ||||||
6.00%, due 8/15/23 | 23,605,000 | 24,785,250 | ||||||
Newfield Exploration Co. | ||||||||
5.63%, due 7/1/24 | 19,360,000 | 20,461,197 | ||||||
5.75%, due 1/30/22 | 14,120,000 | 15,002,500 | ||||||
Oasis Petroleum, Inc. | ||||||||
6.50%, due 11/1/21 | 15,568,000 | 15,723,680 | ||||||
6.88%, due 3/15/22 | 7,500,000 | 7,593,750 | ||||||
6.88%, due 1/15/23 | 3,000,000 | 3,030,000 | ||||||
Parsley Energy LLC / Parsley Finance Corp. | 14,110,000 | 14,215,825 | ||||||
PDC Energy, Inc. | ||||||||
6.13%, due 9/15/24 (d) | 6,000,000 | 6,150,000 | ||||||
7.75%, due 10/15/22 | 33,775,000 | 35,463,750 | ||||||
PetroQuest Energy, Inc. | 64,966,600 | 47,425,618 | ||||||
Range Resources Corp. (d) | ||||||||
5.75%, due 6/1/21 | 23,225,000 | 23,921,750 | ||||||
5.88%, due 7/1/22 | 19,345,000 | 19,780,262 | ||||||
Rex Energy Corp. | 116,325,000 | 57,580,875 | ||||||
RSP Permian, Inc. | ||||||||
5.25%, due 1/15/25 (d) | 10,285,000 | 10,439,275 | ||||||
6.63%, due 10/1/22 | 17,780,000 | 18,735,675 | ||||||
SM Energy Co. | 3,000,000 | 3,067,500 | ||||||
Stone Energy Corp. | 24,562,822 | 23,703,123 | ||||||
WPX Energy, Inc. | ||||||||
6.00%, due 1/15/22 | 39,250,000 | 39,838,750 | ||||||
7.50%, due 8/1/20 | 31,440,000 | 33,326,400 | ||||||
|
| |||||||
801,462,979 | ||||||||
|
| |||||||
Oil & Gas Services 0.4% |
| |||||||
Forum Energy Technologies, Inc. | 44,185,000 | 43,853,613 | ||||||
|
| |||||||
Packaging & Containers 0.0%‡ |
| |||||||
Ardagh Packaging Finance PLC / Ardagh Holdings USA, Inc. | 1,200,000 | 1,306,500 | ||||||
Sealed Air Corp. | 2,465,000 | 2,637,550 | ||||||
|
| |||||||
3,944,050 | ||||||||
|
|
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 1.3% |
| |||||||
DPx Holdings B.V. | $ | 25,005,000 | $ | 26,474,044 | ||||
Endo Finance LLC | 6,430,000 | 5,947,750 | ||||||
Endo Finance LLC / Endo Finco, Inc. | 7,300,000 | 6,259,750 | ||||||
Endo Ltd. / Endo Finance LLC / Endo Finco, Inc. (d) | ||||||||
5.88%, due 10/15/24 | 3,000,000 | 3,056,250 | ||||||
6.00%, due 2/1/25 | 8,945,000 | 7,554,052 | ||||||
inVentiv Group Holdings, Inc. / inVentiv Health, Inc. / inVentiv Health Clinical, Inc. | 6,795,000 | 7,015,838 | ||||||
Nature’s Bounty Co. | 42,485,000 | 45,140,312 | ||||||
Valeant Pharmaceuticals International, Inc. (d) | ||||||||
5.63%, due 12/1/21 | 3,710,000 | 2,852,063 | ||||||
6.38%, due 10/15/20 | 3,184,000 | 2,734,260 | ||||||
7.00%, due 10/1/20 | 7,000,000 | 6,142,500 | ||||||
7.50%, due 7/15/21 | 20,355,000 | 16,843,762 | ||||||
|
| |||||||
130,020,581 | ||||||||
|
| |||||||
Pipelines 3.1% |
| |||||||
ANR Pipeline Co. | ||||||||
7.38%, due 2/15/24 | 2,555,000 | 3,070,499 | ||||||
9.63%, due 11/1/21 | 10,349,000 | 13,316,586 | ||||||
Antero Midstream Partners, L.P. / Antero Midstream Finance Corp. | 8,000,000 | 8,180,000 | ||||||
Cheniere Corpus Christi Holdings LLC | 19,355,000 | 20,613,075 | ||||||
EnLink Midstream Partners, L.P. / EnLink Midstream Finance Corp. | 1,765,000 | 1,833,016 | ||||||
Genesis Energy, L.P. / Genesis Energy Finance Corp. | ||||||||
5.75%, due 2/15/21 | 4,750,000 | 4,803,438 | ||||||
6.75%, due 8/1/22 | 44,620,000 | 45,902,825 | ||||||
Holly Energy Partners, L.P. / Holly Energy Finance Corp. | 15,000,000 | 15,862,500 | ||||||
¨MPLX, L.P. | ||||||||
4.88%, due 12/1/24 | 27,465,000 | 29,368,517 | ||||||
4.88%, due 6/1/25 | 30,540,000 | 32,482,955 | ||||||
5.50%, due 2/15/23 | 35,965,000 | 37,268,731 | ||||||
NuStar Logistics, L.P. | ||||||||
6.75%, due 2/1/21 | 17,185,000 | 18,624,244 | ||||||
8.15%, due 4/15/18 | 6,454,000 | 6,800,902 |
Principal Amount | Value | |||||||
Pipelines (continued) |
| |||||||
Rockies Express Pipeline LLC (d) | ||||||||
6.00%, due 1/15/19 | $ | 17,400,000 | $ | 18,270,000 | ||||
6.85%, due 7/15/18 | 3,000,000 | 3,145,830 | ||||||
Sabine Pass Liquefaction LLC | 25,290,000 | 28,201,360 | ||||||
SemGroup Corp. | 12,955,000 | 13,019,775 | ||||||
Tesoro Logistics, L.P. / Tesoro Logistics Finance Corp. | ||||||||
6.13%, due 10/15/21 | 1,000,000 | 1,043,750 | ||||||
6.25%, due 10/15/22 | 14,000,000 | 15,015,000 | ||||||
6.38%, due 5/1/24 | 5,000,000 | 5,462,500 | ||||||
|
| |||||||
322,285,503 | ||||||||
|
| |||||||
Private Equity 0.0%‡ |
| |||||||
Icahn Enterprises, L.P. / Icahn Enterprises Finance Corp. | 3,900,000 | 4,012,125 | ||||||
|
| |||||||
Real Estate 1.6% |
| |||||||
AAF Holdings LLC / AAF Finance Co. | 34,913,105 | 36,571,477 | ||||||
CBRE Services, Inc. | ||||||||
5.00%, due 3/15/23 | 31,097,000 | 32,497,205 | ||||||
5.25%, due 3/15/25 | 11,490,000 | 12,375,465 | ||||||
Howard Hughes Corp. | 38,650,000 | 39,036,500 | ||||||
Realogy Group LLC / Realogy Co-Issuer Corp. | 16,815,000 | 16,983,150 | ||||||
Rialto Holdings LLC / Rialto Corp. | 32,515,000 | 33,002,725 | ||||||
|
| |||||||
170,466,522 | ||||||||
|
| |||||||
Real Estate Investment Trusts 3.6% |
| |||||||
Crown Castle International Corp. | ||||||||
4.88%, due 4/15/22 | 2,000,000 | 2,176,390 | ||||||
5.25%, due 1/15/23 | 81,468,000 | 90,147,275 | ||||||
¨Equinix, Inc. | ||||||||
5.38%, due 1/1/22 | 20,371,000 | 21,542,333 | ||||||
5.38%, due 4/1/23 | 17,500,000 | 18,221,875 | ||||||
5.38%, due 5/15/27 | 42,865,000 | 44,784,923 | ||||||
5.75%, due 1/1/25 | 33,577,000 | 35,927,390 | ||||||
5.88%, due 1/15/26 | 31,085,000 | 33,494,087 | ||||||
FelCor Lodging, L.P. | 21,122,000 | 22,233,228 | ||||||
Host Hotels & Resorts, L.P. | 13,000,000 | 14,548,729 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 19 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Real Estate Investment Trusts (continued) |
| |||||||
MGM Growth Properties Operating Partnership, L.P. / MGP Finance Co-Issuer, Inc. | ||||||||
4.50%, due 9/1/26 | $ | 9,000,000 | $ | 8,966,250 | ||||
5.63%, due 5/1/24 | 55,695,000 | 60,080,981 | ||||||
MPT Operating Partnership, L.P. / MPT Finance Corp. | 5,000,000 | 5,168,750 | ||||||
Sabra Health Care, L.P. / Sabra Capital Corp. | ||||||||
5.38%, due 6/1/23 | 800,000 | 812,000 | ||||||
5.50%, due 2/1/21 | 5,030,000 | 5,218,625 | ||||||
Starwood Property Trust | 8,565,000 | 8,929,013 | ||||||
VEREIT Operating Partnership, L.P. | 4,000,000 | 4,162,500 | ||||||
|
| |||||||
376,414,349 | ||||||||
|
| |||||||
Retail 3.9% |
| |||||||
Asbury Automotive Group, Inc. | 47,863,000 | 49,418,547 | ||||||
Cumberland Farms, Inc. | 15,700,000 | 16,291,105 | ||||||
Dollar Tree, Inc. | 29,650,000 | 31,458,650 | ||||||
DriveTime Automotive Group, Inc. / Bridgecrest Acceptance Corp. | 45,241,000 | 45,241,000 | ||||||
GameStop Corp. (d) | ||||||||
5.50%, due 10/1/19 | 10,925,000 | 11,198,125 | ||||||
6.75%, due 3/15/21 | 14,820,000 | 15,153,450 | ||||||
Group 1 Automotive, Inc. | ||||||||
5.00%, due 6/1/22 | 16,015,000 | 16,215,188 | ||||||
5.25%, due 12/15/23 (d) | 8,000,000 | 8,060,000 | ||||||
KFC Holding Co. / Pizza Hut Holdings LLC / Taco Bell of America LLC (d) | ||||||||
5.00%, due 6/1/24 | 15,460,000 | 15,962,450 | ||||||
5.25%, due 6/1/26 | 29,750,000 | 30,493,750 | ||||||
L Brands, Inc. | ||||||||
5.63%, due 2/15/22 | 9,840,000 | 10,393,500 | ||||||
5.63%, due 10/15/23 | 2,750,000 | 2,886,950 | ||||||
6.63%, due 4/1/21 | 13,980,000 | 15,378,000 | ||||||
6.75%, due 7/1/36 | 24,015,000 | 23,264,531 | ||||||
6.88%, due 11/1/35 | 7,000,000 | 6,902,000 | ||||||
8.50%, due 6/15/19 | 3,395,000 | 3,785,425 | ||||||
Men’s Wearhouse, Inc. | 78,061,000 | 67,913,070 | ||||||
Penske Automotive Group, Inc. | 27,481,000 | 28,442,835 | ||||||
Yum! Brands, Inc. | 5,000,000 | 5,300,000 | ||||||
|
| |||||||
403,758,576 | ||||||||
|
|
Principal Amount | Value | |||||||
Semiconductors 1.3% |
| |||||||
¨Micron Technology, Inc. | ||||||||
5.25%, due 8/1/23 (d) | $ | 16,800,000 | $ | 17,388,000 | ||||
5.25%, due 1/15/24 (d) | 8,000,000 | 8,248,000 | ||||||
5.50%, due 2/1/25 | 14,260,000 | 14,901,700 | ||||||
5.88%, due 2/15/22 | 4,000,000 | 4,190,000 | ||||||
7.50%, due 9/15/23 | 64,585,000 | 72,335,200 | ||||||
Qorvo, Inc. | ||||||||
6.75%, due 12/1/23 | 7,435,000 | 8,066,975 | ||||||
7.00%, due 12/1/25 | 6,000,000 | 6,660,000 | ||||||
Sensata Technologies UK Financing Co. PLC | 2,485,000 | 2,690,012 | ||||||
|
| |||||||
134,479,887 | ||||||||
|
| |||||||
Software 2.7% |
| |||||||
ACI Worldwide, Inc. | 43,570,000 | 44,713,712 | ||||||
Camelot Finance S.A. | 10,750,000 | 11,529,375 | ||||||
Donnelley Financial Solutions, Inc. | 20,815,000 | 21,803,713 | ||||||
First Data Corp. | 8,135,000 | 8,722,347 | ||||||
MSCI, Inc. (d) | ||||||||
4.75%, due 8/1/26 | 11,290,000 | 11,600,475 | ||||||
5.25%, due 11/15/24 | 24,757,000 | 26,242,420 | ||||||
5.75%, due 8/15/25 | 20,551,000 | 22,143,702 | ||||||
Open Text Corp. | 32,600,000 | 34,800,500 | ||||||
PTC, Inc. | 48,908,000 | 52,331,560 | ||||||
Quintiles IMS, Inc. (d) | ||||||||
4.88%, due 5/15/23 | 17,078,000 | 17,547,645 | ||||||
5.00%, due 10/15/26 | 32,068,000 | 32,709,360 | ||||||
|
| |||||||
284,144,809 | ||||||||
|
| |||||||
Storage & Warehousing 0.2% |
| |||||||
Algeco Scotsman Global Finance PLC | 20,590,000 | 19,303,125 | ||||||
|
| |||||||
Telecommunications 5.4% |
| |||||||
Anixter, Inc. | 3,000,000 | 3,135,000 | ||||||
CenturyLink, Inc. | 16,000,000 | 15,620,000 | ||||||
Cogent Communications Finance, Inc. | 34,970,000 | 36,019,100 | ||||||
Frontier Communications Corp. | ||||||||
8.50%, due 4/15/20 | 8,000,000 | 8,510,000 | ||||||
8.88%, due 9/15/20 | 2,665,000 | 2,813,227 | ||||||
10.50%, due 9/15/22 | 30,990,000 | 31,144,950 | ||||||
11.00%, due 9/15/25 | 6,000,000 | 5,782,500 |
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) | ||||||||
Telecommunications (continued) |
| |||||||
Hughes Satellite Systems Corp. | ||||||||
5.25%, due 8/1/26 (d) | $ | 21,830,000 | $ | 22,212,025 | ||||
6.50%, due 6/15/19 | 2,627,000 | 2,840,444 | ||||||
6.63%, due 8/1/26 (d) | 25,195,000 | 25,950,850 | ||||||
7.63%, due 6/15/21 | 37,970,000 | 42,873,825 | ||||||
Inmarsat Finance PLC | 12,500,000 | 12,625,000 | ||||||
Level 3 Communications, Inc. | 10,735,000 | 11,177,819 | ||||||
Level 3 Financing, Inc. | ||||||||
5.38%, due 8/15/22 | 2,000,000 | 2,065,400 | ||||||
5.38%, due 1/15/24 | 2,385,000 | 2,478,826 | ||||||
Sprint Capital Corp. | ||||||||
6.88%, due 11/15/28 | 38,905,000 | 42,114,662 | ||||||
8.75%, due 3/15/32 | 5,000,000 | 6,153,100 | ||||||
Sprint Communications, Inc. | ||||||||
7.00%, due 3/1/20 (d) | 26,870,000 | 29,355,475 | ||||||
9.00%, due 11/15/18 (d) | 9,500,000 | 10,390,625 | ||||||
9.25%, due 4/15/22 | 16,806,000 | 20,335,260 | ||||||
¨T-Mobile USA, Inc. | ||||||||
4.00%, due 4/15/22 | 3,000,000 | 3,075,000 | ||||||
5.13%, due 4/15/25 | 25,585,000 | 26,960,194 | ||||||
5.38%, due 4/15/27 | 25,645,000 | 27,440,150 | ||||||
6.00%, due 4/15/24 | 15,315,000 | 16,593,803 | ||||||
6.13%, due 1/15/22 | 16,000,000 | 16,900,000 | ||||||
6.38%, due 3/1/25 | 41,842,000 | 45,725,774 | ||||||
6.50%, due 1/15/24 | 14,445,000 | 15,654,769 | ||||||
6.50%, due 1/15/26 | 31,915,000 | 35,385,756 | ||||||
6.63%, due 4/1/23 | 30,090,000 | 32,158,687 | ||||||
6.84%, due 4/28/23 | 8,915,000 | 9,561,338 | ||||||
|
| |||||||
563,053,559 | ||||||||
|
| |||||||
Transportation 1.0% |
| |||||||
Florida East Coast Holdings Corp. (d) | ||||||||
6.75%, due 5/1/19 | 50,325,000 | 51,734,100 | ||||||
9.75%, due 5/1/20 | 43,920,000 | 46,774,800 | ||||||
|
| |||||||
98,508,900 | ||||||||
|
| |||||||
Trucking & Leasing 0.2% |
| |||||||
Fortress Transportation & Infrastructure Investors LLC | 21,500,000 | 21,285,000 | ||||||
TRAC Intermodal LLC / TRAC Intermodal Corp. | 1,732,000 | 1,831,417 | ||||||
|
| |||||||
23,116,417 | ||||||||
|
| |||||||
Total Corporate Bonds | 9,285,297,608 | |||||||
|
|
Principal Amount | Value | |||||||
Loan Assignments 0.7% (h) | ||||||||
Insurance 0.1% |
| |||||||
USI, Inc. | $ | 6,500,000 | $ | 6,467,500 | ||||
|
| |||||||
Internet 0.0%‡ |
| |||||||
Kemet Electronic Corp. | 4,000,000 | 3,930,000 | ||||||
|
| |||||||
Machinery—Construction & Mining 0.2% |
| |||||||
Neenah Foundry Co. | 17,341,068 | 17,080,952 | ||||||
|
| |||||||
Pharmaceuticals 0.1% |
| |||||||
Phibro Animal Health Corp. | 11,875,721 | 11,868,299 | ||||||
|
| |||||||
Retail 0.2% |
| |||||||
Bass Pro Group LLC | 23,000,000 | 22,362,716 | ||||||
|
| |||||||
Transportation 0.1% |
| |||||||
Commercial Barge Line Co. | 11,568,120 | 10,411,308 | ||||||
|
| |||||||
Total Loan Assignments | 72,120,775 | |||||||
|
| |||||||
Total Long-Term Bonds | 9,592,917,337 | |||||||
|
| |||||||
Shares | ||||||||
Common Stocks 0.8% | ||||||||
Auto Parts & Equipment 0.0%‡ | ||||||||
¨Exide Technologies (b)(c)(e)(i) | 1,416,537 | 849,922 | ||||||
|
| |||||||
Electric 0.0%‡ |
| |||||||
Upstate New York Power Producers, Inc. (b)(c)(e)(i) | 343,590 | 412,308 | ||||||
|
| |||||||
Home Builders 0.0%‡ |
| |||||||
Modular Space Corp. (b)(c)(i) | 323,553 | 4,235,309 | ||||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 21 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Lodging 0.0%‡ |
| |||||||
Majestic Star Casino LLC Membership Units (b)(c)(e)(i) | 446,020 | $ | 223,010 | |||||
|
| |||||||
Media 0.0%‡ |
| |||||||
ION Media Networks, Inc. (b)(c)(e)(i) | 2,267 | 1,538,363 | ||||||
|
| |||||||
Metal Fabricate & Hardware 0.1% |
| |||||||
Neenah Enterprises, Inc. (b)(c)(e)(i) | 717,799 | 7,902,967 | ||||||
|
| |||||||
Oil & Gas 0.5% |
| |||||||
¨Comstock Resources, Inc. (i) | 100,000 | 874,000 | ||||||
PetroQuest Energy, Inc. (i) | 907,184 | 2,131,882 | ||||||
Rex Energy Corp. (c)(i) | 1,062,331 | 361,724 | ||||||
Stone Energy Corp. (c)(e)(i) | 2,074,193 | 43,433,601 | ||||||
Titan Energy LLC (i) | 91,131 | 820,179 | ||||||
|
| |||||||
47,621,386 | ||||||||
|
| |||||||
Retail 0.2% |
| |||||||
American Eagle Outfitters, Inc. | 1,338,573 | 18,860,494 | ||||||
|
| |||||||
Total Common Stocks | 81,643,759 | |||||||
|
| |||||||
Exchange-Traded Funds 0.3% (i)(j) | ||||||||
iShares Gold Trust | 618,700 | 7,554,327 | ||||||
SPDR Gold Shares | 189,000 | 22,825,530 | ||||||
|
| |||||||
Total Exchange-Traded Funds | 30,379,857 | |||||||
|
| |||||||
Principal Amount | ||||||||
Short-Term Investments 5.4% | ||||||||
Money Market Funds 5.4% | ||||||||
State Street Institutional U.S. Government Money Market Fund, Premier Class 0.68% | $ | 567,168,100 | 567,168,100 | |||||
|
| |||||||
Total Short-Term Investments | 567,168,100 | |||||||
|
| |||||||
Total Investments | 98.9 | % | 10,272,109,053 | |||||
Other Assets, Less Liabilities | 1.1 | 116,267,768 | ||||||
Net Assets | 100.0 | % | $ | 10,388,376,821 |
‡ | Less than one-tenth of a percent. |
(a) | PIK (“Payment-in-Kind”)—issuer may pay interest or dividends with additional securities and/or in cash. |
(b) | Fair valued security—Represents fair value as measured in good faith under procedures approved by the Board of Trustees. As of April 30, 2017, the total market value of these securities was $163,197,934, which represented 1.6% of the Fund’s net assets. |
(c) | Illiquid security—As of April 30, 2017, the total market value of these securities deemed illiquid under procedures approved by the Board of Trustees was $221,074,211, which represented 2.1% of the Fund’s net assets. |
(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) | Restricted security. |
(f) | Floating rate—Rate shown was the rate in effect as of April 30, 2017. |
(g) | Step coupon—Rate shown was the rate in effect as of April 30, 2017. |
(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 was the weighted average interest rate of all contracts within the floating rate loan facility as of April 30, 2017. |
(i) | Non-income producing security. |
(j) | Exchange-Traded Fund—An investment vehicle that represents a basket of securities that is traded on an exchange. |
(k) | As of April 30, 2017, cost was $10,000,090,425 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 475,380,329 | ||
Gross unrealized depreciation | (203,361,701 | ) | ||
|
| |||
Net unrealized appreciation | $ | 272,018,628 | ||
|
|
The following abbreviation is used in the preceding pages:
SPDR—Standard & Poor’s Depositary Receipt
22 | MainStay High Yield Corporate Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
The following is a summary of the fair valuations according to the inputs used as of April 30, 2017, 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 Bonds (b) | $ | — | $ | 186,088,749 | $ | 49,410,205 | $ | 235,498,954 | ||||||||
Corporate Bonds (c) | — | 9,186,671,758 | 98,625,850 | 9,285,297,608 | ||||||||||||
Loan Assignments (d) | — | 57,779,467 | 14,341,308 | 72,120,775 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Long-Term Bonds | — | 9,430,539,974 | 162,377,363 | 9,592,917,337 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Common Stocks (e) | 66,481,880 | — | 15,161,879 | 81,643,759 | ||||||||||||
Exchange-Traded Funds | 30,379,857 | — | — | 30,379,857 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Money Market Fund | 567,168,100 | — | — | 567,168,100 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | 664,029,837 | $ | 9,430,539,974 | $ | 177,539,242 | $ | 10,272,109,053 | ||||||||
|
|
|
|
|
|
|
|
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The Level 3 securities valued at $49,399,817 and $10,388 are held in Auto Parts & Equipment and Mining, respectively, within the Convertible Bonds section of the Portfolio of Investments. |
(c) | The Level 3 securities valued at $62,313,347, $36,312,500 and $3 are held in Auto Parts & Equipment, Chemicals and Entertainment, respectively, within the Corporate Bonds section of the Portfolio of Investments. |
(d) | The Level 3 securities valued at $3,930,000 and $10,411,308 are held in Internet and Transportation, respectively, within the Loan Assignments section of the Portfolio of Investments. |
(e) | The Level 3 securities valued at $849,922, $412,308, $4,235,309, $223,010, $1,538,363, and $7,902,967 are held in Auto Parts & Equipment, Electric, Home Builders, 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.
As of April 30, 2017, a security with a market value of $10,411,308 transferred from Level 2 to Level 3. The transfer occurred as a result of utilizing significant unobservable inputs. As of October 31, 2016, the fair value obtained for this floating rate loan, from an independent pricing service, utilized significant observable inputs.
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 23 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
Investments in | Balance as of October 31, 2016 | 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, 2017 | Change in Unrealized Appreciation (Depreciation) from Investments Still Held as of April 30, 2017 (b) | ||||||||||||||||||||||||||||||
Long-Term Bonds | ||||||||||||||||||||||||||||||||||||||||
Convertible Bonds | ||||||||||||||||||||||||||||||||||||||||
Auto Parts & Equipment | $ | 53,695,454 | $ | 374,908 | $ | — | $ | (7,280,741 | ) | $ | 2,610,196 | (a) | $ | — | $ | — | $ | — | $ | 49,399,817 | $ | (7,280,741 | ) | |||||||||||||||||
Mining | — | 141 | — | 1,375 | 8,872 | — | — | — | 10,388 | 1,375 | ||||||||||||||||||||||||||||||
Corporate Bonds | ||||||||||||||||||||||||||||||||||||||||
Auto Parts & Equipment | 59,108,560 | 443,821 | — | 355,228 | 2,405,738 | (a) | — | — | — | 62,313,347 | 355,228 | |||||||||||||||||||||||||||||
Chemicals | — | — | — | 3 | — | — | — | — | 3 | 3 | ||||||||||||||||||||||||||||||
Entertainment | 36,312,500 | — | — | — | — | — | — | — | 36,312,500 | — | ||||||||||||||||||||||||||||||
Oil & Gas | 4,800,000 | — | — | (37,500 | ) | — | (4,762,500 | ) | — | — | — | — | ||||||||||||||||||||||||||||
Loan Assignments | ||||||||||||||||||||||||||||||||||||||||
Internet | — | — | — | 50,000 | 3,880,000 | — | — | — | 3,930,000 | 50,000 | ||||||||||||||||||||||||||||||
Software | 3,007,500 | 666 | 39,930 | (22,382 | ) | — | (3,025,714 | ) | — | — | — | — | ||||||||||||||||||||||||||||
Transportation | — | 59,034 | 9,791 | (827,642 | ) | — | (546,421 | ) | 11,716,546 | — | 10,411,308 | (827,642 | ) | |||||||||||||||||||||||||||
Common Stocks | ||||||||||||||||||||||||||||||||||||||||
Auto Parts & Equipment | 4,164,619 | — | — | (3,314,697 | ) | — | — | — | — | 849,922 | (3,314,697 | ) | ||||||||||||||||||||||||||||
Electric | 412,308 | — | — | — | — | — | — | — | 412,308 | — | ||||||||||||||||||||||||||||||
Home Builders | — | — | (28 | ) | (502,175 | ) | 4,737,512 | — | — | — | 4,235,309 | (502,175 | ) | |||||||||||||||||||||||||||
Lodging | 55,753 | — | — | 167,257 | — | — | — | — | 223,010 | 167,257 | ||||||||||||||||||||||||||||||
Media | 1,213,706 | — | — | 324,657 | — | — | — | — | 1,538,363 | 324,657 | ||||||||||||||||||||||||||||||
Metal, Fabricate & Hardware | 7,902,967 | — | — | — | — | — | — | — | 7,902,967 | — | ||||||||||||||||||||||||||||||
Oil & Gas | 2,712,058 | — | — | — | — | — | — | (2,712,058 | ) | — | — | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total | $ | 173,385,425 | $ | 878,570 | $ | 49,693 | $ | (11,086,617 | ) | $ | 13,642,318 | $ | (8,334,635 | ) | $ | 11,716,546 | $ | (2,712,058 | ) | $ | 177,539,242 | $ | (11,026,735 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Purchases include PIK securities. |
(b) | Included in “Net change in unrealized appreciation (depreciation) on investments” in the Statement of Operations. |
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, 2017 (Unaudited)
Assets | ||||
Investment in securities, at value | $ | 10,272,109,053 | ||
Cash | 5,085,735 | |||
Receivables: | ||||
Dividends and interest | 166,255,440 | |||
Fund shares sold | 20,248,120 | |||
Investment securities sold | 5,799,146 | |||
Other assets | 280,101 | |||
|
| |||
Total assets | 10,469,777,595 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 48,204,755 | |||
Fund shares redeemed | 19,151,131 | |||
Dividend payable | 5,040,036 | |||
Manager (See Note 3) | 4,598,694 | |||
Transfer agent (See Note 3) | 2,175,222 | |||
NYLIFE Distributors (See Note 3) | 1,510,811 | |||
Shareholder communication | 449,876 | |||
Professional fees | 171,059 | |||
Custodian | 33,882 | |||
Trustees | 12,748 | |||
Accrued expenses | 52,560 | |||
|
| |||
Total liabilities | 81,400,774 | |||
|
| |||
Net assets | $ | 10,388,376,821 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 17,935,172 | ||
Additional paid-in capital | 10,387,095,528 | |||
|
| |||
10,405,030,700 | ||||
Distributions in excess of net investment income | (42,343,830 | ) | ||
Accumulated net realized gain (loss) on investments | (249,794,672 | ) | ||
Net unrealized appreciation (depreciation) on investments | 275,484,623 | |||
|
| |||
Net assets | $ | 10,388,376,821 | ||
|
|
Class A | ||||
Net assets applicable to outstanding shares | $ | 3,628,049,722 | ||
|
| |||
Shares of beneficial interest outstanding | 626,591,913 | |||
|
| |||
Net asset value per share outstanding | $ | 5.79 | ||
Maximum sales charge (4.50% of offering price) | 0.27 | |||
|
| |||
Maximum offering price per share outstanding | $ | 6.06 | ||
|
| |||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 291,487,164 | ||
|
| |||
Shares of beneficial interest outstanding | 49,938,960 | |||
|
| |||
Net asset value per share outstanding | $ | 5.84 | ||
Maximum sales charge (4.50% of offering price) | 0.28 | |||
|
| |||
Maximum offering price per share outstanding | $ | 6.12 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 122,982,550 | ||
|
| |||
Shares of beneficial interest outstanding | 21,342,019 | |||
|
| |||
Net asset value and offering price per share outstanding (a) | $ | 5.76 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 730,250,454 | ||
|
| |||
Shares of beneficial interest outstanding | 126,673,450 | |||
|
| |||
Net asset value and offering price per share outstanding (a) | $ | 5.76 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 5,530,978,156 | ||
|
| |||
Shares of beneficial interest outstanding | 954,349,365 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 5.80 | ||
|
| |||
Class R1 | ||||
Net assets applicable to outstanding shares | $ | 63,733 | ||
|
| |||
Shares of beneficial interest outstanding | 11,011 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 5.79 | ||
|
| |||
Class R2 | ||||
Net assets applicable to outstanding shares | $ | 10,680,215 | ||
|
| |||
Shares of beneficial interest outstanding | 1,843,833 | |||
|
| |||
Net asset value and offering price per share outstanding (a) | $ | 5.79 | ||
|
| |||
Class R3 | ||||
Net assets applicable to outstanding shares | $ | 249,384 | ||
|
| |||
Shares of beneficial interest outstanding | 43,084 | |||
|
| |||
Net asset value and offering price per share outstanding (a) | $ | 5.79 | ||
|
| |||
Class R6 | ||||
Net assets applicable to outstanding shares | $ | 73,635,443 | ||
|
| |||
Shares of beneficial interest outstanding | 12,723,555 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 5.79 | ||
|
|
(a) | The difference in the NAV recalculation and NAV stated is caused by rounding differences. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 25 |
Statement of Operations for the six months ended April 30, 2017 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 332,713,247 | ||
Dividends | 805,752 | |||
Other income | 6,574 | |||
|
| |||
Total income | 333,525,573 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 27,611,264 | |||
Distribution/Service—Class A (See Note 3) | 4,449,951 | |||
Distribution/Service—Investor Class (See Note 3) | 356,915 | |||
Distribution/Service—Class B (See Note 3) | 637,483 | |||
Distribution/Service—Class C (See Note 3) | 3,453,828 | |||
Distribution/Service—Class R2 (See Note 3) | 13,280 | |||
Distribution/Service—Class R3 (See Note 3) | 462 | |||
Transfer agent (See Note 3) | 7,277,988 | |||
Shareholder communication | 1,044,148 | |||
Professional fees | 237,164 | |||
Registration | 183,481 | |||
Trustees | 126,138 | |||
Custodian | 40,060 | |||
Shareholder service (See Note 3) | 5,434 | |||
Miscellaneous | 183,705 | |||
|
| |||
Total expenses | 45,621,301 | |||
|
| |||
Net investment income (loss) | 287,904,272 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments | 21,397,614 | |||
Net change in unrealized appreciation (depreciation) on investments | 93,785,844 | |||
|
| |||
Net realized and unrealized gain (loss) on investments | 115,183,458 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 403,087,730 | ||
|
|
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, 2017 (Unaudited) and year ended October 31, 2016
2017 | 2016 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 287,904,272 | $ | 550,763,289 | ||||
Net realized gain (loss) on investments and foreign currency transactions | 21,397,614 | (176,341,240 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments | 93,785,844 | 497,852,071 | ||||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 403,087,730 | 872,274,120 | ||||||
|
| |||||||
Dividends and distributions to shareholders: | ||||||||
From net investment income: | ||||||||
Class A | (110,826,644 | ) | (200,856,443 | ) | ||||
Investor Class | (8,899,849 | ) | (16,834,723 | ) | ||||
Class B | (3,431,717 | ) | (6,779,447 | ) | ||||
Class C | (18,848,989 | ) | (33,383,656 | ) | ||||
Class I | (176,703,180 | ) | (298,724,674 | ) | ||||
Class R1 | (1,937 | ) | (2,849 | ) | ||||
Class R2 | (324,322 | ) | (563,018 | ) | ||||
Class R3 | (5,976 | ) | (3,132 | ) | ||||
Class R6 | (2,095,677 | ) | (1,932,527 | ) | ||||
|
| |||||||
(321,138,291 | ) | (559,080,469 | ) | |||||
|
| |||||||
Return of capital: | ||||||||
Class A | — | (14,079,363 | ) | |||||
Investor Class | — | (1,171,791 | ) | |||||
Class B | — | (550,202 | ) | |||||
Class C | — | (2,721,786 | ) | |||||
Class I | — | (20,070,724 | ) | |||||
Class R1 | — | (200 | ) | |||||
Class R2 | — | (39,656 | ) | |||||
Class R3 | — | (283 | ) | |||||
Class R6 | — | (140,193 | ) | |||||
|
| |||||||
— | (38,774,198 | ) | ||||||
|
| |||||||
Total dividends and distributions to shareholders | (321,138,291 | ) | (597,854,667 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 2,072,947,367 | 3,245,684,029 | ||||||
Net asset value of shares issued in connection with the acquisition of MainStay High Yield Opportunities Fund | 317,232,064 | — | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 291,305,288 | 541,478,631 | ||||||
Cost of shares redeemed | (2,403,369,880 | ) | (3,369,343,971 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | 278,114,839 | 417,818,689 | ||||||
|
| |||||||
Net increase (decrease) in net assets | 360,064,278 | 692,238,142 |
2017 | 2016 | |||||||
Net Assets | ||||||||
Beginning of period | $ | 10,028,312,543 | $ | 9,336,074,401 | ||||
|
| |||||||
End of period | $ | 10,388,376,821 | $ | 10,028,312,543 | ||||
|
| |||||||
Distributions in excess of net investment income at end of period | $ | (42,343,830 | ) | $ | (9,109,811 | ) | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 27 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class A | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 5.74 | $ | 5.57 | $ | 5.93 | $ | 6.08 | $ | 6.08 | $ | 5.84 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.16 | 0.33 | 0.31 | 0.34 | 0.36 | 0.39 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.07 | 0.20 | (0.31 | ) | (0.09 | ) | 0.06 | 0.27 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | — | 0.00 | ‡ | — | — | — | 0.00 | ‡ | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 0.23 | 0.53 | 0.00 | ‡ | 0.25 | 0.42 | 0.66 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.18 | ) | (0.34 | ) | (0.31 | ) | (0.40 | ) | (0.42 | ) | (0.42 | ) | ||||||||||||||||
Return of capital | — | (0.02 | ) | (0.05 | ) | — | — | — | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.18 | ) | (0.36 | ) | (0.36 | ) | (0.40 | ) | (0.42 | ) | (0.42 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 5.79 | $ | 5.74 | $ | 5.57 | $ | 5.93 | $ | 6.08 | $ | 6.08 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 4.03 | % | 9.96 | % | 0.06 | % | 4.14 | % | 7.15 | % | 11.76 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 5.58 | %†† | 5.98 | % | 5.45 | % | 5.52 | % | 5.89 | % | 6.56 | % | ||||||||||||||||
Net expenses | 0.97 | %†† | 0.95 | % | 0.96 | % | 0.99 | % | 1.01 | % | 1.00 | % | ||||||||||||||||
Portfolio turnover rate | 23 | % | 41 | % | 38 | % | 41 | % | 40 | % | 29 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 3,628,050 | $ | 3,551,864 | $ | 3,364,517 | $ | 3,678,466 | $ | 4,055,185 | $ | 4,086,134 |
* | 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. For periods of less than one year, total return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Investor Class | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 5.79 | $ | 5.62 | $ | 5.99 | $ | 6.14 | $ | 6.13 | $ | 5.88 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.16 | 0.33 | 0.31 | 0.34 | 0.36 | 0.39 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.07 | 0.20 | (0.31 | ) | (0.09 | ) | 0.07 | 0.28 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | — | 0.00 | ‡ | — | — | — | 0.00 | ‡ | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 0.23 | 0.53 | (0.00 | )‡ | 0.25 | 0.43 | 0.67 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.18 | ) | (0.34 | ) | (0.32 | ) | (0.40 | ) | (0.42 | ) | (0.42 | ) | ||||||||||||||||
Return of capital | — | (0.02 | ) | (0.05 | ) | — | — | — | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.18 | ) | (0.36 | ) | (0.37 | ) | (0.40 | ) | (0.42 | ) | (0.42 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 5.84 | $ | 5.79 | $ | 5.62 | $ | 5.99 | $ | 6.14 | $ | 6.13 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 4.02 | % | 9.91 | % | (0.07 | %) | 4.13 | % | 7.24 | % | 11.82 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 5.53 | %†† | 5.90 | % | 5.39 | % | 5.50 | % | 5.88 | % | 6.53 | % | ||||||||||||||||
Net expenses | 1.01 | %†† | 1.03 | % | 1.02 | % | 1.01 | % | 1.02 | % | 1.03 | % | ||||||||||||||||
Portfolio turnover rate | 23 | % | 41 | % | 38 | % | 41 | % | 40 | % | 29 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 291,487 | $ | 287,493 | $ | 282,451 | $ | 296,535 | $ | 307,643 | $ | 301,074 |
* | 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. For periods of less than one year, total 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 B | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 5.71 | $ | 5.54 | $ | 5.90 | $ | 6.05 | $ | 6.05 | $ | 5.81 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.14 | 0.28 | 0.27 | 0.29 | 0.31 | 0.34 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.06 | 0.20 | (0.32 | ) | (0.09 | ) | 0.06 | 0.27 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | — | 0.00 | ‡ | — | — | — | 0.00 | ‡ | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 0.20 | 0.48 | (0.05 | ) | 0.20 | 0.37 | 0.61 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.15 | ) | (0.29 | ) | (0.26 | ) | (0.35 | ) | (0.37 | ) | (0.37 | ) | ||||||||||||||||
Return of capital | — | (0.02 | ) | (0.05 | ) | — | — | — | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.15 | ) | (0.31 | ) | (0.31 | ) | (0.35 | ) | (0.37 | ) | (0.37 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 5.76 | $ | 5.71 | $ | 5.54 | $ | 5.90 | $ | 6.05 | $ | 6.05 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 3.62 | % | 8.85 | % | (0.60 | %) | 3.35 | % | 6.36 | % | 10.94 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 4.78 | %†† | 5.16 | % | 4.64 | % | 4.75 | % | 5.13 | % | 5.78 | % | ||||||||||||||||
Net expenses | 1.76 | %†† | 1.78 | % | 1.77 | % | 1.76 | % | 1.77 | % | 1.78 | % | ||||||||||||||||
Portfolio turnover rate | 23 | % | 41 | % | 38 | % | 41 | % | 40 | % | 29 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 122,983 | $ | 132,509 | $ | 139,683 | $ | 172,640 | $ | 197,273 | $ | 221,723 |
* | 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. For periods of less than one year, total return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class C | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 5.72 | $ | 5.55 | $ | 5.90 | $ | 6.05 | $ | 6.05 | $ | 5.81 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.14 | 0.28 | 0.27 | 0.29 | 0.31 | 0.34 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.05 | 0.20 | (0.31 | ) | (0.09 | ) | 0.06 | 0.27 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | — | 0.00 | ‡ | — | — | — | 0.00 | ‡ | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 0.19 | 0.48 | (0.04 | ) | 0.20 | 0.37 | 0.61 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.15 | ) | (0.29 | ) | (0.26 | ) | (0.35 | ) | (0.37 | ) | (0.37 | ) | ||||||||||||||||
Return of capital | — | (0.02 | ) | (0.05 | ) | — | — | — | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.15 | ) | (0.31 | ) | (0.31 | ) | (0.35 | ) | (0.37 | ) | (0.37 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 5.76 | $ | 5.72 | $ | 5.55 | $ | 5.90 | $ | 6.05 | $ | 6.05 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 3.44 | % | 9.04 | % | (0.60 | %) | 3.34 | % | 6.36 | % | 10.93 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 4.78 | %†† | 5.15 | % | 4.64 | % | 4.75 | % | 5.13 | % | 5.78 | % | ||||||||||||||||
Net expenses | 1.76 | %†† | 1.78 | % | 1.77 | % | 1.76 | % | 1.77 | % | 1.78 | % | ||||||||||||||||
Portfolio turnover rate | 23 | % | 41 | % | 38 | % | 41 | % | 40 | % | 29 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 730,250 | $ | 678,364 | $ | 679,392 | $ | 785,873 | $ | 814,589 | $ | 819,807 |
* | 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. For periods of less than one year, total 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. | 29 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class I | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 5.75 | $ | 5.58 | $ | 5.94 | $ | 6.08 | $ | 6.08 | $ | 5.84 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.17 | 0.34 | 0.33 | 0.35 | 0.37 | 0.40 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.07 | 0.20 | (0.31 | ) | (0.08 | ) | 0.07 | 0.28 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | — | 0.00 | ‡ | — | — | — | 0.00 | ‡ | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 0.24 | 0.54 | 0.02 | 0.27 | 0.44 | 0.68 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.19 | ) | (0.35 | ) | (0.33 | ) | (0.41 | ) | (0.44 | ) | (0.44 | ) | ||||||||||||||||
Return of capital | — | (0.02 | ) | (0.05 | ) | — | — | — | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.19 | ) | (0.37 | ) | (0.38 | ) | (0.41 | ) | (0.44 | ) | (0.44 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 5.80 | $ | 5.75 | $ | 5.58 | $ | 5.94 | $ | 6.08 | $ | 6.08 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 4.16 | % | 10.23 | % | 0.32 | % | 4.58 | % | 7.40 | % | 12.02 | % | ||||||||||||||||
Ratios of net investment income (loss) to average net assets: | ||||||||||||||||||||||||||||
Net investment income (loss) | 5.83 | %†† | 6.23 | % | 5.70 | % | 5.76 | % | 6.13 | % | 6.81 | % | ||||||||||||||||
Net expenses | 0.72 | %†† | 0.70 | % | 0.71 | % | 0.74 | % | 0.76 | % | 0.75 | % | ||||||||||||||||
Portfolio turnover rate | 23 | % | 41 | % | 38 | % | 41 | % | 40 | % | 29 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 5,530,978 | $ | 5,313,266 | $ | 4,844,891 | $ | 3,762,169 | $ | 3,393,780 | $ | 2,982,526 |
* | 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. For periods of less than one year, total return is not annualized. |
Six months ended April 30, | Year ended October 31, | June 29, 2012** through October 31, | ||||||||||||||||||||||||||
Class R1 | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 5.74 | $ | 5.57 | $ | 5.93 | $ | 6.08 | $ | 6.08 | $ | 5.92 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.16 | 0.34 | 0.32 | 0.34 | 0.37 | 0.14 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.07 | 0.19 | (0.31 | ) | (0.08 | ) | 0.06 | 0.16 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | — | 0.00 | ‡ | — | — | — | 0.00 | ‡ | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 0.23 | 0.53 | 0.01 | 0.26 | 0.43 | 0.30 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.18 | ) | (0.34 | ) | (0.32 | ) | (0.41 | ) | (0.43 | ) | (0.14 | ) | ||||||||||||||||
Return of capital | — | (0.02 | ) | (0.05 | ) | — | — | — | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.18 | ) | (0.36 | ) | (0.37 | ) | (0.41 | ) | (0.43 | ) | (0.14 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 5.79 | $ | 5.74 | $ | 5.57 | $ | 5.93 | $ | 6.08 | $ | 6.08 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 4.11 | % | 10.13 | % | 0.21 | % | 4.31 | % | 7.32 | % | 5.17 | %(c) | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 5.73 | %†† | 6.11 | % | 5.60 | % | 5.66 | % | 6.03 | % | 6.49 | %†† | ||||||||||||||||
Net expenses | 0.82 | %†† | 0.80 | % | 0.81 | % | 0.84 | % | 0.86 | % | 0.87 | %†† | ||||||||||||||||
Portfolio turnover rate | 23 | % | 41 | % | 38 | % | 41 | % | 40 | % | 29 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 64 | $ | 59 | $ | 39 | $ | 29 | $ | 28 | $ | 26 |
* | 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 R1 shares are not subject to sales charges. For periods of less than one year, total 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 R2 | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 5.74 | $ | 5.57 | $ | 5.93 | $ | 6.08 | $ | 6.08 | $ | 5.84 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.16 | 0.32 | 0.31 | 0.33 | 0.35 | 0.38 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.07 | 0.20 | (0.31 | ) | (0.09 | ) | 0.07 | 0.28 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | — | 0.00 | ‡ | — | — | — | 0.00 | ‡ | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 0.23 | 0.52 | (0.00 | )‡ | 0.24 | 0.42 | 0.66 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.18 | ) | (0.33 | ) | (0.31 | ) | (0.39 | ) | (0.42 | ) | (0.42 | ) | ||||||||||||||||
Return of capital | — | (0.02 | ) | (0.05 | ) | — | — | — | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.18 | ) | (0.35 | ) | (0.36 | ) | (0.39 | ) | (0.42 | ) | (0.42 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 5.79 | $ | 5.74 | $ | 5.57 | $ | 5.93 | $ | 6.08 | $ | 6.08 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 3.98 | % | 9.83 | % | (0.04 | %) | 4.04 | % | 7.06 | % | 11.66 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 5.48 | %†† | 5.89 | % | 5.35 | % | 5.43 | % | 5.79 | % | 6.46 | % | ||||||||||||||||
Net expenses | 1.07 | %†† | 1.05 | % | 1.06 | % | 1.09 | % | 1.11 | % | 1.10 | % | ||||||||||||||||
Portfolio turnover rate | 23 | % | 41 | % | 38 | % | 41 | % | 40 | % | 29 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 10,680 | $ | 10,917 | $ | 10,084 | $ | 11,049 | $ | 15,008 | $ | 14,280 |
* | 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. For periods of less than one year, total return is not annualized. |
Six months ended April 30, | February 29, 2016** through October 31, | |||||||||||
Class R3 | 2017* | 2016 | ||||||||||
Net asset value at beginning of period | $ | 5.74 | $ | 5.17 | ||||||||
|
|
|
| |||||||||
Net investment income (loss) (a) | 0.15 | 0.20 | ||||||||||
Net realized and unrealized gain (loss) on investments | 0.07 | 0.60 | ||||||||||
|
|
|
| |||||||||
Total from investment operations | 0.22 | 0.80 | ||||||||||
|
|
|
| |||||||||
Less dividends and distributions: | ||||||||||||
From net investment income | (0.17 | ) | (0.21 | ) | ||||||||
Return of capital | — | 0.02 | ||||||||||
|
|
|
| |||||||||
Total dividends and distributions | (0.17 | ) | 0.23 | |||||||||
|
|
|
| |||||||||
Net asset value at end of period | $ | 5.79 | $ | 5.74 | ||||||||
|
|
|
| |||||||||
Total investment return (b) | 3.87 | % | 15.59 | % | ||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||
Net investment income (loss)†† | 5.22 | % | 5.40 | % | ||||||||
Net expenses†† | 1.32 | % | 1.30 | % | ||||||||
Portfolio turnover rate | 23 | % | 41 | % | ||||||||
Net assets at end of period (in 000’s) | $ | 249 | $ | 130 |
* | 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 R3 shares are not subject to sales charges. For periods of less than one year, total 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. | 31 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | June 17, 2013** through October 31, | ||||||||||||||||||||||
Class R6 | 2017* | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||
Net asset value at beginning of period | $ | 5.74 | $ | 5.58 | $ | 5.94 | $ | 6.09 | $ | 6.11 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment income (loss) (a) | 0.17 | 0.35 | 0.34 | 0.36 | 0.14 | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.07 | 0.19 | (0.31 | ) | (0.08 | ) | 0.03 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total from investment operations | 0.24 | 0.54 | 0.03 | 0.28 | 0.17 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||
From net investment income | (0.19 | ) | (0.36 | ) | (0.34 | ) | (0.43 | ) | (0.19 | ) | ||||||||||||||
Return of capital | — | (0.02 | ) | (0.05 | ) | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total dividends and distributions | (0.19 | ) | (0.38 | ) | (0.39 | ) | (0.43 | ) | (0.19 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value at end of period | $ | 5.79 | $ | 5.74 | $ | 5.58 | $ | 5.94 | $ | 6.09 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total investment return (b) | 4.25 | % | 10.24 | % | 0.50 | % | 4.60 | % | 2.79 | %(c) | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | 5.97 | %†† | 6.23 | % | 5.84 | % | 5.88 | % | 6.24 | %†† | ||||||||||||||
Net expenses | 0.58 | %†† | 0.58 | % | 0.58 | % | 0.58 | % | 0.59 | %†† | ||||||||||||||
Portfolio turnover rate | 23 | % | 41 | % | 38 | % | 41 | % | 40 | % | ||||||||||||||
Net assets at end of period (in 000’s) | $ | 73,635 | $ | 53,712 | $ | 15,017 | $ | 9,093 | $ | 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. For periods of less than one year, total 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. |
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, as that term is defined in the 1940 Act, as interpreted or modified by regulatory authorities having jurisdiction, from time to time.
The Fund currently offers ten 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. Class R3 shares commenced operations on February 29, 2016. Class T shares of the Fund were registered for sale effective as of February 28, 2017. As of the period ended April 30, 2017, Class T shares had no investment operations.
Effective February 28, 2017, Class B shares of the MainStay Group of Funds were closed to all new purchases as well as additional investments by existing Class B shareholders. Existing Class B shareholders may continue to reinvest dividends and capital gains distributions, as well as exchange their Class B shares for Class B shares of other Funds as permitted by the current exchange privileges. Class B shareholders continue to be subject to any applicable contingent deferred sales charge (“CDSC”) at the time of redemption. All other features of the Class B shares, including but not limited to the fees and expenses applicable to Class B shares, remain unchanged. Unless redeemed, Class B shareholders will remain in Class B shares of their respective Fund until the Class B shares are converted to Class A or Investor Class shares pursuant to the applicable conversion schedule.
Class A and Investor Class shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No initial sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Class A and Investor Class shares. Effective August 1, 2017, a CDSC of 1.00% may be imposed on certain redemptions of Class A and Investor Class shares made within 18 months of the date of purchase on shares that were purchased without an initial sales charge. For purchases of Class A and Investor Class shares made from January 1, 2017 through July 31, 2017, a CDSC of 1.00% may be imposed on certain redemptions of such shares made within 24 months of the date of purchase of such shares that were made without an initial sales charge. For purchases of Class A and Investor Class shares made prior to January 1, 2017, a CDSC of 1.00% may be imposed on certain redemptions made within one year of the date of purchase on shares that were purchased without an initial sales charge. Class C shares are offered at NAV without an initial sales charge, although a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. When Class B shares were offered, they were offered at NAV without an initial sales charge, although a CDSC that declines depending on the number of years a shareholder has held
its Class B shares may be imposed on redemptions made within six years of the date of purchase of such shares. Class T shares are offered at NAV per share plus an initial sales charge. 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 Class A or Investor Class shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Class A shares may convert to Investor Class shares and Investor Class shares may convert to Class A shares. Under certain circumstances and as may be permitted by the Trust’s multiple class plan under Rule 18f-3 of the 1940 Act, an exchange/conversion may be made from specified share classes of the Fund to one or more other share classes of the Fund as disclosed in the capital share transactions within these Notes. The ten 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 under distribution plans pursuant to Rule 12b-1 under the 1940 Act, that Class B and Class C shares are subject to higher distribution and/or service fee rates than Class A, Investor Class, Class R2, Class R3 and Class T shares. 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 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 is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services—Investment Companies. 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 usually valued as of the close of regular trading on the New York Stock Exchange (the “Exchange”) (usually 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 establishing methodologies for the valuation of the Fund’s securities and other assets and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Trust (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 establishing the prices of securities for which market quotations are not readily available or the prices of which are not otherwise readily determinable under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. Subsequently, the Valuation Committee meets 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 the day-to-day valuation of portfolio assets (including fair value measurements for the Fund’s assets and liabilities) rests with New York Life Investment Management
33 |
Notes to Financial Statements (Unaudited) (continued)
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, Subadvisor 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 with changes 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, if appropriate, 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 or other asset is submitted by the Valuation Committee to the Board for its review and ratification, if appropriate, at its next regularly scheduled meeting.
“Fair value” is defined as the price the Fund would reasonably expect to 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 establishes 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 assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities. 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) |
The level of an asset or liability within the fair value hierarchy is based on the lowest level of an input, both individually and in the aggregate, that is significant to the fair value measurement. As of April 30, 2017, the aggregate value by input level of the Fund’s assets and 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 is valued by methods deemed reasonable 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. Fair value represents a good faith approximation of the value of a security. Fair value determinations involve the consideration of a number of subjective factors, an analysis of applicable facts and circumstances and the exercise of judgment. As a result, it is possible that the fair value for a security determined in good faith in accordance with the Fund’s valuation procedures may differ from valuations for the same security determined by other funds using their own valuation procedures. Although the Fund’s valuation procedures are designed to value a security at the price the Fund may reasonably expect to receive upon its sale in an orderly transaction, there can be no assurance that any fair value determination thereunder would, in fact, approximate the amount that the Fund would actually realize upon the sale of the security or the price at which the security would trade if a reliable market price were readily available. During the six-month period ended April 30, 2017, there were 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, 2017, securities that were fair valued in such a manner are shown in the Portfolio of Investments.
Equity securities and shares of Exchange-Traded Funds (“ETFs”) are valued at the last quoted sales prices as of the close of regular trading
34 | MainStay High Yield Corporate Bond Fund |
on the relevant 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 mutual funds, including money market 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 brokers selected by the Manager, in consultation with the Subadvisor. Those values reflect broker/dealer supplied prices and electronic data processing techniques, if the evaluated bid or mean 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, convertible bonds, asset-backed securities and mortgage-backed 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 service and are generally categorized as Level 2 in the hierarchy. Certain loan assignments, participations and commitments may be valued by utilizing significant unobservable inputs obtained from the pricing service and are generally categorized as Level 3 in the hierarchy. As of April 30, 2017, the Fund held loan assignments categorized as Level 3 securities with a value of $14,341,308 that were valued by utilizing significant unobservable inputs.
Temporary cash investments acquired in excess of 60 days to maturity at the time of purchase 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 using the amortized cost method of valuation, unless the use of such method would be inappropriate. 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 using the amortized cost method are not valued using quoted prices in an active market and are generally categorized as Level 2 in the hierarchy.
The information above is not intended to reflect an exhaustive list of the methodologies that may be used to value portfolio investments. The valuation procedures permit the use of a variety of valuation methodologies in connection with valuing portfolio investments. The methodology used for a specific type of investment may vary based on the market data available or other considerations. The methodologies summarized above may not represent the specific means by which portfolio investments are valued on any particular business day.
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.
Asset Class | Fair Value at 4/30/17* | Valuation Technique | Unobservable Inputs | Range | ||||||||
Convertible Bond (1) | $ | 49,399,817 | Market Approach | Estimated Enterprise Value | $520.9m–$604.0m | |||||||
Discount Rates | 15.26%–19.12% | |||||||||||
Corporate Bonds (2) | 62,248,484 | Income Approach | Estimated Yield | 17.43% | ||||||||
Spread Adjustment | 4.75% | |||||||||||
64,863 | Market Approach | Estimated Remaining Claims/Value | $0.001 | |||||||||
Common Stocks (5) | 1,950,671 | Income Approach | Discount Rate | 15.00% | ||||||||
Liquidity Discount | 20.00% | |||||||||||
12,988,198 | Market Approach | EBITDA Multiple | 5.75x–9.5x | |||||||||
Estimated Enterprise Value | $598.3m–$1,107.0m | |||||||||||
Estimated Volatility | 20.20% | |||||||||||
|
| |||||||||||
$ | 126,652,033 | |||||||||||
|
|
* | The table above does not include certain Level 3 investments that were valued by brokers and pricing services without adjustment. As of April 30, 2017, the value of these investments was $50,887,209. The inputs for these investments were not readily available or cannot be reasonably estimated. |
A Fund security or other asset may be determined to be illiquid under procedures approved by the Board. Illiquidity of a security 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 the 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 materially 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 determines 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 are often valued in accordance with methods deemed by the Board in good faith to be reasonable and appropriate to accurately reflect their fair value. The liquidity of the Fund’s investments, as shown in the Portfolio of Investments, was determined as of April 30, 2017 and can change at any time in response to, among other relevant factors, market conditions or events or developments with respect to an individual issuer or instrument. As of April 30, 2017,
35 |
Notes to Financial Statements (Unaudited) (continued)
securities deemed to be illiquid under procedures approved by the Board are shown in the Portfolio of Investments.
(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 its 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 permitted only to the extent 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. 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 accreted daily based on the effective interest method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated pro rata to separate classes of shares 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 security on non-accrual status and reduce related interest income by ceasing current accruals and writing off all or a portion of any interest receivables when the collection of all or a portion of such interest has become doubtful. A debt security 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/or 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. Additionally, the Fund may invest in shares of ETFs or mutual funds, which are subject to management fees and other fees that may increase their costs versus the costs of owning the underlying securities directly. These indirect expenses of ETFs or mutual funds are not included in the amounts shown as expenses on the Fund’s Statement of Operations or in the expense ratios included in the financial highlights.
(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 (i.e., buy a security from another party with the agreement that it be sold back in the future) to earn income. The Fund may enter into repurchase agreements only with counterparties, usually 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 the Fund to the counterparty secured by the securities transferred to the Fund.
Repurchase agreements are subject to counterparty risk, meaning the Fund could lose money by the counterparty’s failure to perform under the terms of the agreement. The Fund mitigates this risk by ensuring the repurchase agreement is collateralized by cash, U.S. government securities, fixed income securities and/or other securities. The collateral is held by the Fund’s custodian and 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 counterparty’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, realization and/or retention of the collateral may be limited or subject to delay, to legal proceedings and possible realized loss to the Fund.
(H) Loan Assignments, Participations and Commitments. The Fund may invest in loan assignments and participations (“loans”). Commitments are agreements to make money available to a borrower in a specified amount, at a specified rate and within a specified time. The Fund records an investment when the borrower withdraws money on a commitment or when a funded loan is purchased (trade date) and records interest as earned. These loans pay interest at rates that are periodically
36 | MainStay High Yield Corporate Bond Fund |
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. If the Fund purchases an assignment from a lender, the Fund will generally have direct contractual rights against the borrower in favor of the lender. If the Fund purchases a participation interest either from a lender or a participant, the Fund typically will have established a direct contractual relationship with the seller of the participation interest, but not with the borrower. Consequently, the Fund is subject to the credit risk of the lender or participant who sold the participation interest to the Fund, in addition to the usual credit risk of the borrower. 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. Unfunded amounts, if any, are marked to market and any unrealized gains or losses are recorded in the Statement of Assets and Liabilities. As of April 30, 2017, the Fund did not hold any unfunded commitments.
(I) Foreign Currency Transactions. The Fund’s books and records are maintained 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) 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 (“SEC”). 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 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 a realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund bears the risk of any loss on investment of the collateral. The Fund will receive compensation for lending its securities in the form of fees or it will retain a portion of interest on the investment of any cash received as collateral. The Fund will also 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. During the six-month period ended April 30, 2017, the Fund did not have any portfolio securities on loan.
(K) Restricted Securities. Restricted securities, as disclosed in Note 5, are securities which have 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.
(L) Securities Risk. The Fund’s principal investments include high-yield debt securities (commonly referred to as ‘‘junk bonds’’), which are considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities pay investors a premium—a higher interest rate or yield than investment grade debt securities—because of the increased risk of loss. These securities can also be subject to greater price volatility. In times of unusual or adverse market, economic or political conditions, these securities may experience higher than normal default rates.
The Fund may invest in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic securities. 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 rated debt securities. These investments pay investors a higher interest rate than investment grade debt securities 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 investments could decline significantly. As a result of these and other events, the Fund’s NAVs could go down and you could lose money.
In addition, loans generally are subject to the extended settlement periods that may be longer than seven days. As a result, the Fund may be adversely affected by selling other investments at an unfavorable time
37 |
Notes to Financial Statements (Unaudited) (continued)
and/or under unfavorable conditions or engaging in borrowing transactions, such as borrowing against its credit facility, to raise cash to meet redemption obligations or pursue other investment opportunities. In certain circumstances, floating rate loans may not be deemed to be securities. As a result, the Fund may not have the protection of anti-fraud provisions of the federal securities laws. In such cases, the Fund generally must rely on the contractual provisions in the loan agreement and common-law fraud protections under applicable state law.
(M) 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 attributable to 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 Amended and Restated Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and MacKay Shields, New York Life Investments pays for the services of the Subadvisor.
Under the Management Agreement, 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; 0.50% from $7 billion up to $10 billion; and 0.49% in excess of $10 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. During the six-month period ended April 30, 2017, the effective management fee rate was 0.54% inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets. Prior to
February 28, 2017, 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: 0.60% 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
During the six-month period ended April 30, 2017, New York Life Investments earned fees from the Fund in the amount of $27,611,264.
State Street 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 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 Class A, Investor Class, Class T and R2 Plans, the Distributor receives a monthly distribution fee from the Class A, Investor Class, Class T and R2 shares at an annual rate of 0.25% of the average daily net assets of the Class A, Investor Class, Class T and 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.
38 | MainStay High Yield Corporate Bond Fund |
During the six-month period ended April 30, 2017, shareholder service fees incurred by the Fund were as follows:
Class R1 | $ | 30 | ||
Class R2 | 5,312 | |||
Class R3 | 92 |
(C) Sales Charges. During the six-month period ended April 30, 2017, the Fund was advised by the Distributor that the amount of initial sales charges retained on sales of Class A and Investor Class shares were $445,617 and $63,992, respectively.
During the six-month period ended April 30, 2017, the Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Investor Class, Class B and Class C shares of $32,469, $17, $81,271, and $41,015, respectively.
(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. During the six-month period ended April 30, 2017, transfer agent expenses incurred by the Fund were as follows:
Class A | $ | 2,467,481 | ||
Investor Class | 265,329 | |||
Class B | 118,482 | |||
Class C | 640,833 | |||
Class I | 3,778,340 | |||
Class R1 | 42 | |||
Class R2 | 7,351 | |||
Class R3 | 130 |
(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, 2017, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class I | $ | 903,001 | 0.0 | %‡ | ||||
Class R1 | 33,816 | 53.1 | ||||||
Class R3 | 30,017 | 12.0 |
‡ | Less than one-tenth of a percent. |
Note 4–Federal Income Tax
During the year ended October 31, 2016, the tax character of distributions paid as reflected in the Statements of Changes in Net Assets was as follows:
2016 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 559,080,469 | ||
Return of Capital | 38,774,198 | |||
Total | $ | 597,854,667 |
39 |
Notes to Financial Statements (Unaudited) (continued)
Note 5–Restricted Securities
As of April 30, 2017, the Fund held the following restricted securities:
Security | Date(s) of Acquisition | Principal Amount/ Shares | Cost | 4/30/17 Value | Percent of Net Assets | |||||||||||||||
Aleris International, Inc. | 7/6/10 | $ | 11,797 | $ | 9,013 | $ | 10,388 | 0.0 | %‡ | |||||||||||
Exide Technologies, Inc. | 4/30/15 | 1,416,537 | 53,286,096 | 849,922 | 0.0 | ‡ | ||||||||||||||
Exide Technologies, Inc. (Escrow Claim Shares) | 8/28/15 | $ | 64,863,000 | — | 64,863 | 0.0 | ‡ | |||||||||||||
ION Media Networks, Inc. | | 3/12/10- 12/20/10 | 2,267 | 3,435 | 1,538,363 | 0.0 | ‡ | |||||||||||||
Majestic Star Casino LLC | 12/1/11 | 446,020 | 892,040 | 223,010 | 0.0 | ‡ | ||||||||||||||
Momentive Performance Materials, Inc. (Escrow Claim Shares) | 10/28/14 | $ | 2,510,000 | — | 3 | 0.0 | ‡ | |||||||||||||
Neenah Enterprises, Inc. | 7/29/10 | 717,799 | 6,079,758 | 7,902,967 | 0.1 | |||||||||||||||
Stone Energy Corp. | 10/20/14 | 2,074,193 | 69,729,344 | 43,433,601 | 0.4 | |||||||||||||||
Sterling Entertainment Enterprises LLC | 12/21/12 | $ | 35,000,000 | 35,000,000 | 36,312,500 | 0.4 | ||||||||||||||
Upstate New York Power Producers, Inc. | | 5/11/99- 2/28/11 | 343,590 | — | 412,308 | 0.0 | ‡ | |||||||||||||
Total | $ | 164,999,686 | $ | 90,747,925 | 0.9 | % |
‡ | 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 transactions incurred by the Fund.
Note 7–Line of Credit
The Fund and certain other funds managed by New York Life Investments, 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 2, 2016, under an amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $600,000,000 with an additional uncommitted amount of $100,000,000. The commitment fee is an annual rate of 0.15% 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 their respective 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 1, 2017, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 2, 2016, the aggregate commitment amount was $600,000,000 with an additional uncommitted amount of $100,000,000, and the commitment fee was at an annual rate of 0.10% of the average commitment amount. During the six-month period ended April 30, 2017, there were no borrowings made or outstanding with respect to the Fund under the Credit Agreement.
Note 8–Interfund Lending Program
Pursuant to an exemptive order issued by the SEC, the Fund, along with certain other funds managed by New York Life Investments, may participate in an interfund lending program. The interfund lending program provides an alternative credit facility that permits the Fund and certain other funds managed by New York Life Investments to lend or borrow money for temporary purposes directly to or from one another, subject to the conditions of the exemptive order. During the six-month period ended April 30, 2017, there were no interfund loans made or outstanding with respect to the Fund.
40 | MainStay High Yield Corporate Bond Fund |
Note 9–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2017, purchases and sales of securities, other than short-term securities, were $2,221,114 and $2,355,463, respectively.
The Fund may purchase securities from or sell to other portfolios managed by the Subadvisor. These interportfolio transactions are primarily used for cash management purposes and are made pursuant to Rule 17a-7 of the Act. During the six-month period ended April 30, 2017, such purchases were $2,461,250.
Note 10–Capital Share Transactions
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 91,978,205 | $ | 529,893,851 | |||||
Shares issued in connection with the acquisition of MainStay High Yield Opportunities Fund | 10,796,682 | 62,812,936 | ||||||
Shares issued to shareholders in reinvestment of dividends and distributions | 16,576,372 | 95,425,013 | ||||||
Shares redeemed | (110,575,783 | ) | (636,970,935 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 8,775,476 | 51,160,865 | ||||||
Shares converted into Class A (See Note 1) | 3,598,972 | 20,700,881 | ||||||
Shares converted from Class A (See Note 1) | (4,386,486 | ) | (25,477,320 | ) | ||||
|
| |||||||
Net increase (decrease) | 7,987,962 | $ | 46,384,426 | |||||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 130,915,748 | $ | 720,686,459 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 33,685,999 | 184,730,015 | ||||||
Shares redeemed | (153,877,032 | ) | (842,188,666 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 10,724,715 | 63,227,808 | ||||||
Shares converted into Class A (See Note 1) | 6,586,070 | 36,684,855 | ||||||
Shares converted from Class A (See Note 1) | (2,417,783 | ) | (13,325,048 | ) | ||||
|
| |||||||
Net increase (decrease) | 14,893,002 | $ | 86,587,615 | |||||
|
| |||||||
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 5,780,072 | $ | 18,194,819 | |||||
Shares issued in connection with the acquisition of MainStay High Yield Opportunities Fund | 883,418 | 5,181,248 | ||||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,424,638 | 8,269,468 | ||||||
Shares redeemed | (5,906,307 | ) | (18,925,193 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 2,181,821 | 12,720,342 | ||||||
Shares converted into Investor Class (See Note 1) | 1,376,692 | 7,995,588 | ||||||
Shares converted from Investor Class (See Note 1) | (3,279,793 | ) | (19,012,886 | ) | ||||
|
| |||||||
Net increase (decrease) | 278,720 | $ | 1,703,044 | |||||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 5,564,916 | $ | 30,690,421 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 3,020,971 | 16,697,863 | ||||||
Shares redeemed | (6,767,282 | ) | (37,177,796 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 1,818,605 | 10,210,488 | ||||||
Shares converted into Investor Class (See Note 1) | 3,236,349 | 17,925,599 | ||||||
Shares converted from Investor Class (See Note 1) | (5,624,893 | ) | (31,728,974 | ) | ||||
|
| |||||||
Net increase (decrease) | (569,939 | ) | $ | (3,592,887 | ) | |||
|
| |||||||
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 754,246 | $ | 4,322,238 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 533,935 | 3,058,910 | ||||||
Shares redeemed | (2,271,133 | ) | (13,024,017 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (982,952 | ) | (5,642,869 | ) | ||||
Shares converted from Class B (See Note 1) | (866,030 | ) | (4,958,110 | ) | ||||
|
| |||||||
Net increase (decrease) | (1,848,982 | ) | $ | (10,600,979 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 2,688,143 | $ | 14,680,378 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,205,109 | 6,569,476 | ||||||
Shares redeemed | (4,067,471 | ) | (22,072,134 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (174,219 | ) | (822,280 | ) | ||||
Shares converted from Class B (See Note 1) | (1,825,863 | ) | (9,965,188 | ) | ||||
|
| |||||||
Net increase (decrease) | (2,000,082 | ) | $ | (10,787,468 | ) | |||
|
| |||||||
41 |
Notes to Financial Statements (Unaudited) (continued)
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 21,135,033 | $ | 48,095,195 | |||||
Shares issued in connection with the acquisition of MainStay High Yield Opportunities Fund | 12,822,216 | 74,236,783 | ||||||
Shares issued to shareholders in reinvestment of dividends and distributions | 2,757,705 | 15,809,509 | ||||||
Shares redeemed | (28,633,196 | ) | (91,100,871 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 8,081,758 | 47,040,616 | ||||||
Shares converted from Class C (See Note 1) | (83,239 | ) | (476,148 | ) | ||||
|
| |||||||
Net increase (decrease) | 7,998,519 | $ | 46,564,468 | |||||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 19,993,040 | $ | 109,180,450 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 5,440,054 | 29,703,583 | ||||||
Shares redeemed | (28,986,251 | ) | (157,020,782 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (3,553,157 | ) | (18,136,749 | ) | ||||
Shares converted from Class C (See Note 1) | (250,206 | ) | (1,309,730 | ) | ||||
|
| |||||||
Net increase (decrease) | (3,803,363 | ) | $ | (19,446,479 | ) | |||
|
| |||||||
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 250,904,132 | $ | 1,446,660,052 | |||||
Shares issued in connection with the acquisition of MainStay High Yield Opportunities Fund | 30,051,743 | 175,001,097 | ||||||
Shares issued to shareholders in reinvestment of dividends and distributions | 28,863,581 | 166,417,952 | ||||||
Shares redeemed | (283,776,234 | ) | (1,634,388,551 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 26,043,222 | 153,690,550 | ||||||
Shares converted into Class I (See Note 1) | 3,648,897 | 21,229,502 | ||||||
|
| |||||||
Net increase (decrease) | 29,692,119 | $ | 174,920,052 | |||||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 423,497,847 | $ | 2,324,352,976 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 54,903,299 | 301,284,721 | ||||||
Shares redeemed | (422,665,098 | ) | (2,300,125,238 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 55,736,048 | 325,512,459 | ||||||
Shares converted into Class I (See Note 1) | 307,287 | 1,718,486 | ||||||
|
| |||||||
Net increase (decrease) | 56,043,335 | $ | 327,230,945 | |||||
|
| |||||||
Class R1 | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 503 | $ | 2,896 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 336 | 1,937 | ||||||
Shares redeemed | (41 | ) | (234 | ) | ||||
|
| |||||||
Net increase (decrease) | 798 | $ | 4,599 | |||||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 2,945 | $ | 16,389 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 555 | 3,049 | ||||||
Shares redeemed | (336 | ) | (1,869 | ) | ||||
|
| |||||||
Net increase (decrease) | 3,164 | $ | 17,569 | |||||
|
| |||||||
Class R2 | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 225,320 | $ | 1,299,829 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 41,653 | 239,932 | ||||||
Shares redeemed | (323,591 | ) | (1,868,633 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (56,618 | ) | (566,867 | ) | ||||
Shares converted from Class R2 (See Note 1) | (260 | ) | (1,507 | ) | ||||
|
| |||||||
Net increase (decrease) | (56,878 | ) | $ | (330,379 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 718,136 | $ | 3,974,621 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 75,552 | 413,789 | ||||||
Shares redeemed | (701,992 | ) | (3,758,039 | ) | ||||
|
| |||||||
Net increase (decrease) | 91,696 | $ | 630,371 | |||||
|
| |||||||
Class R3 | Shares | Amount | ||||||
Period ended April 30, 2017: | ||||||||
Shares sold | 26,770 | $ | 154,396 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 784 | 4,514 | ||||||
Shares redeemed | (7,031 | ) | (40,393 | ) | ||||
|
| |||||||
Net increase (decrease) | 20,523 | $ | 118,517 | |||||
|
| |||||||
Period ended October 31, 2016 (a): | ||||||||
Shares sold | 21,955 | $ | 120,612 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 606 | 3,415 | ||||||
|
| |||||||
Net increase (decrease) | 22,561 | $ | 124,027 | |||||
|
| |||||||
Class R6 | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 4,229,140 | $ | 24,324,091 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 360,995 | 2,078,053 | ||||||
Shares redeemed | (1,223,661 | ) | (7,051,053 | ) | ||||
|
| |||||||
Net increase (decrease) | 3,366,474 | $ | 19,351,091 | |||||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 7,558,759 | $ | 41,981,723 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 372,597 | 2,072,720 | ||||||
Shares redeemed | (1,267,059 | ) | (6,999,447 | ) | ||||
|
| |||||||
Net increase (decrease) | 6,664,297 | $ | 37,054,996 | |||||
|
|
(a) | Inception date was February 29, 2016. |
42 | MainStay High Yield Corporate Bond Fund |
Note 11–Litigation
On December 23, 2014, Cynthia Ann Redus-Tarchis and others filed a complaint against New York Life Investments in the United States District Court for the District of New Jersey. The complaint was brought derivatively on behalf of the MainStay Large Cap Growth Fund, the MainStay High Yield Corporate Bond Fund and another fund previously managed by New York Life Investments and alleges that New York Life Investments violated Section 36(b) of the 1940 Act by charging excessive investment management fees. The plaintiffs seek monetary damages and other relief from New York Life Investments. New York Life Investments believes the case has no merit, and intends to vigorously defend the matter.
On May 6, 2015, a second amended complaint was filed which, among other things, added MainStay High Yield Opportunities Fund as an additional Fund on whose behalf the complaint was brought. New York Life Investments filed a motion to dismiss the second amended complaint. This motion was denied on October 28, 2015. New York Life Investments filed an answer to the second amended complaint on
November 30, 2015. Fact discovery in the case has been completed and expert discovery is ongoing.
Note 12–Fund Acquisitions
MainStay High Yield Opportunities Fund
At a meeting held on November 1-2, 2016, the Board approved an Agreement and Plan of Reorganization providing for the acquisition of the assets and liabilities of the MainStay High Yield Opportunities Fund, a series of MainStay Funds Trust, by the Fund, in exchange for shares of the Fund, followed by the complete liquidation of the MainStay High Yield Opportunities Fund (the “Reorganization”). The Reorganization was completed on February 17, 2017. The aggregate net assets of the Fund immediately before the acquisition were $10,459,740,548 and the combined net assets after the acquisition were $10,776,972,612.
The chart below shows a summary of net assets, shares outstanding, net unrealized appreciation/(depreciation), undistributed net investment income and accumulated net realized gains/(losses), before and after the reorganization.
Before Reorganization | After Reorganization | |||||||||||
MainStay High Yield Opportunities Fund | MainStay High Yield Corporate Bond Fund | MainStay High Yield Corporate Bond Fund | ||||||||||
Net Assets: | ||||||||||||
Class A | $ | 62,812,936 | $ | 3,593,566,219 | $ | 3,656,379,155 | ||||||
Investor Class | 5,181,248 | 288,079,044 | 293,260,292 | |||||||||
Class B | — | 130,694,661 | 130,694,661 | |||||||||
Class C | 74,236,783 | 671,406,491 | 745,643,274 | |||||||||
Class I | 175,001,097 | 5,700,715,046 | 5,875,716,143 | |||||||||
Class R1 | — | 62,081 | 62,081 | |||||||||
Class R2 | — | 10,841,706 | 10,841,706 | |||||||||
Class R3 | — | 222,918 | 222,918 | |||||||||
Class R6 | — | 64,152,382 | 64,152,382 | |||||||||
Shares Outstanding: | ||||||||||||
Class A | 5,800,751 | 617,686,243 | 628,482,926 | |||||||||
Investor Class | 480,906 | 49,118,183 | 50,001,601 | |||||||||
Class B | — | 22,582,583 | 22,582,583 | |||||||||
Class C | 6,885,751 | 115,964,747 | 128,786,963 | |||||||||
Class I | 16,123,153 | 978,944,874 | 1,008,996,617 | |||||||||
Class R1 | — | 10,674 | 10,674 | |||||||||
Class R2 | — | 1,862,964 | 1,862,964 | |||||||||
Class R3 | — | 38,332 | 38,332 | |||||||||
Class R6 | — | 11,028,891 | 11,028,891 | |||||||||
Net unrealized appreciation/(depreciation) | 10,328,312 | 276,337,007 | 286,665,319 | |||||||||
Undistributed net investment income | 250,908 | 1,327,073 | 1,327,073 | |||||||||
Accumulated net realized gain/(loss) | (78,971,261 | ) | (248,958,072 | ) | (248,958,072 | ) |
Assuming the acquisition of MainStay High Yield Opportunities Fund had been completed on November 1, 2016, the beginning of the annual reporting period of the Fund, the Fund’s pro forma results of operations for the period ended April 30, 2017, are as follows:
Net investment income | $ | 292,840,359 | ||
Net realized gain on investments | 121,237,862 | |||
Net increase in net assets resulting from operations | $ | 414,078,221 |
Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the MainStay High Yield Opportunities Fund that have been included in the Fund’s Statement of Operations since February 17, 2017.
For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value; however, the cost basis of the investments received from MainStay High Yield Opportunities Fund, in
43 |
Notes to Financial Statements (Unaudited) (continued)
the amount of $301,102,166, was carried forward to align ongoing reporting of the Fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes. The Fund acquired capital loss carryovers of $78,386,195 (subject to future annual limitations).
Note 13–Recent Accounting Pronouncement
In October 2016, the SEC adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the Fund’s financial statements and related disclosures.
Note 14–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, 2017, events and transactions subsequent to April 30, 2017, 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 of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of trustees initially approve and, following an initial term of up to two years, annually review and approve the fund’s investment advisory agreement(s). At its December 12-14, 2016 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 2016 and December 2016, as well as other relevant information furnished to the Board throughout the year. 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 fee and total expenses. The Board also considered information on the fees charged to any other investment advisory clients of New York Life Investments and MacKay Shields (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 Trustees who are not “interested persons” (as such term is defined under the 1940 Act) of the Fund (the “Independent Trustees”). Information provided to the Board in advance of and during meetings throughout the year included, among other items, information regarding the legal standards applicable to their consideration of the Agreements and 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, risk management, portfolio turnover, and sales and marketing activity. At various meetings, the Independent Trustees also met in executive session with their independent legal counsel, and met with senior management of New York Life Investments without other representatives of New York Life Investments present.
Throughout the year and specifically in connection with its June meeting each year, the Board also received an overview of the Funds’ distribution arrangements. In addition, the Board received information regarding the Fund’s asset levels, share purchase and redemption activity and the payment of Rule 12b-1 distribution and service fees by the Fund. New York Life Investments also provided the Board with information regarding the revenue sharing payments made to inter-
mediaries that promote the sale, distribution, and/or servicing of Fund shares.
In considering the Agreements, the Trustees comprehensively 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 described in greater detail below and included, among other items: (i) the nature, extent 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 have been realized or may be realized if the Fund grows and the extent to which economies of scale have benefited or may benefit Fund shareholders; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to any similar funds and accounts managed by New York Life Investments and MacKay Shields. Although the Board recognized that the comparisons between the Fund’s fees and expenses and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Board also considered the reasonableness of the Fund’s management fee and overall total ordinary operating expenses as compared to the peer funds identified by Strategic Insight.
While individual Trustees may have weighed certain factors or information differently, the Board’s decision to approve the Agreements was based on a consideration of the information provided to the Trustees throughout the year, as well as information furnished specifically in connection with the contract review process. Throughout the year, the Trustees are also afforded an opportunity to ask questions of and request additional information or materials from New York Life Investments and MacKay Shields. The Board’s conclusions with respect to the Agreements may have been based, in part, on the Board’s knowledge of New York Life Investments and MacKay Shields resulting from, among other things, the Board’s consideration of the MainStay Group of Funds’ advisory 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. The factors that figured prominently in the Board’s decision to approve the Agreements are summarized in more detail below.
Nature, Extent and Quality of Services to Be Provided by New York Life Investments and MacKay Shields
The Board examined the nature, extent and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience and capabilities 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
45 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
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 observed that New York Life Investments devotes significant resources and time to providing advisory and non-advisory services to the Fund, including its extensive oversight of MacKay Shields.The Board also considered the full range of services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and on-going oversight services provided by New York Life Investments’ Fund Administration and Accounting 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; (iv) legal services provided by New York Life Investments’ Office of the General Counsel; and (v) risk management and portfolio trading oversight and analysis by compliance and investment personnel. 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, infrastructure, technology, operational enhancements, cyber security, information security and shareholder privacy resources 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, extent and quality of the investment 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 records 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 further considered New York Life Investments’ policies, procedures and systems to reasonably assure compliance with applicable laws and regulations. In addition, the Board considered the policies and procedures in place with respect to matters that may involve conflicts of interest between the Fund’s investments and those of other accounts managed by MacKay Shields. 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 manager, the number of accounts managed by the portfolio manager and the method for compensating portfolio manager.
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, extent 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, and in light of market conditions. 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’s Investment Committee that occur regularly, generally 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 of the services provided by New York Life Investments and MacKay Shields and profits realized by 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 recognized that the Fund benefits from the allocation of certain fixed
46 | MainStay High Yield Corporate Bond Fund |
costs across the MainStay Group of Funds, among other benefits resulting from its relationship with New York Life Investments.
In addition, the Board acknowledged 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. In connection with the annual fund profitability analysis that New York Life Investments presents to the Board, the Board in 2014 engaged Bobroff Consulting, Inc., an independent third-party consultant, to review the methods used to allocate costs to the MainStay Funds, and among individual Funds. As part of this engagement, the consultant analyzed: (i) the various New York Life Investments’ business units and affiliated Subadvisers that provide services to the MainStay Funds; (ii) how costs are allocated to the Fund and other funds managed by New York Life Investments, and to other lines of businesses; and (iii) how New York Life Investments’ cost allocation methods and profitability reports compare to industry practices. The Board noted that the independent consultant had concluded that New York Life Investments’ methods for allocating costs and procedures for estimating overall profitability of the funds in the MainStay Group of Funds, including the Fund, are reasonable, consistent with industry practice and likely to produce reasonable profitability estimates. Although the Board recognized 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 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 incurred by New York Life Investments from its own resources.
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 Fund and other funds in the MainStay Group of Funds. 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, initially setting relatively low management fees or making additional investments to enhance shareholder services. 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. Additionally, the Board considered New York Life Investments’ assessment of the extent economies of scale existed for Funds that had experienced significant increases of assets during the year.
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, because 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 that follow similar investment strategies 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 registered investment companies as compared with other investment advisory clients. Additionally, the Board considered the impact of any contractual breakpoints, voluntary waivers and expense
47 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
limitation arrangements on the Fund’s net management fee and expenses. The Board also noted that, following discussion with the Board, New York Life Investments had proposed, and the Board had approved, an additional management fee breakpoint for the Fund.
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 demonstrating 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 also noted information received from NYLIM Service Company LLC regarding the sub-transfer agency payments it made to intermediaries in connection with the 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 a number of 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 recognized 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) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iii) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (iv) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (v) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vi) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. The Board also considered that NYLIM Service Company LLC had waived its cost of living adjustments in 2015, 2016 and 2017. In addition, the Board acknowledged New York Life Investments’ continued 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 and factors summarized above and the evaluation thereof, the Board as a whole, including the Independent Trustees who are not parties to the Agreements or “interested persons” of any such party voting separately, 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 or proxy voting record 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).
49 |
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MainStay Funds
Equity
U.S. Equity
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay Epoch U.S. Small Cap Fund
MainStay ICAP Equity Fund1
MainStay ICAP Select Equity Fund1
MainStay Large Cap Growth Fund
MainStay MAP Equity Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
International/Global Equity
MainStay Emerging Markets Equity Fund
MainStay Epoch Capital Growth Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Choice Fund
MainStay Epoch International Small Cap Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond
MainStay Emerging Markets Debt Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay Indexed Bond Fund
MainStay Short Duration High Yield Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal/Tax Advantaged Bond
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Advantaged Short Term Bond Fund
MainStay Tax Free Bond Fund
Money Market
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
Alternative
MainStay Absolute Return Multi-Strategy Fund
MainStay Cushing Energy Income Fund
MainStay Cushing MLP Premier Fund
MainStay Cushing Renaissance Advantage 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
MainStay Retirement 2060 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Candriam France S.A.S.4
Paris, France
Cornerstone Capital Management Holdings LLC4
New York, New York
Cushing Asset Management, LP
Dallas, Texas
Epoch Investment Partners, Inc.
New York, New York
MacKay Shields LLC4
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC4
New York, New York
Winslow Capital Management, LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Washington, District of Columbia
Independent Registered Public Accounting Firm
KPMG LLP
Philadelphia, Pennsylvania
1. On May 8, 2017, the Fund merged into MainStay Epoch U.S. Equity Yield Fund. Former shareholders of this Fund can request the Fund’s Semiannual Report by calling 800-MAINSTAY (624-6782).
2. Class A and Class I shares of this Fund are registered for sale in AZ, CA, MI, NV, OR, TX, UT and WA. Class I shares are registered for sale in CO, FL, GA, HI, ID, MA, MD, NH, NJ and NY.
3. This Fund is registered for sale in CA, CT, DE, FL, MA, NJ, NY and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Semiannual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
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. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
©2017 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 |
1739388 MS144-17 | MSHY10-06/17 (NYLIM) NL008 |
MainStay Money Market Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2017
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Message from the President
The six months ended April 30, 2017, proved to be a strong period for many equity investors but presented challenges for some bond investors.
The reporting period began with considerable uncertainty about the outcome of the U.S. election. Once the Republicans gained control of the White House, the Senate and the House of Representatives, however, many investors hoped to see an end to political gridlock; and although debate has continued on a number of issues, the U.S. stock market steadily climbed through the end of the reporting period.
According to FTSE-Russell U.S. market data, stocks at all capitalization levels earned double-digit overall returns during the reporting period. Although growth stocks outperformed value stocks at most capitalization levels, value stocks outperformed growth stocks among micro-cap stocks.
In December 2016 and March 2017, the Federal Reserve announced increases in the target range for the federal funds rate. These moves, which brought the federal funds target range to 0.75% to 1.00%, were felt across the bond market. During the reporting period, yields rose on U.S. Treasury securities of all maturities, with the largest absolute increase on the 5-year U.S. Treasury note. On a percentage basis, however, the largest increases were at the short end of the maturity spectrum, with yields on the 1- and 3-month U.S. Treasury bills more than doubling during the reporting period.
When interest rates rise, bond prices tend to decline (and vice versa). As a result, several broad fixed-income asset classes—including U.S. government and agency bonds, mortgage-backed securities, investment-grade debt and municipal bonds—recorded negative total returns for the reporting period. Convertible securities, high-yield bonds and floating-rate loans, which tend to be less sensitive to interest-rate changes, provided positive total returns.
International stock markets generally advanced during the reporting period, with European stocks providing strong
double-digit returns. The Pacific region and Japan were weaker but provided positive returns in the single digits. Emerging markets also provided solid performance for the reporting period, despite modest commodity prices.
Many short-term political, economic and world events affected the markets during the reporting period. Nevertheless, at MainStay, we believe that the primary concern of our portfolio managers should be the long-term welfare of our shareholders, and we appreciate the discipline our portfolio managers seek to apply in their long-term investment decisions.
Our portfolio managers seek to pursue the investment objectives of their respective MainStay Funds using the various investment strategies outlined in the Fund’s Prospectus. Utilizing their years of professional market experience, they seek to enhance returns when possible, manage risk as necessary and view short-term events in light of long-term investment goals. At MainStay, we believe that shareholders who maintain a long-term perspective may be better able to weather turbulent markets, avoid selling when prices are low and stay focused on their reasons for choosing MainStay Funds.
The report that follows provides more detailed information about the markets, securities and decisions that affected your MainStay Fund during the six months ended April 30, 2017. We invite you to read it carefully and use the information as part of your ongoing portfolio evaluation and review.
Sincerely,
Stephen P. Fisher
President
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. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support at any time.
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, 30 Hudson Street, Jersey City, NJ 07302 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 and other factors, 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, 2017
Class | Sales Charge | Inception Date | Six Months | One Year | Five Years or Since Inception | Ten Years or Since Inception | Gross Expense Ratio2 | |||||||||||||||||
Class A Shares3 | No Sales Charge | 1/3/1995 | 0.09 | % | 0.09 | % | 0.03 | % | 0.53 | % | 0.57 | % | ||||||||||||
Investor Class Shares3 | No Sales Charge | 2/28/2008 | 0.05 | 0.05 | 0.02 | 0.19 | 0.76 | |||||||||||||||||
Class B Shares3,4 | No Sales Charge | 5/1/1986 | 0.05 | 0.05 | 0.02 | 0.51 | 0.76 | |||||||||||||||||
Class C Shares3 | No Sales Charge | 9/1/1998 | 0.05 | 0.05 | 0.02 | 0.51 | 0.76 | |||||||||||||||||
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, if any, 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 may 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 (if any), 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, 2017, MainStay Money Market Fund had an effective 7-day yield of 0.37% for Class A, and 0.18% for Investor Class, B and C shares. The 7-day current yield was 0.37% for Class A, and 0.18% for Investor Class, Class 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 0.37%, 0.18%, 0.18% and 0.18%, for Class A, Investor Class, Class B and C shares, respectively, and the 7-day current yield would have been 0.37%, 0.18%, 0.18% and 0.18%, for Class A, Investor Class, Class B and C shares, respectively. The current yield reflects the Fund’s earnings better than the Fund’s total return. |
4. | Class B shares are closed to all new purchases as well as additional investments by existing Class B shareholders. |
The footnote on the next page is an integral part of the table and graph and should be carefully read in conjunction with them.
5 |
Benchmark Performance | Six Months | One Year | Five Years or Since Inception | Ten Years or Since Inception | ||||||||||||
Average Lipper Money Market Fund5 | 0.18 | % | 0.25 | % | 0.07 | % | 0.62 | % |
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, 2016, to April 30, 2017, 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, 2016, to April 30, 2017.
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, 2017. 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 11/1/16 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/17 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/17 | Expenses Paid During Period1 | Net Expense During Period2 | ||||||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,000.90 | $ | 2.93 | $ | 1,021.90 | $ | 2.96 | 0.59% | |||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,000.50 | $ | 3.37 | $ | 1,021.40 | $ | 3.41 | 0.68% | |||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,000.50 | $ | 3.32 | $ | 1,021.50 | $ | 3.36 | 0.67% | |||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,000.50 | $ | 3.32 | $ | 1,021.50 | $ | 3.36 | 0.67% |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class 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. |
2. | Expenses are equal to the Fund’s annualized expense ratio to reflect the six-month period. |
7 |
Portfolio Composition as of April 30, 2017 (Unaudited)
See Portfolio of Investments beginning on page 10 for specific holdings within these categories.
‡ | Less than one-tenth of a percent. |
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 peers during the six months ended April 30, 2017?
As of April 30, 2017, MainStay Money Market Fund provided a 7-day current yield of 0.37% for Class A shares and 0.18% for Investor Class, Class B and Class C shares. As of the same date, the Fund provided a 7-day effective yield of 0.37% for Class A shares and 0.18% for all other share classes. For the six months ended April 30, 2017, Class A shares returned 0.09% and Investor Class, Class B and Class C shares all returned 0.05%. All share classes underperformed the 0.18% return of the Average Lipper1 Money Market Fund for the six months ended April 30, 2017. Performance figures for the Fund reflect certain fee waivers and/or expense limitations without which total returns would have been lower.
What factors affected the Fund’s performance during the reporting period?
The Fund’s performance was affected by the increase in short-term interest rates during the reporting period, because longer maturities became more attractive than shorter maturities and the yield differences between securities with shorter maturities and longer maturities widened. However, because of the lingering effects of money market reform—in particular, how Fund outflows might potentially increase—the Fund concentrated on maintaining a higher level of liquidity during the first part of the reporting period. This was accomplished by investing in securities with shorter maturities. This higher-liquidity, shorter-maturity strategy muted the Fund’s ability to take full advantage of the higher yields on securities with longer maturities.
What was the Fund’s duration2 during the reporting period?
The Fund’s duration was increased from 29 days to 36 days during the reporting period. The increase in duration boosted the Fund’s yield, as the allocation of Fund assets into securities with longer maturities increased during the reporting period.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
The Fund’s duration strategy was to maintain a shorter duration during most of the reporting period to position the Fund for
higher potential outflows as a result of money market fund reform. After the second Federal Reserve interest-rate hike in March 2017, however, cash flows appeared to stabilize, so the Fund increased its duration during the latter stages of the reporting period. This allowed the Fund to take advantage of higher yields on securities with longer maturities. Additionally, as LIBOR3 rates increased during the reporting period, the Fund invested in securities that were tied to this index in an effort to increase portfolio yield.
During the reporting period, which market segments were the strongest contributors to the Fund’s performance and which market segments were particularly weak?
During the reporting period, floating-rate securities tied to the LIBOR index provided positive contributions to the Fund’s performance. (Contributions take weightings and total returns into account.) These securities were able to benefit both from a widening differential between U.S. Treasury yields and like-maturity LIBOR yields as well as higher short-term interest rates. U.S. Treasury securities continued to have lower yields on a relative basis because of increased demand resulting from money market reform. As assets moved into government-only money market funds, demand for for U.S. Treasury securities rose.
Did the Fund make any significant purchases or sales during the reporting period?
The Fund made a number of significant purchases during the reporting period. Among these were a U.S. Treasury 0.75% coupon due 4/30/18 and a Royal Bank of Canada floating-rate certificate of deposit due 12/20/2017. There were no significant sales during the reporting period.
How did the Fund’s sector weightings change during the reporting period?
During the six months ended April 30, 2017, the Fund increased its sector weightings in repurchase agreements and commercial paper. Over the same period, the Fund decreased its sector weighting in certificates of deposit.
1. | See footnote on page 6 for more information on Lipper Inc. |
2. | 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 days or years and is considered a more accurate sensitivity gauge than average maturity. |
3. | The London InterBank Offered Rate (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. |
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 forecasts will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
9 |
Portfolio of Investments April 30, 2017 (Unaudited)
Principal Amount | Amortized Cost | |||||||
Short-Term Investments 100.0%† | ||||||||
Certificates of Deposit 5.2% (a) | ||||||||
Chase Bank USA NA | $ | 4,000,000 | $ | 4,000,000 | ||||
1.442%, due 5/26/17 | 4,000,000 | 4,000,000 | ||||||
Royal Bank of Canada | 5,000,000 | 5,000,000 | ||||||
1.353%, due 6/1/17 | 5,000,000 | 5,000,000 | ||||||
|
| |||||||
18,000,000 | ||||||||
|
| |||||||
Financial Company Commercial Paper 19.4% (b) |
| |||||||
American Express Credit Corp. | 5,000,000 | 4,998,056 | ||||||
Bank of Nova Scotia | 4,000,000 | 4,000,000 | ||||||
Canadian Imperial Bank of Commerce | 5,000,000 | 5,000,000 | ||||||
Commonwealth Bank of Australia 1.221%, due 4/16/18 (a)(c) | 4,000,000 | 4,000,000 | ||||||
CPPIB Capital, Inc. (c) | 4,000,000 | 4,000,000 | ||||||
0.809%, due 5/4/17 | 4,000,000 | 3,999,690 | ||||||
JPMorgan Securities LLC | 4,000,000 | 3,990,800 | ||||||
Massachusetts Mutual Life Insurance Co. | 4,000,000 | 3,999,120 | ||||||
National Rural Utilities Cooperative Finance Corp. | 5,000,000 | 4,999,750 | ||||||
1.284%, due 5/12/17 (a) | 5,000,000 | 5,000,358 | ||||||
Nationwide Life Insurance Co. (c) | 5,000,000 | 4,999,871 | ||||||
0.854%, due 5/16/17 | 2,500,000 | 2,499,052 | ||||||
0.855%, due 5/17/17 | 4,000,000 | 3,998,382 | ||||||
0.858%, due 5/19/17 | 2,500,000 | 2,498,862 | ||||||
Ontario Teachers’ Finance Trust (c) | 5,000,000 | 4,994,167 | ||||||
1.202%, due 8/2/17 | 4,000,000 | 3,986,463 | ||||||
|
| |||||||
66,964,571 | ||||||||
|
| |||||||
Other Commercial Paper 40.3% (b) | ||||||||
Army and Air Force Exchange Service | 5,000,000 | 4,999,500 | ||||||
Atmos Energy Corp. | 5,000,000 | 4,998,744 | ||||||
Brown-Forman Corp. | 2,000,000 | 1,999,167 | ||||||
Canadian National Railway Co. | 5,000,000 | 4,997,700 |
Principal Amount | Amortized Cost | |||||||
Other Commercial Paper (continued) |
| |||||||
Caterpillar Financial Services Corp. | $ | 3,500,000 | $ | 3,500,000 | ||||
0.852%, due 6/9/17 | 4,000,000 | 3,995,233 | ||||||
Cisco Systems, Inc. | 2,500,000 | 2,499,089 | ||||||
Coca-Cola Co. (c) | 5,000,000 | 5,000,000 | ||||||
0.806%, due 5/24/17 (c) | 2,500,000 | 2,498,642 | ||||||
Cummins, Inc. | 4,000,000 | 3,999,902 | ||||||
Danaher Corp. | 5,000,000 | 4,998,625 | ||||||
Eli Lilly & Co. | 3,700,000 | 3,698,635 | ||||||
Emerson Electric Co. (c) | 3,000,000 | 2,999,723 | ||||||
0.837%, due 5/25/17 | 5,000,000 | 4,997,233 | ||||||
Exxon Mobil Corp. | 4,000,000 | 3,999,393 | ||||||
Florida Power & Light Co. | 5,482,000 | 5,478,147 | ||||||
1.133%, due 6/5/17 | 4,000,000 | 3,995,606 | ||||||
General Dynamics Corp. | 6,000,000 | 5,994,983 | ||||||
Henkel of America, Inc. (c) | 5,000,000 | 4,991,608 | ||||||
0.95%, due 7/10/17 | 3,500,000 | 3,492,514 | ||||||
0.983%, due 7/24/17 | 4,000,000 | 3,989,360 | ||||||
Hershey Co. (c) | 5,000,000 | 4,999,770 | ||||||
0.833%, due 5/22/17 | 4,500,000 | 4,497,769 | ||||||
Kimberly-Clark Corp. | 5,000,000 | 4,999,556 | ||||||
0.832%, due 5/8/17 (c) | 2,000,000 | 1,999,681 | ||||||
0.844%, due 5/8/17 | 1,500,000 | 1,499,752 | ||||||
L’Oreal USA, Inc. | 4,000,000 | 3,997,107 | ||||||
Merck & Co., Inc. | 5,000,000 | 4,998,250 | ||||||
Roche Holdings, Inc. | 4,000,000 | 3,998,647 | ||||||
Siemens Capital Co., LLC | 5,000,000 | 4,992,706 | ||||||
Total Capital Canada Ltd. | 6,000,000 | 5,987,930 | ||||||
UnitedHealth Group, Inc. (c) | 5,000,000 | 4,993,931 | ||||||
1.168%, due 6/26/17 | 5,000,000 | 4,990,667 | ||||||
|
| |||||||
139,079,570 | ||||||||
|
|
† | Percentages indicated are based on Fund net assets. |
10 | MainStay Money Market Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Amortized Cost | |||||||
Short-Term Investments (continued) | ||||||||
Other Municipal Securities 0.7% | ||||||||
Province of Quebec | $ | 2,500,000 | $ | 2,496,678 | ||||
|
| |||||||
Treasury Debt 14.2% | ||||||||
United States Treasury Bills | 10,000,000 | 9,997,958 | ||||||
0.68%, due 5/25/17 | 5,000,000 | 4,997,600 | ||||||
0.685%, due 6/1/17 | 5,000,000 | 4,997,094 | ||||||
0.69%, due 5/18/17 | 10,000,000 | 9,996,529 | ||||||
United States Treasury Notes | 4,000,000 | 4,000,072 | ||||||
0.75%, due 4/30/18 | 5,000,000 | 4,982,277 | ||||||
0.875%, due 1/31/18 | 5,000,000 | 5,000,000 | ||||||
0.875%, due 3/31/18 | 5,000,000 | 4,992,545 | ||||||
|
| |||||||
48,964,075 | ||||||||
|
| |||||||
Treasury Repurchase Agreements 20.2% |
| |||||||
Bank of America N.A. | 15,000,000 | 15,000,000 | ||||||
Bank of Montreal | 15,000,000 | 15,000,000 | ||||||
RBC Capital Markets | 15,000,000 | 15,000,000 |
Principal Amount | Amortized Cost | |||||||
Treasury Repurchase Agreements (continued) |
| |||||||
TD Securities (U.S.A.) LLC | $ | 24,832,000 | $ | 24,832,000 | ||||
|
| |||||||
69,832,000 | ||||||||
|
| |||||||
Total Short-Term Investments (Amortized Cost $345,336,894) (d) | 100.0 | % | 345,336,894 | |||||
Other Assets, Less Liabilities | (0.0 | )‡ | (143,003 | ) | ||||
Net Assets | 100.0 | % | $ | 345,193,891 |
‡ | Less than one-tenth of a percent. |
(a) | Floating rate—Rate shown was the rate in effect as of April 30, 2017. |
(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 notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 11 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
The following is a summary of the fair valuations according to the inputs used as of April 30, 2017, for valuing the Fund’s assets and liabilities.
Asset Valuation Inputs
Description | Quoted Assets (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Short-Term Investments | ||||||||||||||||
Certificates of Deposit | $ | — | $ | 18,000,000 | $ | — | $ | 18,000,000 | ||||||||
Financial Company Commercial Paper | — | 66,964,571 | — | 66,964,571 | ||||||||||||
Other Commercial Papers | — | 139,079,570 | — | 139,079,570 | ||||||||||||
Other Municipal Securities | — | 2,496,678 | — | 2,496,678 | ||||||||||||
Treasury Debt | — | 48,964,075 | — | 48,964,075 | ||||||||||||
Treasury Repurchase Agreements | — | 69,832,000 | — | 69,832,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | — | $ | 345,336,894 | $ | — | $ | 345,336,894 | ||||||||
|
|
|
|
|
|
|
|
(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, 2017, the Fund did not have any transfers among levels. (See Note 2)
As of April 30, 2017, the Fund did not hold any investments with significant unobservable inputs (Level 3). (See Note 2)
12 | MainStay Money Market Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
The table below sets forth the diversification of MainStay Money Market Fund investments by industry.
Industry Diversification (Unaudited)
Amortized Cost | Percent † | |||||||
Aerospace & Defense | $ | 5,994,983 | 1.7 | % | ||||
Banks | 61,000,000 | 17.7 | ||||||
Beverages | 9,497,809 | 2.8 | ||||||
Country Funds—Closed-end | 7,999,690 | 2.3 | ||||||
Diversified Financial Services | 67,801,594 | 19.7 | ||||||
Electric | 9,473,753 | 2.7 | ||||||
Electrical Components & Equipment | 7,996,957 | 2.3 | ||||||
Food | 9,497,538 | 2.8 | ||||||
Gas | 4,998,744 | 1.4 | ||||||
Healthcare—Products | 4,998,625 | 1.4 | ||||||
Healthcare—Services | 13,983,244 | 4.1 | ||||||
Household Products & Wares | 20,972,471 | 6.1 | ||||||
Insurance | 17,995,288 | 5.2 | ||||||
Machinery—Construction & Mining | 7,495,233 | 2.2 | ||||||
Machinery Diversified | 3,999,902 | 1.2 | ||||||
Miscellaneous—Manufacturing | 4,992,706 | 1.4 | ||||||
Oil & Gas | 9,987,323 | 2.9 | ||||||
Pharmaceuticals | 8,696,885 | 2.5 | ||||||
Regional (state/province) | 2,496,678 | 0.7 | ||||||
Retail | 8,996,607 | 2.6 | ||||||
Sovereign | 48,964,075 | 14.2 | ||||||
Telecommunications | 2,499,089 | 0.7 | ||||||
Transportation | 4,997,700 | 1.4 | ||||||
|
|
|
| |||||
345,336,894 | 100.0 | |||||||
Other Assets, Less Liabilities | (143,003 | ) | (0.0 | ) | ||||
|
|
|
| |||||
Net Assets | $ | 345,193,891 | 100.0 | % | ||||
|
|
|
|
† | Percentages indicated are based on Fund net assets. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 13 |
Statement of Assets and Liabilities as of April 30, 2017 (Unaudited)
Assets | ||||
Investment in securities, at value | $ | 275,504,894 | ||
Repurchase agreements, at value | 69,832,000 | |||
Cash | 6,286 | |||
Receivables: | ||||
Investment securities sold | 4,000,000 | |||
Fund shares sold | 972,360 | |||
Interest | 107,142 | |||
Other assets | 62,361 | |||
|
| |||
Total assets | 350,485,043 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Fund shares redeemed | 4,990,840 | |||
Manager (See Note 3) | 116,937 | |||
Transfer agent (See Note 3) | 98,353 | |||
Shareholder communication | 35,711 | |||
Professional fees | 31,491 | |||
Custodian | 14,402 | |||
Trustees | 879 | |||
Accrued expenses | 492 | |||
Dividend payable | 2,047 | |||
|
| |||
Total liabilities | 5,291,152 | |||
|
| |||
Net assets | $ | 345,193,891 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 3,452,451 | ||
Additional paid-in capital | 341,741,947 | |||
|
| |||
345,194,398 | ||||
Distributions in excess of net investment income | (323 | ) | ||
Accumulated net realized gain (loss) on investments | (184 | ) | ||
|
| |||
Net assets | $ | 345,193,891 | ||
|
|
Class A | ||||
Net assets applicable to outstanding shares | $ | 200,996,395 | ||
|
| |||
Shares of beneficial interest outstanding | 201,027,081 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 1.00 | ||
|
| |||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 59,300,238 | ||
|
| |||
Shares of beneficial interest outstanding | 59,312,223 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 1.00 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 46,696,222 | ||
|
| |||
Shares of beneficial interest outstanding | 46,702,102 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 1.00 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 38,201,036 | ||
|
| |||
Shares of beneficial interest outstanding | 38,203,671 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 1.00 | ||
|
|
14 | MainStay Money Market Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Statement of Operations for the six months ended April 30, 2017 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 1,384,522 | ||
Other income | 1,640 | |||
|
| |||
Total income | 1,386,162 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 835,101 | |||
Transfer agent (See Note 3) | 294,167 | |||
Registration | 56,772 | |||
Professional fees | 32,986 | |||
Shareholder communication | 32,375 | |||
Custodian | 19,085 | |||
Trustees | 4,995 | |||
Miscellaneous | 7,460 | |||
|
| |||
Total expenses before waiver/reimbursement | 1,282,941 | |||
Expense waiver/reimbursement from Manager (See Note 3) | (108,678 | ) | ||
|
| |||
Net expenses | 1,174,263 | |||
|
| |||
Net investment income (loss) | 211,899 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 211,899 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 15 |
Statements of Changes in Net Assets
for the six months ended April 30, 2017 (Unaudited) and the year ended October 31, 2016
2017 | 2016 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 211,899 | $ | 95,970 | ||||
Net realized gain (loss) on investments | — | 18 | ||||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 211,899 | 95,988 | ||||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Class A | (195,052 | ) | (29,064 | ) | ||||
Investor Class | (27,189 | ) | (6,807 | ) | ||||
Class B | (23,519 | ) | (6,509 | ) | ||||
Class C | (18,899 | ) | (5,285 | ) | ||||
|
| |||||||
Total dividends to shareholders | (264,659 | ) | (47,665 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 183,822,765 | 492,903,915 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 253,463 | 41,934 | ||||||
Cost of shares redeemed | (218,320,284 | ) | (512,734,483 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | (34,244,056 | ) | (19,788,634 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets | (34,296,816 | ) | (19,740,311 | ) | ||||
Net Assets | ||||||||
Beginning of period | 379,490,707 | 399,231,018 | ||||||
|
| |||||||
End of period | $ | 345,193,891 | $ | 379,490,707 | ||||
|
| |||||||
Undistributed (distributions in excess of) net investment income at end of period | $ | (323 | ) | $ | 52,436 | |||
|
|
16 | MainStay Money Market Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class A | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 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 | )‡ | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 0.09 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 0.14 | %†† | 0.02 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | ||||||||||||||||
Net expenses | 0.59 | %†† | 0.43 | % | 0.13 | % | 0.11 | % | 0.15 | % | 0.17 | % | ||||||||||||||||
Expenses (before waiver/reimbursement) | 0.61 | %†† | 0.64 | % | 0.64 | % | 0.64 | % | 0.65 | % | 0.69 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 200,997 | $ | 226,181 | $ | 243,517 | $ | 230,330 | $ | 290,028 | $ | 259,119 |
* | 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. For periods of less than one year, total return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Investor Class | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 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: | ||||||||||||||||||||||||||||
From net investment income | (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 (b) | 0.05 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 0.07 | %†† | 0.02 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.00 | %‡ | ||||||||||||||||
Net expenses | 0.68 | %†† | 0.43 | % | 0.14 | % | 0.11 | % | 0.16 | % | 0.18 | % | ||||||||||||||||
Expenses (before waiver/reimbursement) | 0.79 | %†† | 0.83 | % | 0.87 | % | 0.89 | % | 0.90 | % | 0.91 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 59,300 | $ | 58,658 | $ | 56,512 | $ | 56,177 | $ | 58,774 | $ | 59,129 |
* | 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. For periods of less than one year, total 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. | 17 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class B | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 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 | )‡ | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 0.05 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 0.06 | %†† | 0.02 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | ||||||||||||||||
Net expenses | 0.67 | %†† | 0.43 | % | 0.14 | % | 0.11 | % | 0.16 | % | 0.18 | % | ||||||||||||||||
Expenses (before waiver/reimbursement) | 0.79 | %†† | 0.83 | % | 0.87 | % | 0.89 | % | 0.90 | % | 0.91 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 46,696 | $ | 53,341 | $ | 58,152 | $ | 63,581 | $ | 73,803 | $ | 84,982 |
* | 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. For periods of less than one year, total return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class C | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 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: | ||||||||||||||||||||||||||||
From net investment income | (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 (b) | 0.05 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 0.07 | %†† | 0.02 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | ||||||||||||||||
Net expenses | 0.67 | %†† | 0.43 | % | 0.13 | % | 0.11 | % | 0.15 | % | 0.18 | % | ||||||||||||||||
Expenses (before waiver/reimbursement) | 0.79 | %†† | 0.83 | % | 0.87 | % | 0.89 | % | 0.90 | % | 0.91 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 38,201 | $ | 41,311 | $ | 41,050 | $ | 36,939 | $ | 33,254 | $ | 28,212 |
* | 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. For periods of less than one year, total return is not annualized. |
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. |
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, and is governed by a Declaration of 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, as that term is defined in the 1940 Act, as interpreted or modified by regulatory authorities having jurisdiction, from time to time.
The Fund currently offers five 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. Class T shares of the Fund were registered for sale effective as of February 28, 2017. As of the period ended April 30, 2017, Class T shares had no investment operations.
Effective February 28, 2017, Class B shares of the MainStay Group of Funds were closed to all new purchases as well as additional investments by existing Class B shareholders. Existing Class B shareholders may continue to reinvest dividends and capital gains distributions, as well as exchange their Class B shares for Class B shares of other Funds as permitted by the current exchange privileges. Class B shareholders continue to be subject to any applicable contingent deferred sales charge at the time of redemption. All other features of the Class B shares, including but not limited to the fees and expenses applicable to Class B shares, remain unchanged. Unless redeemed, Class B shareholders will remain in Class B shares of their respective Fund until the Class B shares are converted to Class A or Investor Class shares pursuant to the applicable conversion schedule. Depending upon eligibility, Class B shares convert to either Class A or Investor Class 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. Under certain circumstances and as may be permitted by to the Trust’s multiple class plan under Rule 18f-3 of the 1940 Act, an exchange/conversion may be made from specified share classes of the Fund to one or more other share classes of the Fund as disclosed in the capital share transactions within these Notes. 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.
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 is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services—Investment Companies. 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. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share by using the amortized cost method of valuation, it cannot guarantee it will do so. The Fund may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
(B) Securities Valuation. Securities are valued using the amortized cost method of valuation, unless the use of such method would be inappropriate per the requirements of Rule 2a-7 under the 1940 Act. 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 establishing methodologies for the valuation of the Fund’s securities and other assets and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Trust (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 establishing the prices of securities for which market quotations are not readily available or the prices of which are not otherwise readily determinable under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. Subsequently, the Valuation Committee meets 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 the day-to-day valuation of portfolio assets (including fair value measurements for the Fund’s assets and liabilities) 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, Subadvisor 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 with changes 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, if appropriate, 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 or other asset is submitted by the Valuation Committee to the Board for its review and ratification, if appropriate, at its next regularly scheduled meeting.
“Fair value” is defined as the price the Fund would reasonably expect to receive upon selling an asset or liability in an orderly transaction to an
19 |
Notes to Financial Statements (Unaudited) (continued)
independent buyer in the principal or most advantageous market for the asset or liability. Fair value measurements are determined within a framework that establishes 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 assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities. 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 level of an asset or liability within the fair value hierarchy is based on the lowest level of an input, both individually and in the aggregate, that is significant to the fair value measurement. As of April 30, 2017, the aggregate value by input level of the Fund’s assets and 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 is valued by methods deemed reasonable 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. During the six-month period ended April 30, 2017, there were no material changes to the fair value methodologies.
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, 2017, there were no securities held by the Fund that were fair valued in such a manner.
(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 its 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 permitted only to the extent 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. Dividends from net investment income, if any, are declared daily and paid monthly and distributions from net realized capital and currency gains, if any, are declared and paid 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 pro rata to separate classes of shares 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
20 | MainStay Money Market Fund |
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 (i.e., buy a security from another party with the agreement that it be sold back in the future) to earn income. The Fund may enter into repurchase agreements only with counterparties, usually 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 counterparty. Under the 1940 Act, repurchase agreements are considered to be collateralized loans by the Fund to the seller secured by the securities transferred to the Fund.
Repurchase agreements are subject to counterparty risk, meaning the Fund could lose money by the counterparty’s failure to perform under the terms of the agreement. The Fund mitigates this risk by ensuring the repurchase agreement is collateralized by cash, U.S. government securities, fixed income securities and/or other securities. The collateral, is held by the fund’s custodian 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 counterparty’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) Debt Securities. The Fund’s investments may include securities such as variable rate notes, floaters and mortgage-related and asset-backed securities. If expectations about changes in interest rates, or assessments of an issuer’s credit worthiness or market conditions are incorrect, these types of investments could lose money.
The Fund may also invest in U.S. dollar-denominated securities of foreign issuers, which carry certain risks in addition to the usual risks inherent in domestic instruments. These risks include those resulting from future adverse political or economic developments and possible imposition of foreign governmental laws or restrictions. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic or political developments in a specific country, industry or region.
(J) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in 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 attributable to the Fund. NYL Investors LLC (“NYL Investors” or the “Subadvisor”), a registered investment adviser and a direct, 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 NYL Investors, New York Life Investments pays for the services of the Subadvisor.
Under the Management Agreement, 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: 0.40% up to $500 million; 0.35% from $500 million to $1 billion; and 0.30% in excess of $1 billion. During the six-month period ended April 30, 2017, the effective management fee rate was 0.45% of the Fund’s average daily net assets.
Prior to February 28, 2017, 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: 0.45% 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% from $20 million to $100 million; and 0.01% in excess of $100 million.
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: Class A, 0.70%; Investor Class, 0.80%; Class B, 0.80%; and Class C, 0.80%.This agreement will remain in effect until February 28, 2018, 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 by the Board.
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
21 |
Notes to Financial Statements (Unaudited) (continued)
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. 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.
During the six-month period ended April 30, 2017, New York Life Investments earned fees from the Fund in the amount of $835,101 Additionally, New York Life Investments reimbursed fees in the amount of $108,678, without which the Fund’s total returns would have been lower.
State Street 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. During the six-month period ended April 30, 2017, the Fund was advised by the Distributor that the amount of initial sales charges retained on sales of Class A shares were $0.
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 are 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. During the six-month period ended April 30, 2017, 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, Investor Class, Class B and Class C of $24,334, $23, $37,667 and $14,305, respectively.
(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. During the six-month period ended April 30, 2017, transfer agent expenses incurred by the Fund were as follows:
Class A | $ | 99,463 | ||
Investor Class | 75,295 | |||
Class B | 66,169 | |||
Class C | 53,240 |
(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
During the year ended October 31, 2016, the tax character of distributions paid as reflected in the Statements of Changes in Net Assets was as follows:
2016 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 47,665 |
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 transactions incurred by the Fund.
Note 6–Interfund Lending Program
Pursuant to an exemptive order issued by the SEC, the Fund, along with certain other funds managed by New York Life Investments, may participate in an interfund lending program. The interfund lending program provides an alternative credit facility that permits the Fund and certain other funds managed by New York Life Investments to lend or borrow money for temporary purposes directly to or from one another, subject to the conditions of the exemptive order. During the six-month period ended April 30, 2017, there were no interfund loans made or outstanding with respect to the Fund.
Note 7–Capital Share Transactions
Class A (at $1 per share) | Shares | |||
Six-month period ended April 30, 2017: | ||||
Shares sold | 130,050,012 | |||
Shares issued to shareholders in reinvestment of dividends and distributions | 186,457 | |||
Shares redeemed | (159,673,026 | ) | ||
|
| |||
Net increase (decrease) in shares outstanding before conversion | (29,436,557 | ) | ||
Shares converted into Class A (See Note 1) | 6,678,990 | |||
Shares converted from Class A (See Note 1) | (2,394,866 | ) | ||
|
| |||
Net increase (decrease) | (25,152,433 | ) | ||
|
| |||
Year ended October 31, 2016: | ||||
Shares sold | 369,603,010 | |||
Shares issued to shareholders in reinvestment of dividends and distributions | 27,146 | |||
Shares redeemed | (394,385,308 | ) | ||
|
| |||
Net increase (decrease) in shares outstanding before conversion | (24,755,152 | ) | ||
Shares converted into Class A (See Note 1) | 12,005,934 | |||
Shares converted from Class A (See Note 1) | (4,616,215 | ) | ||
|
| |||
Net increase (decrease) | (17,365,433 | ) | ||
|
| |||
22 | MainStay Money Market Fund |
Investor Class (at $1 per share) | Shares | |||
Six-month period ended April 30, 2017: | ||||
Shares sold | 25,204,849 | |||
Shares issued to shareholders in reinvestment of dividends and distributions | 26,107 | |||
Shares redeemed | (20,801,035 | ) | ||
|
| |||
Net increase (decrease) in shares outstanding before conversion | 4,429,921 | |||
Shares converted into Investor Class (See Note 1) | 2,520,512 | |||
Shares converted from Investor Class (See Note 1) | (6,298,115 | ) | ||
|
| |||
Net increase (decrease) | 652,318 | |||
|
| |||
Year ended October 31, 2016: | ||||
Shares sold | 47,185,103 | |||
Shares issued to shareholders in reinvestment of dividends and distributions | 4,957 | |||
Shares redeemed | (38,170,925 | ) | ||
|
| |||
Net increase (decrease) in shares outstanding before conversion | 9,019,135 | |||
Shares converted into Investor Class (See Note 1) | 4,716,440 | |||
Shares converted from Investor Class (See Note 1) | (11,597,361 | ) | ||
|
| |||
Net increase (decrease) | 2,138,214 | |||
|
| |||
Class B (at $1 per share) | Shares | |||
Six-month period ended April 30, 2017: | ||||
Shares sold | 4,225,697 | |||
Shares issued to shareholders in reinvestment of dividends and distributions | 22,793 | |||
Shares redeemed | (10,791,154 | ) | ||
|
| |||
Net increase (decrease) in shares outstanding before conversion | (6,542,664 | ) | ||
Shares converted from Class B (See Note 1) | (96,588 | ) | ||
|
| |||
Net increase (decrease) | (6,639,252 | ) | ||
|
| |||
Year ended October 31, 2016: | ||||
Shares sold | 13,369,067 | |||
Shares issued to shareholders in reinvestment of dividends and distributions | 5,210 | |||
Shares redeemed | (17,683,537 | ) | ||
|
| |||
Net increase (decrease) in shares outstanding before conversion | (4,309,260 | ) | ||
Shares converted from Class B (See Note 1) | (508,789 | ) | ||
|
| |||
Net increase (decrease) | (4,818,049 | ) | ||
|
| |||
Class C (at $1 per share) | Shares | |||
Six-month period ended April 30, 2017: | ||||
Shares sold | 24,342,207 | |||
Shares issued to shareholders in reinvestment of dividends and distributions | 18,106 | |||
Shares redeemed | (27,055,069 | ) | ||
|
| |||
Net increase (decrease) in shares outstanding before conversion | (2,694,756 | ) | ||
Shares converted from Class C (See Note 1) | (409,933 | ) | ||
|
| |||
Net increase (decrease) | (3,104,689 | ) | ||
|
| |||
Year ended October 31, 2016: | ||||
Shares sold | 62,746,661 | |||
Shares issued to shareholders in reinvestment of dividends and distributions | 4,621 | |||
Shares redeemed | (62,494,713 | ) | ||
|
| |||
Net increase (decrease) in shares outstanding before conversion | 256,569 | |||
Shares converted from Class C (See Note 1) | (9 | ) | ||
|
| |||
Net increase (decrease) | 256,560 | |||
|
|
Note 8–Recent Accounting Pronouncement
In October 2016, the SEC adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the Fund’s financial statements and related disclosures.
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, 2017, events and transactions subsequent to April 30, 2017, 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.
23 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited)
Section 15 of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of trustees initially approve and, following an initial term of up to two years, annually review and approve the fund’s investment advisory agreement(s). At its December 12-14, 2016 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”) and the Subadvisory Agreement between New York Life Investments and NYL Investors LLC (“NYL Investors”) with respect to the Fund.
In reaching its decision to approve the Agreements, the Board considered information furnished by New York Life Investments and NYL Investors in connection with a contract review process that took place at various meetings of the Board and its Contracts Committee between September 2016 and December 2016, as well as other relevant information furnished to the Board throughout the year. 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 fee and total expenses. The Board also considered information on the fees charged to any other investment advisory clients of New York Life Investments and NYL Investors (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 NYL Investors as subadvisor to the Fund, and responses from New York Life Investments and NYL Investors 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 Trustees who are not “interested persons” (as such term is defined under the 1940 Act) of the Fund (the “Independent Trustees”). Information provided to the Board in advance of and during meetings throughout the year included, among other items, information regarding the legal standards applicable to their consideration of the Agreements and 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, risk management, portfolio turnover, and sales and marketing activity. At various meetings, the Independent Trustees also met in executive session with their independent legal counsel, and met with senior management of New York Life Investments without other representatives of New York Life Investments present.
Throughout the year and specifically in connection with its June meeting each year, the Board also received an overview of the Fund’s distribution arrangements. In addition, the Board received information regarding the Fund’s asset levels, share purchase and redemption activity and the payment of Rule 12b-1 distribution and service fees by the Fund. New York Life Investments also provided the Board with
information regarding the revenue sharing payments made to intermediaries that promote the sale, distribution, and/or servicing of Fund shares.
In considering the Agreements, the Trustees comprehensively 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 described in greater detail below and included, among other items: (i) the nature, extent and quality of the services provided to the Fund by New York Life Investments and NYL Investors; (ii) the investment performance of the Fund, New York Life Investments and NYL Investors; (iii) the costs of the services provided, and profits realized, by New York Life Investments and NYL Investors from their relationships with the Fund; (iv) the extent to which economies of scale have been realized or may be realized if the Fund grows and the extent to which economies of scale have benefited or may benefit Fund shareholders; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to any similar funds and accounts managed by New York Life Investments and NYL Investors. Although the Board recognized that the comparisons between the Fund’s fees and expenses and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Board also considered the reasonableness of the Fund’s management fee and overall total ordinary operating expenses as compared to the peer funds identified by Strategic Insight.
While individual Trustees may have weighed certain factors or information differently, the Board’s decision to approve the Agreements was based on a consideration of the information provided to the Trustees throughout the year, as well as information furnished specifically in connection with the contract review process. Throughout the year, the Trustees are also afforded an opportunity to ask questions of and request additional information or materials from New York Life Investments and NYL Investors. The Board’s conclusions with respect to the Agreements may have been based, in part, on the Board’s knowledge of New York Life Investments and NYL Investors resulting from, among other things, the Board’s consideration of the MainStay Group of Funds’ advisory 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. The factors that figured prominently in the Board’s decision to approve the Agreements are summarized in more detail below.
Nature, Extent and Quality of Services to Be Provided by New York Life Investments and NYL Investors
The Board examined the nature, extent and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience and capabilities 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
24 | MainStay Money Market Fund |
Investments providing management and administrative services to the Fund as well as New York Life Investments’ reputation and financial condition. The Board observed that New York Life Investments devotes significant resources and time to providing advisory and non-advisory services to the Fund, including its extensive oversight of NYL Investors. The Board also considered the full range of services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and on-going oversight services provided by New York Life Investments’ Fund Administration and Accounting 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; (iv) legal services provided by New York Life Investments’ Office of the General Counsel; and (v) risk management and portfolio trading oversight and analysis by compliance and investment personnel. 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, infrastructure, technology, operational enhancements, cyber security, information security and shareholder privacy resources 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, extent and quality of the investment advisory services that NYL Investors provides to the Fund. The Board evaluated NYL Investors’ experience in serving as subadvisor to the Fund and managing other portfolios. It examined NYL Investors’ track record and experience in providing investment advisory services, the experience of investment advisory, senior management and administrative personnel at NYL Investors, and NYL Investors’ overall legal and compliance environment. The Board further considered New York Life Investments’ policies, procedures and systems to reasonably assure compliance with applicable laws and regulations. In addition, the Board considered the policies and procedures in place with respect to matters that may involve conflicts of interest between the Fund’s investments and those of other accounts managed by NYL Investors. The Board also reviewed NYL Investors’ 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, extent and quality of these services as a result of New York Life Investments’ and NYL Investors’ 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, and in light of market conditions. 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’s Investment Committee that occur regularly, generally on an annual basis. In addition, the Board considered any specific actions that New York Life Investments or NYL Investors 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 NYL Investors 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 NYL Investors
The Board considered the costs of the services provided by New York Life Investments and NYL Investors under the Agreements and the profits realized by New York Life Investments and its affiliates, including NYL Investors, due to their relationships with the Fund. Because NYL Investors 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 NYL Investors in the aggregate.
In evaluating the costs of the services provided by New York Life Investments and NYL Investors and profits realized by New York Life Investments and its affiliates, including NYL Investors, 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 NYL Investors 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 NYL Investors to continue to provide high-quality services to the Fund. The Board also recognized that the Fund benefits from the allocation of certain fixed costs across the
25 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
MainStay Group of Funds, among other benefits resulting from its relationship with New York Life Investments.
In addition, the Board acknowledged 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. In connection with the annual fund profitability analysis that New York Life Investments presents to the Board, the Board in 2014 engaged Bobroff Consulting, Inc., an independent third-party consultant, to review the methods used to allocate costs to the MainStay Funds, and among individual Funds. As part of this engagement, the consultant analyzed: (i) the various New York Life Investments’ business units and affiliated Subadvisers that provide services to the MainStay Funds; (ii) how costs are allocated to the Fund and other funds managed by New York Life Investments, and to other lines of businesses; and (iii) how New York Life Investments’ cost allocation methods and profitability reports compare to industry practices. The Board noted that the independent consultant had concluded that New York Life Investments’ methods for allocating costs and procedures for estimating overall profitability of the funds in the MainStay Group of Funds, including the Fund, are reasonable, consistent with industry practice and likely to produce reasonable profitability estimates. Although the Board recognized 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 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 incurred by New York Life Investments from its own resources.
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 NYL Investors, 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 Fund and other funds in the MainStay Group of Funds. 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, initially setting relatively low management fees or making additional investments to enhance shareholder services. 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. Additionally, the Board considered New York Life Investments’ assessment of the extent economies of scale existed for Funds that had experienced significant increases of assets during the year.
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, because the fees paid to NYL Investors 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 NYL Investors on fees charged to other investment advisory clients, including institutional separate accounts and other funds that follow similar investment strategies 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 registered investment companies as compared with other investment advisory clients. Additionally, the Board considered the impact of any contractual breakpoints, voluntary waivers and expense
26 | MainStay Money Market Fund |
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 also considered its discussions with representatives from New York Life Investments regarding the Fund’s contractual management fee. The Board considered and approved New York Life Investments’ proposal to lower the Fund’s management fee. 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 demonstrating 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 also noted information received from NYLIM Service Company LLC regarding the sub-transfer agency payments it made to intermediaries in connection with the 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 a number of 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 recognized 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) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iii) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (iv) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (v) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and
(vi) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. The Board also considered that NYLIM Service Company LLC had waived its cost of living adjustments in 2015, 2016 and 2017. In addition, the Board acknowledged New York Life Investments’ continued 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 and factors summarized above and the evaluation thereof, the Board as a whole, including the Independent Trustees who are not parties to the Agreements or “interested persons” of any such party voting separately, unanimously voted to approve the Agreements.
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 or proxy voting record 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
Equity
U.S. Equity
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay Epoch U.S. Small Cap Fund
MainStay ICAP Equity Fund1
MainStay ICAP Select Equity Fund1
MainStay Large Cap Growth Fund
MainStay MAP Equity Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
International/Global Equity
MainStay Emerging Markets Equity Fund
MainStay Epoch Capital Growth Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Choice Fund
MainStay Epoch International Small Cap Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond
MainStay Emerging Markets Debt Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay Indexed Bond Fund
MainStay Short Duration High Yield Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal/Tax Advantaged Bond
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Advantaged Short Term Bond Fund
MainStay Tax Free Bond Fund
Money Market
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
Alternative
MainStay Absolute Return Multi-Strategy Fund
MainStay Cushing Energy Income Fund
MainStay Cushing MLP Premier Fund
MainStay Cushing Renaissance Advantage 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
MainStay Retirement 2060 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Candriam France S.A.S.4
Paris, France
Cornerstone Capital Management Holdings LLC4
New York, New York
Cushing Asset Management, LP
Dallas, Texas
Epoch Investment Partners, Inc.
New York, New York
MacKay Shields LLC4
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC4
New York, New York
Winslow Capital Management, LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Washington, District of Columbia
Independent Registered Public Accounting Firm
KPMG LLP
Philadelphia, Pennsylvania
1. On May 8, 2017, the Fund merged into MainStay Epoch U.S. Equity Yield Fund. Former shareholders of this Fund can request the Fund’s Semiannual Report by calling 800-MAINSTAY (624-6782).
2. Class A and Class I shares of this Fund are registered for sale in AZ, CA, MI, NV, OR, TX, UT and WA. Class I shares are registered for sale in CO, FL, GA, HI, ID, MA, MD, NH, NJ and NY.
3. This Fund is registered for sale in CA, CT, DE, FL, MA, NJ, NY and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Semiannual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
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. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
©2017 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 |
1737111 MS144-17 | MSMM10-06/17 (NYLIM) NL012 |
MainStay Tax Free Bond Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2017
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Message from the President
The six months ended April 30, 2017, proved to be a strong period for many equity investors but presented challenges for some bond investors.
The reporting period began with considerable uncertainty about the outcome of the U.S. election. Once the Republicans gained control of the White House, the Senate and the House of Representatives, however, many investors hoped to see an end to political gridlock; and although debate has continued on a number of issues, the U.S. stock market steadily climbed through the end of the reporting period.
According to FTSE-Russell U.S. market data, stocks at all capitalization levels earned double-digit overall returns during the reporting period. Although growth stocks outperformed value stocks at most capitalization levels, value stocks outperformed growth stocks among micro-cap stocks.
In December 2016 and March 2017, the Federal Reserve announced increases in the target range for the federal funds rate. These moves, which brought the federal funds target range to 0.75% to 1.00%, were felt across the bond market. During the reporting period, yields rose on U.S. Treasury securities of all maturities, with the largest absolute increase on the 5-year U.S. Treasury note. On a percentage basis, however, the largest increases were at the short end of the maturity spectrum, with yields on the 1- and 3-month U.S. Treasury bills more than doubling during the reporting period.
When interest rates rise, bond prices tend to decline (and vice versa). As a result, several broad fixed-income asset classes—including U.S. government and agency bonds, mortgage-backed securities, investment-grade debt and municipal bonds—recorded negative total returns for the reporting period. Convertible securities, high-yield bonds and floating-rate loans, which tend to be less sensitive to interest-rate changes, provided positive total returns.
International stock markets generally advanced during the reporting period, with European stocks providing strong
double-digit returns. The Pacific region and Japan were weaker but provided positive returns in the single digits. Emerging markets also provided solid performance for the reporting period, despite modest commodity prices.
Many short-term political, economic and world events affected the markets during the reporting period. Nevertheless, at MainStay, we believe that the primary concern of our portfolio managers should be the long-term welfare of our shareholders, and we appreciate the discipline our portfolio managers seek to apply in their long-term investment decisions.
Our portfolio managers seek to pursue the investment objectives of their respective MainStay Funds using the various investment strategies outlined in the Fund’s Prospectus. Utilizing their years of professional market experience, they seek to enhance returns when possible, manage risk as necessary and view short-term events in light of long-term investment goals. At MainStay, we believe that shareholders who maintain a long-term perspective may be better able to weather turbulent markets, avoid selling when prices are low and stay focused on their reasons for choosing MainStay Funds.
The report that follows provides more detailed information about the markets, securities and decisions that affected your MainStay Fund during the six months ended April 30, 2017. We invite you to read it carefully and use the information as part of your ongoing portfolio evaluation and review.
Sincerely,
Stephen P. Fisher
President
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, 30 Hudson Street, Jersey City, NJ 07302 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 and other factors, 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, 2017
Class | Sales Charge | Inception Date | Six Months | One Year | Five Years or Since | Ten Years or Since | Gross Expense Ratio2 | |||||||||||||||||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges | | 1/3/1995 | | – – | 5.72 1.28 | %
| – – | 4.72 0.23 | %
| | 2.93 3.88 | %
| | 3.74 4.22 | %
| | 0.80 0.80 | %
| ||||||||
Investor Class Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges | | 2/28/2008 | | – – | 5.80 1.36 |
| – – | 4.78 0.30 |
| | 2.90 3.86 |
| | 4.47 4.99 |
| | 0.79 0.79 |
| ||||||||
Class B Shares3 | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges | | 5/1/1986 | | – – | 6.25 1.39 |
| – – | 5.30 0.46 |
| | 3.25 3.60 |
| | 3.91 3.91 |
| | 1.04 1.04 |
| ||||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges | | 9/1/1998 | | – – | 2.37 1.39 |
| – – | 1.53 0.56 |
| | 3.60 3.60 |
| | 3.90 3.90 |
| | 1.04 1.04 |
| ||||||||
Class I Shares | No Sales Charge | 12/21/2009 | – | 1.16 | – | 0.08 | 4.14 | 5.43 | 0.55 |
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, if any, 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 may 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 (if any), 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. | Class B shares are closed to all new purchases as well as additional investments by existing Class B shareholders. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
5 |
Benchmark Performance | Six Months | One Year | Five Years | Ten Years | ||||||||||||
Bloomberg Barclays Municipal Bond Index4 | – | 0.34 | % | 0.14 | % | 3.16 | % | 4.37 | % | |||||||
Average Lipper General & Insured Municipal Debt Fund5 | – | 0.85 | – | 0.13 | 3.06 | 3.69 |
4. | The Bloomberg Barclays Municipal Bond Index is the Fund’s primary broad-based securities market index for comparison purposes. The Bloomberg Barclays Municipal Bond Index is considered representative of the broad-based 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. Results assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
5. | 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, 2016, to April 30, 2017, 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, 2016, to April 30, 2017.
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, 2017. 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 11/1/16 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/17 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/17 | Expenses Paid During Period1 | Net Expense Ratio During Period2 | ||||||||||||||||||
Class A Shares | $ | 1,000.00 | $ | 987.20 | $ | 3.99 | $ | 1,020.80 | $ | 4.06 | 0.81 | % | ||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 986.40 | $ | 3.89 | $ | 1,020.90 | $ | 3.96 | 0.79 | % | ||||||||||||
Class B Shares | $ | 1,000.00 | $ | 986.10 | $ | 5.12 | $ | 1,019.60 | $ | 5.21 | 1.04 | % | ||||||||||||
Class C Shares | $ | 1,000.00 | $ | 986.10 | $ | 5.12 | $ | 1,019.60 | $ | 5.21 | 1.04 | % | ||||||||||||
Class I Shares | $ | 1,000.00 | $ | 988.40 | $ | 2.76 | $ | 1,022.00 | $ | 2.81 | 0.56 | % |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class 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. |
2. | Expenses are equal to the Fund’s annualized expense ratio to reflect the six-month period. |
7 |
Portfolio Composition as of April 30, 2017† (Unaudited)
California | 15.7 | % | ||
Illinois | 15.0 | |||
New York | 14.7 | |||
Puerto Rico | 6.3 | |||
Texas | 6.0 | |||
Michigan | 3.7 | |||
New Jersey | 3.6 | |||
Pennsylvania | 2.8 | |||
Connecticut | 2.6 | |||
U.S. Virgin Islands | 2.3 | |||
South Carolina | 2.0 | |||
Massachusetts | 1.9 | |||
Ohio | 1.8 | |||
Rhode Island | 1.8 | |||
Guam | 1.7 | |||
Missouri | 1.7 | |||
Florida | 1.5 | |||
Tennessee | 1.5 | |||
Nebraska | 1.5 | |||
Arkansas | 1.3 | |||
District of Columbia | 1.1 | |||
Oklahoma | 1.1 | |||
Louisiana | 0.9 | |||
Kansas | 0.7 |
Wisconsin | 0.7 | % | ||
Alabama | 0.6 | |||
Virginia | 0.6 | |||
Colorado | 0.5 | |||
Georgia | 0.4 | |||
Indiana | 0.4 | |||
New Hampshire | 0.3 | |||
Montana | 0.3 | |||
North Carolina | 0.3 | |||
Mississippi | 0.2 | |||
North Dakota | 0.2 | |||
Maryland | 0.2 | |||
Alaska | 0.2 | |||
Iowa | 0.1 | |||
Hawaii | 0.1 | |||
Kentucky | 0.1 | |||
New Mexico | 0.1 | |||
South Dakota | 0.1 | |||
Wyoming | 0.0 | ‡ | ||
Arizona | 0.0 | ‡ | ||
Utah | 0.0 | ‡ | ||
Other Assets, Less Liabilities | 1.4 | |||
|
| |||
100.0 | % | |||
|
|
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
‡ | Less than one-tenth of a percent. |
Top Ten Issuers Held as of April 30, 2017 (excluding short-term investment) (Unaudited)
1. | Puerto Rico Highways & Transportation Authority, Revenue Bonds, 5.25%–5.50%, due 7/1/21–7/1/36 (Insured) |
2. | Illinois Finance Authority, University of Chicago Medical Center, Revenue Bonds, 0.85%–4.00%, due 8/15/41–8/1/44 |
3. | Virgin Islands Public Finance Authority, Revenue Bonds, 5.00%, due 10/1/30–10/1/39 |
4. | North Texas Tollway Authority, Revenue Bonds, 5.00%, due 1/1/34–1/1/40 |
5. | New York City Transitional Finance Authority, Future Tax Secured, Revenue Bonds, 1.08%–5.00%, due 11/1/22–2/1/41 |
6. | New York City Transitional Finance Authority, Building Aid, Revenue Bonds, 5.00%, due 7/15/33–7/15/43 |
7. | Central Plains Energy, Project No. 3, Revenue Bonds, 5.00%–5.25%, due 9/1/32–9/1/42 |
8. | Triborough Bridge & Tunnel Authority, Revenue Bonds, 5.00%, due 11/15/35–11/15/36 |
9. | Chicago Board of Education, Unlimited General Obligation, 5.00%–5.50%, due 12/1/32–12/1/39 |
10. | New York Transportation Development Corp., LaGuardia Airport Terminal B Redevelopment Project, Revenue Bonds, 4.00%, due 7/1/31–7/1/36 |
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 primary benchmark and peers during the six months ended April 30, 2017?
Excluding all sales charges, MainStay Tax Free Bond Fund returned –1.28% for Class A shares, –1.36% for Investor Class shares and –1.39% for Class B and Class C shares for the six months ended April 30, 2017. Over the same period, Class I shares returned –1.16%. For the six months ended April 30, 2017, all share classes underperformed the –0.34% return of the Bloomberg Barclays Municipal Bond Index,1 which is the Fund’s broad-based securities-market index, and the –0.85% return of the Average Lipper2 General & Insured Municipal Debt Fund. See page 5 for Fund returns with applicable sales charges.
What factors affected the Fund’s relative performance during the reporting period?
Positive contributions to the Fund’s performance relative to the Bloomberg Barclays Municipal Bond Index came from an emphasis in Puerto Rico–insured bonds and from the Fund’s high cash reserves. (Contributions take weightings and total returns into account.) The Fund’s exposure to longer-maturity bonds and medium-quality credits detracted from relative performance as the municipal yield curve3 steepened and credit spreads4 widened, especially at the beginning of the reporting period. Exposure to uninsured Virgin Islands credits and to New Jersey credits also detracted from the Fund’s performance relative to the Bloomberg Barclays Municipal Bond Index.
What was the Fund’s duration5 strategy during the reporting period?
During the reporting period, the Fund’s duration was targeted to remain in a neutral range relative to the bonds in which the Fund can invest, as outlined in the prospectus. This target typically places the Fund’s duration within plus or minus 10% of the benchmark’s duration. As of April 30, 2017, the Fund’s modified duration to worst6 was 4.36 years.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
The municipal market experienced a significant dislocation at the beginning of the reporting period. Redemptions, which were already weighing on the municipal market, escalated after the
November 2016 U.S. presidential election. The municipal market took a cue from the U.S. Treasury market with higher rates warranted by fears that a stronger economy could spur higher inflation and a higher federal deficit. The municipal market also showed signs of concern about potential changes in the tax code, which led tax-exempt bonds to underperform most of their taxable counterparts. In particular, credit spreads in the municipal market widened. While the Fund experienced a significant drawdown in November 2016, higher cash reserves insulated the Fund from selling into a difficult market. In fact, we were able to purchase bonds in both the primary and secondary markets while many of our competitors were selling. During the fourth quarter of 2016, the Fund began extending maturities and buying lower-quality investment-grade securities, based on the tax-code concern noted above.
During the reporting period, which sectors were the strongest positive contributors to the Fund’s performance and which sectors were particularly weak?
The most substantial positive contributions to the Fund’s performance during the reporting period came from an underweight position relative to the Bloomberg Barclays Municipal Bond Index in state general obligation bonds. This positioning aided performance because the sector underperformed the Index. Pre-refunded bonds also augmented the Fund’s performance relative to the Index as the yield curve steepened during the reporting period. Detracting from performance were the Fund’s positions in special tax, electric utilities and hospital bonds.
How did the Fund’s sector weightings change during the reporting period?
We reduced the Fund’s exposure to pre-refunded bonds during the reporting period. This was done because we anticipated Federal Reserve moves to increase short-term interest rates, which could cause the municipal yield curve to flatten. The proceeds from these sales were invested predominantly in 15- to 20-year bonds. We increased the Fund’s specialty state exposure in line with our 2017 insights. We increased the Fund’s exposure to California, New York, Arkansas, Missouri and Oklahoma. During the reporting period, we reduced the Fund’s exposure to Florida and Texas, which have no personal income tax.
1. | See footnote on page 6 for more information on the Bloomberg Barclays Municipal Bond Index. |
2. | See footnote on page 6 for more information on Lipper Inc. |
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. The term “credit spread” typically refers to the difference in yield between corporate or municipal bonds (or a specific category of these bonds) and comparable U.S. Treasury issues. |
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. |
9 |
How was the Fund positioned at the end of the reporting period?
As of April 30, 2017, the Fund maintained overweight positions relative to the Bloomberg Barclays Municipal Bond Index in bonds with maturities of 15 years or longer, although new purchases have concentrated on slightly shorter maturities. As of the same date, the Fund also held an overweight position
relative to the Index in credits rated BBB.7 As of April 30, 2017, the Fund held underweight positions relative to the Index in securities rated AAA8 and in bonds with maturities of less than 10 years. At the end of the reporting period, the Fund also maintained a defensive duration position in relation to the benchmark.
7. | 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. |
8. | An obligation rated ‘AAA’ has the highest rating assigned by S&P, and in the opinion of S&P, the obligor’s capacity to meet its financial commitment on the obligation is extremely strong. 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 forecasts 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, 2017 (Unaudited)
Principal Amount | Value | |||||||
Municipal Bonds 98.6%† | ||||||||
Alabama 0.6% |
| |||||||
City of Birmingham AL, Unlimited General Obligation | $ | 4,150,000 | $ | 4,610,360 | ||||
Houston County Health Care Authority, Southeast Alabama Medical, | 1,000,000 | 1,136,330 | ||||||
5.00%, due 10/1/30 | 3,700,000 | 4,020,161 | ||||||
University of South Alabama, Revenue Bonds Insured: AGM | 2,000,000 | 2,078,640 | ||||||
Insured: AGM | 1,110,000 | 1,299,632 | ||||||
Insured: AGM | 2,000,000 | 2,329,360 | ||||||
|
| |||||||
15,474,483 | ||||||||
|
| |||||||
Alaska 0.2% |
| |||||||
Alaska Industrial Development & Export Authority, FairBanks Community Hospital, Revenue Bonds | 3,550,000 | 3,866,305 | ||||||
|
| |||||||
Arizona 0.0%‡ |
| |||||||
Arizona Health Facilities Authority, Phoenix Children’s Hospital, Revenue Bonds | 1,000,000 | 1,056,630 | ||||||
|
| |||||||
Arkansas 1.3% |
| |||||||
City of Fort Smith AR, Water & Sewer, Revenue Bonds | 1,945,000 | 2,332,483 | ||||||
Insured: BAM | 1,535,000 | 1,826,312 | ||||||
Insured: BAM | 1,075,000 | 1,268,479 | ||||||
Insured: BAM | 2,335,000 | 2,724,221 | ||||||
County of Pulaski AR, Arkansas Children’s Hospital, Revenue Bonds | 2,000,000 | 2,288,620 | ||||||
5.00%, due 3/1/35 | 1,550,000 | 1,765,636 | ||||||
Springdale Public Facilities Board, Arkansas Children’s Northwest, Revenue Bonds | 2,890,000 | 3,317,142 |
Principal Amount | Value | |||||||
Arkansas (continued) |
| |||||||
Springdale School District No. 50, Limited General Obligation | $ | 2,500,000 | $ | 2,562,475 | ||||
4.00%, due 6/1/40 | 11,000,000 | 11,207,900 | ||||||
University of Arkansas, UALR Campus, Revenue Bonds | ||||||||
5.00%, due 10/1/29 | 1,315,000 | 1,564,876 | ||||||
5.00%, due 10/1/30 | 1,110,000 | 1,312,553 | ||||||
5.00%, due 10/1/31 | 1,205,000 | 1,416,694 | ||||||
|
| |||||||
33,587,391 | ||||||||
|
| |||||||
California 15.7% |
| |||||||
Alisal Union School District, Election 2016, Unlimited General Obligation | 3,505,000 | 4,094,962 | ||||||
Anaheim Public Financing Authority, Public Improvements Project, Revenue Bonds | 11,990,000 | 6,732,385 | ||||||
Series A-1, Insured: NATL-RE | 15,675,000 | 15,867,332 | ||||||
Anaheim Public Financing Authority, Revenue Bonds | 3,750,000 | 4,203,262 | ||||||
Anaheim, California, School District, Election 2010, Unlimited General Obligation | 4,700,000 | 5,666,367 | ||||||
Antelope Valley Community College District, Election 2016, Unlimited General Obligation | 15,000,000 | 16,346,850 | ||||||
California Educational Facilities Authority, Loma Linda University, Revenue Bonds | 390,000 | 434,873 | ||||||
California Educational Facilities Authority, San Francisco University, Revenue Bonds | 1,525,000 | 1,804,487 | ||||||
California Health Facilities Financing Authority, Dignity Health, Revenue Bonds | 3,000,000 | 3,323,940 |
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest issuers held, as of April 30, 2017, 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. | 11 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
California (continued) |
| |||||||
California Health Facilities Financing Authority, Providence St. Joseph Health, Revenue Bonds | $ | 1,230,000 | $ | 1,273,985 | ||||
California Health Facilities Financing Authority, Sutter Health, Revenue Bonds | 5,000,000 | 5,692,350 | ||||||
Series A | 5,000,000 | 5,585,050 | ||||||
California Municipal Finance Authority, Community Medical Centers, Revenue Bonds | 7,250,000 | 7,971,882 | ||||||
California School Facilities Financing Authority, Azusa Unified School District, Revenue Bonds | 15,000,000 | 2,924,550 | ||||||
California State Public Works Board, Various Capital Project, Revenue Bonds | 1,400,000 | 1,557,836 | ||||||
Series I-1 | 175,000 | 175,501 | ||||||
California State University, Systemwide, Revenue Bonds | 11,905,000 | 13,640,749 | ||||||
California Statewide Communities Development Authority, Aspire Public Schools, Revenue Bonds | 780,000 | 849,178 | ||||||
California Statewide Communities Development Authority, Cottage Health Obligation Group, Revenue Bonds | 1,475,000 | 1,616,320 | ||||||
Ceres Unified School District, Capital Appreciation-Election 2008, Unlimited General Obligation | 4,150,000 | 1,155,236 | ||||||
Chino Valley Unified School District, Election 2016, Unlimited General Obligation | 2,500,000 | 2,931,800 |
Principal Amount | Value | |||||||
California (continued) |
| |||||||
City of Escondido CA, Unlimited General Obligation | $ | 5,000,000 | $ | 5,732,950 | ||||
City of Long Beach CA, Airport System, Revenue Bonds | 5,000,000 | 5,479,750 | ||||||
City of Tulare CA, Sewer, Revenue Bonds | 5,500,000 | 5,632,055 | ||||||
Coachella Valley Unified School District, Election 2005, Unlimited General Obligation | 12,385,000 | 13,968,051 | ||||||
Coast Community College District, Election 2012, Unlimited General Obligation | 24,500,000 | 27,220,235 | ||||||
Colton Joint Unified School District, Unlimited General Obligation | 3,495,000 | 3,775,089 | ||||||
Series B, Insured: BAM | 2,500,000 | 2,681,875 | ||||||
Series B, Insured: BAM | 1,500,000 | 1,589,265 | ||||||
Firebaugh-Las Deltas Unified School District, Election 2016, Unlimited General Obligation | 3,000,000 | 3,531,180 | ||||||
Fontana Public Finance Authority, Revenue Bonds | 2,640,000 | 3,002,261 | ||||||
Fontana Unified School District, CABS, Unlimited General Obligation | 14,800,000 | 6,335,584 | ||||||
Series C | 15,500,000 | 6,150,090 | ||||||
Fresno Unified School District, Election 2001, Unlimited General Obligation | 6,000,000 | 2,606,400 | ||||||
Series G | 10,000,000 | 4,027,500 | ||||||
Series G | 23,485,000 | 5,401,080 |
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) | ||||||||
California (continued) |
| |||||||
Fresno Unified School District, Unlimited General Obligation | $ | 6,900,000 | $ | 7,087,956 | ||||
Golden State Tobacco Securitization Corp., Asset-Backed, Revenue Bonds | 5,410,000 | 6,029,824 | ||||||
Lennox School District, Election 2016, Unlimited General Obligation | 5,000,000 | 5,821,150 | ||||||
Live Oak Elementary School District, Certificates of Participation | 3,205,000 | 3,622,804 | ||||||
Montebello Unified School District, Election 2016, Unlimited General Obligation | 8,575,000 | 8,808,583 | ||||||
Series A | 3,000,000 | 3,424,440 | ||||||
Monterey Peninsula Unified School District, Unlimited General Obligation | 5,000,000 | 5,148,100 | ||||||
Oakland Unified School District, Alameda County, Unlimited General Obligation Insured: AGM | 1,160,000 | 1,406,291 | ||||||
Insured: AGM | 1,755,000 | 2,105,596 | ||||||
Insured: AGM | 2,535,000 | 3,018,703 | ||||||
Oceanside Unified School District, Unrefunded-CABS-Election 2008, Unlimited General Obligation | 560,000 | 70,890 | ||||||
Palomar Community College District, Capital Appreciation-Election, Unlimited General Obligation | 5,720,000 | 3,957,039 | ||||||
Paramount Unified School District, Election 2006-CABS, Unlimited General Obligation | 25,000,000 | 5,525,500 |
Principal Amount | Value | |||||||
California (continued) |
| |||||||
Peralta Community College District, Election 2006, Unlimited General Obligation | $ | 7,340,000 | $ | 7,550,878 | ||||
Pittsburg Unified School District, Unlimited General Obligation | 10,000,000 | 10,304,200 | ||||||
4.00%, due 8/1/44 | 11,000,000 | 11,308,440 | ||||||
Pomona Unified School District, Election 2008, Unlimited General Obligation | 3,285,000 | 3,705,907 | ||||||
Riverside County Redevelopment Successor Agency, Jurupa Valley Project, Tax Allocation | 2,510,000 | 2,926,434 | ||||||
Series B, Insured: BAM | 875,000 | 1,011,990 | ||||||
Series B, Insured: BAM | 2,645,000 | 3,041,486 | ||||||
Riverside County Transportation Commission, Limited Tax, Revenue Bonds | 3,000,000 | 3,489,990 | ||||||
San Bernardino City Unified School District, Election 2012, Unlimited General Obligation | 1,000,000 | 1,160,830 | ||||||
San Diego County Regional Transportation Commission, Revenue Bonds | 10,000,000 | 11,513,300 | ||||||
San Diego Public Facilities Financing Authority, Capital Improvement Projects, Revenue Bonds | 3,000,000 | 3,371,550 | ||||||
San Lorenzo Unified School District, Election 2008, Unlimited General Obligation | 4,535,000 | 5,261,235 | ||||||
Santa Ana Unified School District, Capital Appreciation-Election 2008, Unlimited General Obligation | 50,000,000 | 12,045,000 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 13 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
California (continued) |
| |||||||
Santa Clara County Financing Authority, Revenue Bonds | $ | 5,000,000 | $ | 5,299,950 | ||||
Santa Clara Valley Transportation Authority, Revenue Bonds | 3,900,000 | 4,488,003 | ||||||
Solano County Conmunity College District, Election 2012, Unlimited General Obligation | 5,000,000 | 5,986,850 | ||||||
Southern California Public Power Authority, Apex Power Project, Revenue Bonds | 4,500,000 | 5,189,850 | ||||||
Southwestern Community College District, Election 2008, Unlimited General Obligation | 13,000,000 | 3,616,600 | ||||||
State of California, Kindergarten, Unlimited General Obligation | 11,875,000 | 11,875,000 | ||||||
Series B1 | 700,000 | 700,000 | ||||||
State of California, Unlimited General Obligation | 2,000,000 | 2,098,560 | ||||||
6.00%, due 11/1/35 | 2,500,000 | 2,802,550 | ||||||
6.25%, due 11/1/34 | 4,000,000 | 4,508,760 | ||||||
Tahoe-Truckee Unified School District, Unlimited General Obligation | 2,200,000 | 2,511,256 | ||||||
Temecula Valley Unified School District, Election 2012, Unlimited General Obligation | 5,000,000 | 5,096,100 | ||||||
Twin Rivers Unified School District, Prerefunded-CABS-Election 2006, Unlimited General Obligation | 230,000 | 149,799 |
Principal Amount | Value | |||||||
California (continued) |
| |||||||
Twin Rivers Unified School District, Unrefunded-CABS-Election 2006, Unlimited General Obligation | $ | 5,120,000 | $ | 2,895,821 | ||||
Westminster School District, CABS-Election 2008, Unlimited General Obligation | 13,900,000 | 2,105,433 | ||||||
|
| |||||||
393,024,908 | ||||||||
|
| |||||||
Colorado 0.5% |
| |||||||
Colorado Health Facilities Authority, Evangelical Lutheran Good Samaritan, Revenue Bonds | 3,280,000 | 3,472,765 | ||||||
Denver Convention Center Hotel Authority, Revenue Bonds | 1,305,000 | 1,480,549 | ||||||
5.00%, due 12/1/31 | 1,395,000 | 1,573,895 | ||||||
5.00%, due 12/1/32 | 2,500,000 | 2,805,400 | ||||||
5.00%, due 12/1/36 | 1,000,000 | 1,101,580 | ||||||
Vista Ridge Metropolitan District, Unlimited General Obligation | 1,250,000 | 1,410,300 | ||||||
|
| |||||||
11,844,489 | ||||||||
|
| |||||||
Connecticut 2.6% |
| |||||||
City of Hartford CT, Prerefunded, Unlimited General Obligation | 80,000 | 93,060 | ||||||
City of Hartford CT, Unlimited General Obligation | 2,500,000 | 2,506,925 | ||||||
Series C, Insured: AGM | 7,470,000 | 8,069,617 | ||||||
Series C, Insured: AGM | 2,500,000 | 2,678,825 | ||||||
City of Hartford CT, Unrefunded, Unlimited General Obligation | 895,000 | 895,260 | ||||||
Series A, Insured: AGM | 195,000 | 210,871 | ||||||
Connecticut State Health & Educational Facility Authority, Quinnipiac University, Revenue Bonds | 10,425,000 | 11,797,034 |
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) | ||||||||
Connecticut (continued) |
| |||||||
State of Connecticut Special Tax, Transportation Infrastructure, Revenue Bonds | $ | 21,000,000 | $ | 24,422,320 | ||||
Series A | 7,460,000 | 8,614,808 | ||||||
State of Connecticut, Unlimited General Obligation | 5,000,000 | 5,654,950 | ||||||
|
| |||||||
64,943,670 | ||||||||
|
| |||||||
District of Columbia 1.1% |
| |||||||
District of Columbia, Friendship Public Charter School, Inc., Revenue Bonds | 1,125,000 | 1,169,010 | ||||||
5.00%, due 6/1/42 | 5,500,000 | 5,635,300 | ||||||
District of Columbia, Gallery Place Project, Tax Allocation | 525,000 | 585,296 | ||||||
District of Columbia, KIPP Charter School, Revenue Bonds | 1,000,000 | 1,152,770 | ||||||
6.00%, due 7/1/48 | 1,575,000 | 1,810,872 | ||||||
Metropolitan Washington Airports Authority Dulles Toll Road, Revenue Bonds | 8,000,000 | 10,230,720 | ||||||
Series B | 7,140,000 | 8,126,677 | ||||||
|
| |||||||
28,710,645 | ||||||||
|
| |||||||
Florida 1.5% |
| |||||||
City of Miami Beach FL Parking, Revenue Bonds | 1,000,000 | 1,127,700 | ||||||
Insured: BAM | 1,990,000 | 2,234,850 | ||||||
Insured: BAM | 2,500,000 | 2,780,625 | ||||||
City of Orlando FL, Revenue Bonds | 14,000,000 | 14,264,460 | ||||||
County of Miami-Dade FL Aviation, Miami International Airport, Revenue Bonds | 10,000,000 | 10,464,600 |
Principal Amount | Value | |||||||
Florida (continued) |
| |||||||
County of Miami-Dade FL Aviation, Revenue Bonds | $ | 750,000 | $ | 867,667 | ||||
County of Miami-Dade FL, Jackson Health System, Revenue Bonds | 3,375,000 | 3,789,619 | ||||||
Orange County Health Facilities Authority, Presbyterian Retirement Communities, Revenue Bonds | 1,500,000 | 1,651,755 | ||||||
|
| |||||||
37,181,276 | ||||||||
|
| |||||||
Georgia 0.4% |
| |||||||
Gainesville & Hall County Hospital Authority, Northeast Health System, Inc. Project, Revenue Bonds | 8,000,000 | 9,492,160 | ||||||
|
| |||||||
Guam 1.7% |
| |||||||
Antonio B Won Pat International Airport Authority, Revenue Bonds | 5,000,000 | 5,699,800 | ||||||
Guam Government Waterworks Authority, Revenue Bonds | 1,750,000 | 1,872,098 | ||||||
5.00%, due 1/1/46 | 2,500,000 | 2,646,925 | ||||||
Guam Power Authority, Revenue Bonds Series A, Insured: AGM | 5,610,000 | 6,267,492 | ||||||
Series A, Insured: AGM | 655,000 | 720,087 | ||||||
Territory of Guam, Revenue Bonds | 8,350,000 | 8,843,819 | ||||||
Series A | 3,085,000 | 3,194,857 | ||||||
Series A | 2,000,000 | 2,091,640 | ||||||
Series A | 2,700,000 | 3,147,660 | ||||||
Territory of Guam, Section 30, Revenue Bonds | 2,265,000 | 2,590,480 | ||||||
Series A | 1,250,000 | 1,374,863 | ||||||
Series A | 2,290,000 | 2,482,245 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 15 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Guam (continued) |
| |||||||
Territory of Guam, Section 30, Revenue Bonds (continued) | ||||||||
Series A | $ | 1,000,000 | $ | 1,079,800 | ||||
|
| |||||||
42,011,766 | ||||||||
|
| |||||||
Hawaii 0.1% |
| |||||||
State of Hawaii Department of Budget & Finance, Hawaiian Electric Co., Revenue Bonds | 3,000,000 | 3,247,380 | ||||||
|
| |||||||
Illinois 15.0% |
| |||||||
Carol Stream Park District, Unlimited General Obligation | 3,995,000 | 4,481,112 | ||||||
Chicago Board of Education, School Reform, Unlimited General Obligation | 19,995,000 | 13,378,654 | ||||||
Chicago Board of Education, Special Tax | 18,760,000 | 19,411,160 | ||||||
¨Chicago Board of Education, Unlimited General Obligation | 16,000,000 | 16,349,920 | ||||||
Series A, Insured: AGM | 11,455,000 | 12,279,416 | ||||||
Series A | 7,500,000 | 6,237,825 | ||||||
Chicago O’Hare International Airport, Revenue Bonds | 2,250,000 | 2,527,335 | ||||||
Chicago Park District, Limited General Obligation | 1,000,000 | 1,135,370 | ||||||
Series A | 750,000 | 845,468 | ||||||
Series A | 1,000,000 | 1,111,350 | ||||||
Series A | 2,000,000 | 2,180,480 | ||||||
Chicago Transit Authority, Second Lien, Revenue Bonds | 9,000,000 | 9,673,650 | ||||||
City of Chicago IL, Motor Fuel Tax, Revenue Bonds | 4,725,000 | 5,041,906 |
Principal Amount | Value | |||||||
Illinois (continued) |
| |||||||
City of Chicago IL, Unlimited General Obligation | $ | 10,000,000 | $ | 10,597,300 | ||||
Series A, Insured: BAM | 6,000,000 | 7,033,440 | ||||||
Series A | 9,000,000 | 9,429,660 | ||||||
City of Chicago IL, Wastewater Transmission, Revenue Bonds | 1,000,000 | 1,106,100 | ||||||
5.00%, due 1/1/33 | 2,000,000 | 2,156,120 | ||||||
5.00%, due 1/1/39 | 8,420,000 | 8,959,301 | ||||||
5.00%, due 1/1/44 | 14,340,000 | 15,215,170 | ||||||
City of Chicago IL, Wastewater, Revenue Bonds | 1,000,000 | 1,117,280 | ||||||
5.00%, due 11/1/29 | 1,700,000 | 1,871,989 | ||||||
City of Country Club Hills IL, Unlimited General Obligation | 455,000 | 487,655 | ||||||
Cook County Community College District No. 508, City College of Chicago, Unlimited General Obligation | 5,000,000 | 5,555,950 | ||||||
Cook County Community High School District No. 212 Leyden, Revenue Bonds | 3,370,000 | 3,800,484 | ||||||
Series C, Insured: BAM | 2,610,000 | 2,931,839 | ||||||
County of Cook IL, Unlimited General Obligation | 8,350,000 | 9,833,628 | ||||||
County of Cook IL, Unlimited General Obligation | 7,100,000 | 8,231,243 | ||||||
Series A | 7,080,000 | 8,101,644 | ||||||
Series A | 8,895,000 | 10,113,882 | ||||||
Illinois Finance Authority, Memorial Health System, Revenue Bonds | 2,200,000 | 2,200,000 | ||||||
Illinois Finance Authority, Rehab Institute of Chicago, Revenue Bonds | 9,600,000 | 10,990,656 |
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) | ||||||||
Illinois (continued) |
| |||||||
¨Illinois Finance Authority, University of Chicago Medical Center, Revenue Bonds | $ | 13,100,000 | $ | 13,100,000 | ||||
Series B | 1,500,000 | 1,500,000 | ||||||
Series B | 28,500,000 | 28,613,430 | ||||||
Illinois Sports Facilities Authority, Revenue Bonds | 5,000,000 | 5,488,200 | ||||||
Knox & Warren Counties, Community Unit School District No. 205 Galesburg, Unlimited General Obligation | 240,000 | 250,548 | ||||||
Series A | 205,000 | 222,333 | ||||||
Metropolitan Pier & Exposition Authority, Capital Appreciation, Revenue Bonds | 14,250,000 | 8,178,075 | ||||||
Metropolitan Pier & Exposition Authority, McCormick, Revenue Bonds | 53,190,000 | 21,768,539 | ||||||
Monroe & St. Clair Counties Community School District No. 5, Unlimited General Obligation | 500,000 | 570,905 | ||||||
Northern Illinois Municipal Power Agency, Revenue Bonds | 7,675,000 | 7,627,185 | ||||||
Rock Island County Public Building Commission, Revenue Bonds | 500,000 | 563,685 | ||||||
Insured: AGM | 2,645,000 | 2,911,457 | ||||||
Insured: AGM | 3,360,000 | 3,670,162 | ||||||
Southern Illinois University, Housing & Auxiliary Facilities System, Revenue Bonds | 1,175,000 | 1,340,099 |
Principal Amount | Value | |||||||
Illinois (continued) |
| |||||||
Southern Illinois University, Housing & Auxiliary Facilities System, Revenue Bonds (continued) | ||||||||
Series B, Insured: BAM | $ | 1,620,000 | $ | 1,812,456 | ||||
Series B, Insured: BAM | 1,000,000 | 1,112,150 | ||||||
State of Illinois, Revenue Bonds | 6,275,000 | 6,747,256 | ||||||
State of Illinois, Unlimited General Obligation | 12,750,000 | 12,749,617 | ||||||
5.00%, due 2/1/29 | 8,000,000 | 8,270,400 | ||||||
United City of Yorkville, Special Tax | 3,790,000 | 4,246,468 | ||||||
Village of Bellwood IL, Unlimited General Obligation | 1,500,000 | 1,705,695 | ||||||
Village of Crestwood IL, Alternative Revenue Source, Unlimited General Obligation | 750,000 | 824,063 | ||||||
Series B, Insured: BAM | 850,000 | 930,665 | ||||||
Series B, Insured: BAM | 955,000 | 1,040,845 | ||||||
Village of Oswego IL, Unlimited General Obligation | 7,670,000 | 8,672,776 | ||||||
Village of Rosemont IL, Corporate Purpose Bond, Unlimited General Obligation | 8,090,000 | 8,843,583 | ||||||
Series A, Insured: AGM | 7,000,000 | 7,622,720 | ||||||
|
| |||||||
374,770,299 | ||||||||
|
| |||||||
Indiana 0.4% |
| |||||||
Indiana Finance Authority, Educational Facilities-Butler University, Revenue Bonds | 2,100,000 | 2,373,126 | ||||||
Series A | 2,215,000 | 2,481,044 | ||||||
Series B | 2,210,000 | 2,475,443 | ||||||
Series B | 2,320,000 | 2,583,343 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 17 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Indiana (continued) |
| |||||||
Indianapolis, Local Public Improvement Bond Bank, Prerefunded-Waterworks Project, Revenue Bonds | $ | 215,000 | $ | 231,177 | ||||
Indianapolis, Local Public Improvement Bond Bank, Unrefunded-Waterworks Project, Revenue Bonds | 885,000 | 942,100 | ||||||
|
| |||||||
11,086,233 | ||||||||
|
| |||||||
Iowa 0.1% |
| |||||||
City of Coralville IA, | 545,000 | 581,008 | ||||||
Series E | 1,405,000 | 1,508,647 | ||||||
Series E | 1,320,000 | 1,423,937 | ||||||
|
| |||||||
3,513,592 | ||||||||
|
| |||||||
Kansas 0.7% |
| |||||||
City of Hutchinson KS, Hutchinson Regional Medical Center, Inc., Revenue Bonds | 565,000 | 637,783 | ||||||
5.00%, due 12/1/28 | 410,000 | 454,965 | ||||||
5.00%, due 12/1/30 | 500,000 | 547,065 | ||||||
5.00%, due 12/1/36 | 1,150,000 | 1,230,420 | ||||||
Kansas Development Finance Authority, Kansas Health System, Revenue Bonds | 2,100,000 | 2,100,000 | ||||||
University of Kansas Hospital Authority, KU Health System, Revenue Bonds | 2,500,000 | 2,838,825 | ||||||
5.00%, due 9/1/34 | 5,000,000 | 5,658,050 | ||||||
5.00%, due 9/1/35 | 2,800,000 | 3,155,404 | ||||||
|
| |||||||
16,622,512 | ||||||||
|
| |||||||
Kentucky 0.1% |
| |||||||
City of Ashland KY, King’s Daughters Medical Center Project, Revenue Bonds | 1,070,000 | 1,139,796 | ||||||
Series A | 1,525,000 | 1,717,669 | ||||||
|
| |||||||
2,857,465 | ||||||||
|
|
Principal Amount | Value | |||||||
Louisiana 0.9% |
| |||||||
City of New Orleans LA, Sewerage Service, Revenue Bonds | $ | 2,745,000 | $ | 3,024,743 | ||||
Jefferson Parish Hospital Service District No. 1, West Jefferson Medical Center, Revenue Bonds | 3,695,000 | 4,313,248 | ||||||
Louisiana Local Government Environmental Facilities & Community Development Authority, McNeese State University Student Parking Co., Revenue Bonds | 335,000 | 363,277 | ||||||
Insured: AGM | 350,000 | 376,285 | ||||||
Louisiana Offshore Terminal Authority, 1st Stage-Loop LLC, Revenue Bonds | 7,210,000 | 7,210,000 | ||||||
Louisiana Public Facilities Authority, Loyola University, Revenue Bonds | 2,930,000 | 3,418,490 | ||||||
Louisiana Public Facilities Authority, Ochsner Clinic Foundation, Revenue Bonds | 2,030,000 | 2,261,034 | ||||||
Louisiana Stadium & Exposition District, Revenue Bonds | 1,650,000 | 1,829,784 | ||||||
|
| |||||||
22,796,861 | ||||||||
|
| |||||||
Maryland 0.2% |
| |||||||
Maryland Health & Higher Educational Facilities Authority, Peninsula Regional Medical Center, Revenue Bonds | 3,600,000 | 3,916,008 | ||||||
|
| |||||||
Massachusetts 1.9% |
| |||||||
Massachusetts Development Finance Agency, Boston University, Revenue Bonds | 15,000,000 | 15,000,000 | ||||||
Massachusetts Development Finance Agency, College Holy Cross, Revenue Bonds | 6,625,000 | 6,625,000 |
18 | MainStay Tax Free Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Massachusetts (continued) |
| |||||||
Massachusetts Development Finance Agency, UMass Boston Student Housing Project, Revenue Bonds | $ | 1,200,000 | $ | 1,320,312 | ||||
5.00%, due 10/1/31 | 1,200,000 | 1,315,308 | ||||||
5.00%, due 10/1/32 | 1,240,000 | 1,354,018 | ||||||
5.00%, due 10/1/33 | 1,500,000 | 1,631,730 | ||||||
5.00%, due 10/1/34 | 2,170,000 | 2,349,871 | ||||||
Massachusetts Development Finance Agency, WGBH Educational Foundation, Revenue Bonds | 1,645,000 | 1,748,865 | ||||||
4.00%, due 1/1/33 | 1,000,000 | 1,056,610 | ||||||
Massachusetts Educational Financing Authority, Revenue Bonds | 1,315,000 | 1,385,445 | ||||||
Series I | 1,520,000 | 1,606,929 | ||||||
Massachusetts State Development Finance Agency, Prerefunded-Suffolk University, Revenue Bonds | 1,285,000 | 1,420,220 | ||||||
Series A | 4,090,000 | 4,542,313 | ||||||
Massachusetts State Development Finance Agency, Unrefunded-Suffolk University, Revenue Bonds | 715,000 | 782,932 | ||||||
Series A | 2,310,000 | 2,538,136 | ||||||
Metropolitan Boston Transit Parking Corp., Revenue Bonds | 2,000,000 | 2,260,360 | ||||||
|
| |||||||
46,938,049 | ||||||||
|
| |||||||
Michigan 3.7% |
| |||||||
City of Detroit MI, Sewage Disposal System, Senior Lien, Revenue Bonds | 2,000,000 | 2,014,460 | ||||||
Series A | 14,150,000 | 15,284,264 | ||||||
Series C-1, Insured: AGM | 5,000,000 | 5,575,900 | ||||||
City of Detroit MI, Water Supply System, Revenue Bonds | 5,000,000 | 5,438,150 |
Principal Amount | Value | |||||||
Michigan (continued) |
| |||||||
City of Detroit MI, Water Supply System, Revenue Bonds (continued) | ||||||||
Senior Lien-Series A | $ | 5,550,000 | $ | 6,211,560 | ||||
County of Wayne MI, Capital Improvement, Limited General Obligation | 2,500,000 | 2,517,600 | ||||||
Detroit City School District, Improvement School Building & Site, Unlimited General Obligation | 750,000 | 831,915 | ||||||
Series A, Insured: Q-SBLF | 7,500,000 | 8,283,375 | ||||||
Series A, Insured: Q-SBLF | 3,620,000 | 3,962,633 | ||||||
Series A, Insured: Q-SBLF | 4,535,000 | 4,903,423 | ||||||
Lincoln Consolidated School District, Unlimited General Obligation | 2,030,000 | 2,395,826 | ||||||
Series A, Insured: AGM | 1,455,000 | 1,687,378 | ||||||
Series A, Insured: AGM | 1,500,000 | 1,673,790 | ||||||
Livonia Public School District, Unlimited General Obligation | 2,115,000 | 2,342,785 | ||||||
Michigan Finance Authority, Detroit School District, Revenue Bonds | 4,355,000 | 4,503,941 | ||||||
Michigan Finance Authority, Great Lakes Water, Revenue Bonds | 2,500,000 | 2,776,200 | ||||||
Senior Lien-Series C-3, Insured: AGM | 3,000,000 | 3,372,240 | ||||||
Senior Lien-Series C-1 | 2,500,000 | 2,658,925 | ||||||
Michigan Finance Authority, Local Government Loan Program, Revenue Bonds | 500,000 | 572,260 | ||||||
Series D-1 | 500,000 | 558,170 | ||||||
Series D-1 | 500,000 | 555,525 | ||||||
Series D1, Insured: AGM | 2,000,000 | 2,231,800 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 19 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Michigan (continued) |
| |||||||
Michigan Finance Authority, Local Government Loan Program, Revenue Bonds (continued) | ||||||||
Series D6, Insured: NATL-RE | $ | 7,400,000 | $ | 8,098,560 | ||||
Michigan Tobacco Settlement Finance Authority, Revenue Bonds | 250,000 | 245,793 | ||||||
Saginaw City School District, Unlimited General Obligation | 260,000 | 300,121 | ||||||
Insured: Q-SBLF | 350,000 | 400,932 | ||||||
Insured: Q-SBLF | 750,000 | 855,360 | ||||||
Insured: Q-SBLF | 250,000 | 278,350 | ||||||
Insured: Q-SBLF | 350,000 | 388,266 | ||||||
Insured: Q-SBLF | 425,000 | 470,084 | ||||||
|
| |||||||
91,389,586 | ||||||||
|
| |||||||
Mississippi 0.2% |
| |||||||
Mississippi Business Finance Corp., Gulf Power Co., Revenue Bonds | 5,900,000 | 5,900,000 | ||||||
|
| |||||||
Missouri 1.7% |
| |||||||
City of Kansas MO, Improvement Downtown Arena Project, Revenue Bonds | 10,055,000 | 11,112,685 | ||||||
Joplin Industrial Development Authority, Freeman Health System, Revenue Bonds | 605,000 | 656,395 | ||||||
Missouri Health & Educational Facilities Authority, SSM Health Care, Revenue Bonds | 4,000,000 | 4,524,360 | ||||||
Missouri Health & Educational Facilities Authority, St. Louis University, Revenue Bonds | 14,430,000 | 14,430,000 | ||||||
Series A | 5,930,000 | 6,698,647 |
Principal Amount | Value | |||||||
Missouri (continued) |
| |||||||
Missouri Health & Educational Facilities Authority, St. Lukes Health System, Inc., Revenue Bonds | $ | 5,000,000 | $ | 5,758,250 | ||||
|
| |||||||
43,180,337 | ||||||||
|
| |||||||
Montana 0.3% |
| |||||||
Montana Facilities Finance Authority, Revenue Bonds | 1,790,000 | 2,083,202 | ||||||
5.00%, due 2/15/31 | 1,500,000 | 1,733,670 | ||||||
5.00%, due 2/15/32 | 775,000 | 890,793 | ||||||
5.00%, due 2/15/33 | 1,320,000 | 1,510,053 | ||||||
5.00%, due 2/15/34 | 1,200,000 | 1,367,376 | ||||||
|
| |||||||
7,585,094 | ||||||||
|
| |||||||
Nebraska 1.5% |
| |||||||
¨Central Plains Energy, Project No. 3, Revenue Bonds | 5,190,000 | 5,629,229 | ||||||
5.00%, due 9/1/42 | 13,420,000 | 14,257,945 | ||||||
5.25%, due 9/1/37 | 15,535,000 | 16,935,325 | ||||||
|
| |||||||
36,822,499 | ||||||||
|
| |||||||
New Hampshire 0.3% |
| |||||||
City of Manchester NH, General Airport, Revenue Bonds | 1,800,000 | 1,993,122 | ||||||
New Hampshire Health & Education Facilities Authority, Southern University, Revenue Bonds | ||||||||
5.00%, due 1/1/31 | 905,000 | 1,026,777 | ||||||
5.00%, due 1/1/32 | 950,000 | 1,073,225 | ||||||
5.00%, due 1/1/33 | 1,000,000 | 1,124,880 | ||||||
5.00%, due 1/1/34 | 1,050,000 | 1,175,254 | ||||||
5.00%, due 1/1/35 | 1,100,000 | 1,225,961 | ||||||
|
| |||||||
7,619,219 | ||||||||
|
| |||||||
New Jersey 3.6% |
| |||||||
Atlantic County Improvement Authority, Stockton University-Atlantic City, Revenue Bonds | 2,670,000 | 3,033,467 | ||||||
Series A, Insured: AGM | 1,305,000 | 1,474,924 | ||||||
Series A, Insured: AGM | 1,395,000 | 1,568,426 | ||||||
Series A, Insured: AGM | 1,855,000 | 2,076,301 |
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. |
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
New Jersey (continued) |
| |||||||
New Brunswick Parking Authority, Revenue Bonds | $ | 5,880,000 | $ | 6,957,804 | ||||
Series A, Insured: BAM | 2,370,000 | 2,783,802 | ||||||
Series A, Insured: BAM | 4,605,000 | 5,393,975 | ||||||
Series A, Insured: BAM | 6,780,000 | 7,895,310 | ||||||
New Jersey Building Authority, Revenue Bonds | 3,350,000 | 3,850,758 | ||||||
Series A, Insured: BAM | 3,000,000 | 3,385,800 | ||||||
New Jersey Economic Development Authority, MSU Student Housing Project, Revenue Bonds | 4,500,000 | 4,878,090 | ||||||
New Jersey Economic Development Authority, Revenue Bonds | 1,000,000 | 1,101,370 | ||||||
5.50%, due 1/1/26 (b) | 1,000,000 | 1,134,310 | ||||||
New Jersey Educational Facilities Authority, Stockton University, Revenue Bonds | 1,500,000 | 1,700,385 | ||||||
Series A, Insured: BAM | 5,000,000 | 5,663,750 | ||||||
Series A, Insured: BAM | 3,000,000 | 3,378,000 | ||||||
New Jersey Health Care Facilities Financing Authority, Hackensack Meridian Health, Inc., Revenue Bonds | 7,000,000 | 7,904,820 | ||||||
New Jersey Health Care Facilities Financing Authority, Hackensack University Medical Center, Revenue Bonds | 1,510,000 | 1,554,500 | ||||||
New Jersey Higher Education Student Assistance Authority, Revenue Bonds | 2,960,000 | 3,234,481 |
Principal Amount | Value | |||||||
New Jersey (continued) |
| |||||||
New Jersey Higher Education Student Assistance Authority, Student Loan, Revenue Bonds | $ | 2,355,000 | $ | 2,438,320 | ||||
New Jersey Transportation Trust Fund Authority, Revenue Bonds | 30,000,000 | 13,236,900 | ||||||
Newark Housing Authority, Revenue Bonds Insured: AGM | 500,000 | 535,220 | ||||||
Insured: AGM | 250,000 | 263,142 | ||||||
Insured: AGM | 250,000 | 261,800 | ||||||
Insured: AGM | 225,000 | 234,095 | ||||||
Insured: AGM | 750,000 | 871,140 | ||||||
Insured: AGM | 1,740,000 | 1,937,542 | ||||||
|
| |||||||
88,748,432 | ||||||||
|
| |||||||
New Mexico 0.1% |
| |||||||
City of Farmington NM, Revenue Bonds | 2,000,000 | 2,210,160 | ||||||
|
| |||||||
New York 14.7% |
| |||||||
Build NYC Resource Corp., Royal Charter Properties, Revenue Bonds | 975,000 | 1,063,637 | ||||||
Insured: AGM | 1,025,000 | 1,146,862 | ||||||
Insured: AGM | 1,075,000 | 1,227,048 | ||||||
Insured: AGM | 740,000 | 859,192 | ||||||
City of New York, Unlimited General Obligation | 11,400,000 | 11,400,000 | ||||||
Series H-5 | 9,240,000 | 9,240,000 | ||||||
County of Nassau NY, Limited General Obligation | 4,135,000 | 4,764,264 | ||||||
Series C | 6,625,000 | 7,424,108 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 21 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
New York (continued) |
| |||||||
County of Nassau NY, Limited General Obligation (continued) | ||||||||
Series C | $ | 6,965,000 | $ | 7,793,765 | ||||
Long Island Power Authority, Electric System, Revenue Bonds | 10,000,000 | 11,182,900 | ||||||
Series B | 8,970,000 | 10,004,420 | ||||||
Long Island Power Authority, Revenue Bonds | 10,000,000 | 11,224,700 | ||||||
Series A | 3,470,000 | 3,842,158 | ||||||
Metropolitan Transportation Authority, Green, Revenue Bonds | 4,500,000 | 5,213,925 | ||||||
Metropolitan Transportation Authority, Revenue Bonds | 1,500,000 | 1,708,905 | ||||||
¨New York City Transitional Finance Authority, Building Aid, Revenue Bonds | 6,060,000 | 6,956,274 | ||||||
Series S-2 | 5,000,000 | 5,754,450 | ||||||
Series S-1 | 10,000,000 | 11,360,300 | ||||||
Series S-1 | 11,880,000 | 13,484,750 | ||||||
¨New York City Transitional Finance Authority, Future Tax Secured, Revenue Bonds | 7,815,000 | 7,815,000 | ||||||
Series B-1 | 10,000,000 | 11,606,500 | ||||||
5.00%, due 5/1/33 | 10,000,000 | 11,663,000 | ||||||
Series A1 | 5,100,000 | 5,840,979 | ||||||
Series E-1 | 2,500,000 | 2,828,900 | ||||||
New York City Water & Sewer System, Revenue Bonds | 2,000,000 | 2,000,000 | ||||||
Series EE | 3,500,000 | 4,248,265 |
Principal Amount | Value | |||||||
New York (continued) |
| |||||||
New York City Water & Sewer System, Revenue Bonds (continued) | ||||||||
Series EE | $ | 3,500,000 | $ | 4,153,170 | ||||
New York Counties Tobacco Trust VI, Tobacco Settlement Pass Through, Revenue Bonds | 4,255,000 | 4,522,129 | ||||||
New York Liberty Development Corp., Bank of America, Revenue Bonds | 5,000,000 | 5,439,800 | ||||||
New York Liberty Development Corp., Revenue Bonds | 12,315,000 | 13,721,373 | ||||||
New York Liberty Development Corp., World Trade Center Project, Revenue Bonds | 5,000,000 | 5,628,000 | ||||||
5.75%, due 11/15/51 | 11,500,000 | 13,107,470 | ||||||
New York State Dormitory Authority, New York University, Revenue Bonds | 6,610,000 | 7,608,374 | ||||||
New York State Dormitory Authority, Revenue Bonds | 4,190,000 | 4,850,470 | ||||||
New York State Dormitory Authority, University Facilities, Revenue Bonds | 1,000,000 | 1,157,110 | ||||||
Series A | 1,000,000 | 1,152,410 | ||||||
Series A | 1,640,000 | 1,882,294 | ||||||
New York State Housing Finance Agency, 505 West 37th Street, Revenue Bonds | 6,000,000 | 6,000,000 | ||||||
New York State Urban Development Corp., Personal Income Tax, Revenue Bonds | 12,350,000 | 14,703,786 | ||||||
Series A | 12,750,000 | 14,778,525 | ||||||
¨New York Transportation Development Corp., LaGuardia Airport Terminal B Redevelopment Project, Revenue Bonds | ||||||||
Insured: AGM | 10,925,000 | 11,367,135 | ||||||
Series A, Insured: AGM | 6,500,000 | 6,556,290 |
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. |
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
New York (continued) |
| |||||||
¨New York Transportation Development Corp., LaGuardia Airport Terminal B Redevelopment Project, Revenue Bonds (continued) | ||||||||
Series A, Insured: AGM | $ | 16,240,000 | $ | 16,329,970 | ||||
Rensselaer City School District, Certificates of Participation | 1,590,000 | 1,810,867 | ||||||
Insured: AGM | 1,750,000 | 2,045,768 | ||||||
Insured: AGM | 1,060,000 | 1,253,800 | ||||||
Insured: AGM | 1,000,000 | 1,175,570 | ||||||
Insured: AGM | 1,880,000 | 2,162,282 | ||||||
Insured: AGM | 2,000,000 | 2,263,440 | ||||||
Syracuse Industrial Development Agency, Carousel Center Project, Revenue Bonds | 1,615,000 | 1,832,314 | ||||||
5.00%, due 1/1/30 (b) | 2,100,000 | 2,374,071 | ||||||
¨Triborough Bridge & Tunnel Authority, Revenue Bonds | 13,560,000 | 15,884,455 | ||||||
Series B | 16,500,000 | 19,266,060 | ||||||
TSASC, Inc., Revenue Bonds | 2,000,000 | 2,261,500 | ||||||
Series A | 5,000,000 | 5,622,450 | ||||||
Series A | 2,865,000 | 3,176,196 | ||||||
|
| |||||||
365,741,381 | ||||||||
|
| |||||||
North Carolina 0.3% |
| |||||||
Charlotte-Mecklenburg Hospital Authority, Carolinas Healthcare System, Revenue Bonds | 2,050,000 | 2,263,590 | ||||||
North Carolina Medical Care Commission, North Carolina Baptist Hospital, Revenue Bonds | 1,000,000 | 1,101,010 |
Principal Amount | Value | |||||||
North Carolina (continued) |
| |||||||
North Carolina Turnpike Authority, Revenue Bonds | $ | 3,000,000 | $ | 3,235,530 | ||||
|
| |||||||
6,600,130 | ||||||||
|
| |||||||
North Dakota 0.2% |
| |||||||
City of Grand Forks ND, Altra Health System, Revenue Bonds | 4,050,000 | 4,324,995 | ||||||
|
| |||||||
Ohio 1.8% |
| |||||||
American Municipal Power, Inc., Prairie Energy Campus, Revenue Bonds | 15,000,000 | 17,062,500 | ||||||
City of Cleveland, OH, Airport System, Revenue Bonds | 3,000,000 | 3,310,740 | ||||||
City of Cleveland, OH, Revenue Bonds | 1,500,000 | 1,698,435 | ||||||
Clermont County Port Authority, W. Clermont Local School District Project, Revenue Bonds | 650,000 | 739,882 | ||||||
Insured: BAM | 2,200,000 | 2,491,830 | ||||||
Insured: BAM | 1,335,000 | 1,505,666 | ||||||
Cleveland-Cuyahoga County Port Authority, Revenue Bonds | 1,980,000 | 2,222,768 | ||||||
County of Hamilton OH, Christ Hospital Project, Revenue Bonds | 2,000,000 | 2,242,440 | ||||||
North Olmsted City School District, Unlimited General Obligation | 7,250,000 | 8,115,795 | ||||||
Ohio State Higher Educational Facilities Commission, Cleveland Clinic Health System, Revenue Bonds | 4,100,000 | 4,100,000 | ||||||
Tallmadge City School District, Classroom Facilities & School Improvement, Unlimited General Obligation | 1,000,000 | 1,125,280 | ||||||
|
| |||||||
44,615,336 | ||||||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 23 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Oklahoma 1.1% |
| |||||||
Garfield County Educational Facilities Authority, Enid Public Schools Project, Revenue Bonds | $ | 1,800,000 | $ | 2,156,166 | ||||
Series A | 3,780,000 | 4,493,437 | ||||||
Series A | 5,000,000 | 5,901,450 | ||||||
Series A | 4,620,000 | 5,410,159 | ||||||
Lincoln County Educational Facilities Authority, Stroud Public Schools Project, Revenue Bonds | 3,200,000 | 3,683,168 | ||||||
5.00%, due 9/1/29 | 2,370,000 | 2,706,516 | ||||||
Oklahoma State Municipal Power Authority, Revenue Bonds | 250,000 | 291,045 | ||||||
Series A | 900,000 | 1,039,527 | ||||||
Series A | 805,000 | 919,213 | ||||||
Series A | 650,000 | 734,832 | ||||||
Tulsa Airports Improvement Trust, Revenue Bonds | 500,000 | 534,725 | ||||||
|
| |||||||
27,870,238 | ||||||||
|
| |||||||
Pennsylvania 2.8% |
| |||||||
City of Lancaster PA, Unlimited General Obligation | 1,390,000 | 1,646,761 | ||||||
City of Philadelphia PA, Unlimited General Obligation | 5,125,000 | 5,990,561 | ||||||
County of Lancaster PA, Unlimited General Obligation | 500,000 | 532,125 | ||||||
Series A, Insured: BAM | 420,000 | 444,570 | ||||||
Montgomery County Industrial Development Authority, Revenue Bonds | 175,000 | 197,587 |
Principal Amount | Value | |||||||
Pennsylvania (continued) |
| |||||||
Pennsylvania Higher Educational Facilities Authority, Revenue Bonds | $ | 4,270,000 | $ | 5,176,777 | ||||
Pennsylvania Turnpike Commission, Revenue Bonds | 10,125,000 | 11,212,729 | ||||||
Series B | 4,000,000 | 4,389,920 | ||||||
Philadelphia Gas Works Co., 1998 General Ordinance, Revenue Bonds | 2,300,000 | 2,608,476 | ||||||
Series 14T | 1,280,000 | 1,443,942 | ||||||
State Public School Building Authority, Philadelphia Community College, Revenue Bonds | 5,505,000 | 6,290,839 | ||||||
State Public School Building Authority, Philadelphia School District, Revenue Bonds | 27,000,000 | 30,556,980 | ||||||
|
| |||||||
70,491,267 | ||||||||
|
| |||||||
Puerto Rico 6.3% |
| |||||||
Commonwealth of Puerto Rico, Aqueduct & Sewer Authority, Revenue Bonds | 8,670,000 | 8,815,309 | ||||||
Commonwealth of Puerto Rico, Public Improvement, Unlimited General Obligation | 470,000 | 486,196 | ||||||
Series A, Insured: AGC | 150,000 | 150,230 | ||||||
Series A-4, Insured: AGM | 3,750,000 | 3,933,337 | ||||||
Series A, Insured: AGM | 15,335,000 | 16,059,272 | ||||||
Insured: AGM | 1,245,000 | 1,330,345 | ||||||
Series A, Insured: NATL-RE | 440,000 | 440,726 | ||||||
Series A, Insured: AGM | 1,220,000 | 1,293,920 |
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. |
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Puerto Rico (continued) |
| |||||||
Commonwealth of Puerto Rico, Public Improvement, Unlimited General Obligation (continued) | ||||||||
Series C, Insured: AGM | $ | 700,000 | $ | 701,309 | ||||
Series A, Insured: NATL-RE | 550,000 | 581,576 | ||||||
Series A, Insured: NATL-RE | 4,295,000 | 4,617,683 | ||||||
Series C, Insured: AGM | 1,020,000 | 1,021,969 | ||||||
Series C-7, Insured: NATL-RE | 2,490,000 | 2,570,228 | ||||||
Commonwealth of Puerto Rico, Unlimited General Obligation | 375,000 | 376,481 | ||||||
Commonwealth of Puerto Rico, Unlimited General Obligation | 145,000 | 145,184 | ||||||
Insured: AGC | 500,000 | 500,795 | ||||||
Puerto Rico Commonwealth, Aqueduct & Sewer Authority, Revenue Bonds | 3,675,000 | 3,762,502 | ||||||
Series A, Insured: AGC | 1,000,000 | 1,094,140 | ||||||
Puerto Rico Convention Center District Authority, Revenue Bonds | 1,810,000 | 1,810,633 | ||||||
Puerto Rico Electric Power Authority, Revenue Bonds | 1,475,000 | 1,477,213 | ||||||
Series NN, Insured: NATL-RE | 405,000 | 405,122 | ||||||
Series TT, Insured: AGM | 380,000 | 381,839 | ||||||
Series RR, Insured: NATL-RE | 1,080,000 | 1,092,182 | ||||||
Series RR, Insured: NATL-RE | 1,135,000 | 1,147,803 | ||||||
Series PP, Insured: NATL-RE | 1,105,000 | 1,106,569 | ||||||
Series UU, Insured: AGM | 2,155,000 | 2,162,780 | ||||||
Series SS, Insured: NATL-RE | 825,000 | 834,306 |
Principal Amount | Value | |||||||
Puerto Rico (continued) |
| |||||||
Puerto Rico Electric Power Authority, Revenue Bonds (continued) | ||||||||
Series PP, Insured: NATL-RE | $ | 2,785,000 | $ | 2,788,788 | ||||
Series UU, Insured: AGM | 4,335,000 | 4,349,652 | ||||||
Series UU, Insured: AGC | 570,000 | 571,875 | ||||||
Series TT, Insured: AGM | 500,000 | 501,735 | ||||||
Series RR, Insured: AGC | 1,135,000 | 1,147,803 | ||||||
Series SS, Insured: AGM | 300,000 | 303,384 | ||||||
Series VV, Insured: NATL-RE | 510,000 | 541,610 | ||||||
Series VV, Insured: NATL-RE | 2,000,000 | 2,098,280 | ||||||
¨Puerto Rico Highways & Transportation Authority, Revenue Bonds | 1,755,000 | 1,862,441 | ||||||
Series N, Insured: NATL-RE | 5,525,000 | 5,796,498 | ||||||
Series N, Insured: NATL-RE | 4,995,000 | 5,222,572 | ||||||
Series N, Insured: AGC | 3,320,000 | 3,704,356 | ||||||
Series N, Insured: AGC | 17,580,000 | 19,525,051 | ||||||
Series CC, Insured: AGM | 1,575,000 | 1,749,258 | ||||||
Series E, Insured: AGM | 520,000 | 567,008 | ||||||
Series N, Insured: AGM | 405,000 | 458,897 | ||||||
Series N, Insured: AGM | 10,065,000 | 11,435,450 | ||||||
Series CC, Insured: AGC | 915,000 | 1,046,312 | ||||||
Puerto Rico Highways & Transportation Authority, Unrefunded, Revenue Bonds | 2,240,000 | 2,261,258 | ||||||
Series J, Insured: NATL-RE | 650,000 | 650,416 | ||||||
Puerto Rico Municipal Finance Agency, Revenue Bonds | 710,000 | 719,109 | ||||||
Series A, Insured: AGM | 100,000 | 101,401 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 25 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Puerto Rico (continued) |
| |||||||
Puerto Rico Municipal Finance Agency, Revenue Bonds (continued) | ||||||||
Series A, Insured: AGM | $ | 1,445,000 | $ | 1,465,244 | ||||
Series C, Insured: AGM | 965,000 | 1,014,833 | ||||||
Series C, Insured: AGC | 210,000 | 224,083 | ||||||
Series C, Insured: AGC | 175,000 | 192,896 | ||||||
Puerto Rico Public Buildings Authority, Government Facilities, Revenue Bonds | 220,000 | 232,437 | ||||||
Series K, Insured: AGM | 245,000 | 255,564 | ||||||
Series M-3, Insured: NATL-RE | 300,000 | 309,948 | ||||||
Series M-3, Insured: NATL-RE | 7,465,000 | 7,705,522 | ||||||
Puerto Rico Sales Tax Financing Corp., Revenue Bonds | 59,430,000 | 11,975,739 | ||||||
Series A, Insured: AMBAC | 700,000 | 92,855 | ||||||
Series A, Insured: AGM | 5,030,000 | 5,202,378 | ||||||
Series C, Insured: AGM | 3,605,000 | 3,757,744 | ||||||
|
| |||||||
158,132,046 | ||||||||
|
| |||||||
Rhode Island 1.8% |
| |||||||
Providence Public Buildings Authority, Revenue Bonds | 1,565,000 | 1,748,950 | ||||||
Rhode Island Commerce Corp., Revenue Bonds | 12,800,000 | 14,929,152 | ||||||
Rhode Island Health & Educational Building Corp., Hospital Financing-Lifespan Obligated Group, Revenue Bonds | 5,000,000 | 5,731,900 | ||||||
Tobacco Settlement Financing Corp., Revenue Bonds | 20,000,000 | 21,384,400 | ||||||
|
| |||||||
43,794,402 | ||||||||
|
|
Principal Amount | Value | |||||||
South Carolina 2.0% |
| |||||||
Greenwood Fifty Schools Facilities, Inc., School District No. 50, Revenue Bonds | $ | 2,225,000 | $ | 2,638,005 | ||||
Piedmont Municipal Power Agency, Revenue Bonds | 10,345,000 | 11,804,266 | ||||||
South Carolina Jobs-Economic Development Authority, Palmetto Health, Revenue Bonds | 420,000 | 452,495 | ||||||
Series A | 2,955,000 | 3,201,477 | ||||||
South Carolina Public Service Authority, Revenue Bonds | 5,000,000 | 5,512,100 | ||||||
Series A | 10,000,000 | 11,011,800 | ||||||
South Carolina Public Service Authority, Santee Cooper Project, Revenue Bonds | 6,445,000 | 7,010,484 | ||||||
Series D | 2,595,000 | 2,827,434 | ||||||
Series C | 3,310,000 | 3,477,221 | ||||||
Sumter Two School Facilities, Inc., Sumter School District Project, Revenue Bonds | 1,100,000 | 1,272,414 | ||||||
|
| |||||||
49,207,696 | ||||||||
|
| |||||||
South Dakota 0.1% |
| |||||||
Harrisburg School District No. 41-2, Unlimited General Obligation | 1,370,000 | 1,490,971 | ||||||
|
| |||||||
Tennessee 1.5% |
| |||||||
Johnson City Health & Educational Facilities Board, Mountain States Health Alliance, Revenue Bonds | 3,605,000 | 3,931,180 | ||||||
Series A | 6,500,000 | 7,189,975 |
26 | MainStay Tax Free Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Tennessee (continued) |
| |||||||
Metropolitan Government Nashville & Davidson County Health & Educational Facilities Board, Vanderbilt University Medical Center, Revenue Bonds | $ | 10,000,000 | $ | 11,068,700 | ||||
Shelby County Health Educational & Housing Facilities Board, Methodist Le Bonheur, Revenue Bonds | 14,750,000 | 14,750,000 | ||||||
|
| |||||||
36,939,855 | ||||||||
|
| |||||||
Texas 6.0% |
| |||||||
Central Texas Turnpike System, Revenue Bonds | 5,000,000 | 5,529,900 | ||||||
Series B | 1,445,000 | 1,610,019 | ||||||
City of Dallas TX, Limited General Obligation | 7,225,000 | 8,377,316 | ||||||
City of Donna TX, Tax & Toll Bridge, Limited General Obligation | 1,035,000 | 1,172,096 | ||||||
City of Houston TX, Unrefunded, Revenue Bonds | 285,000 | 285,849 | ||||||
Harris County Cultural Education Facilities Finance Corp., Memorial Hermann Health System, Revenue Bonds | 4,280,000 | 4,772,799 | ||||||
Harris County-Houston Sports Authority, CABS, Revenue Bonds | 17,115,000 | 5,256,359 | ||||||
Houston Higher Education Finance Corp., Prerefunded-Cosmos Foundation, Inc., Revenue Bonds | 565,000 | 679,429 | ||||||
North Harris County Regional Water Authority, Senior Lien, Revenue Bonds | 3,215,000 | 3,625,620 |
Principal Amount | Value | |||||||
Texas (continued) |
| |||||||
¨North Texas Tollway Authority, Revenue Bonds | $ | 1,400,000 | $ | 1,577,338 | ||||
Series A | 2,950,000 | 3,310,815 | ||||||
Series A, Insured: BAM | 9,500,000 | 10,668,880 | ||||||
Series B | 22,140,000 | 24,494,810 | ||||||
North Texas Tollway Authority, Special Projects System, Revenue Bonds | 6,695,000 | 7,709,761 | ||||||
Series A | 3,500,000 | 4,103,155 | ||||||
Port Arthur Independent School District, Unlimited General Obligation | 1,675,000 | 1,999,146 | ||||||
Series E | 1,765,000 | 2,084,218 | ||||||
Series E | 1,855,000 | 2,173,689 | ||||||
Series E | 1,950,000 | 2,267,733 | ||||||
Tarrant County Cultural Education Facilities Finance Corp., Buckner Retirement | 1,245,000 | 1,461,144 | ||||||
Series A | 1,305,000 | 1,548,474 | ||||||
Series A | 1,370,000 | 1,628,916 | ||||||
Series A | 1,440,000 | 1,714,421 | ||||||
Texas Municipal Gas Acquisition & Supply Corp. III, Revenue Bonds | 17,100,000 | 18,545,292 | ||||||
5.00%, due 12/15/31 | 4,575,000 | 4,939,765 | ||||||
Texas Private Activity Bond Surface Transportation Corp., Senior Lien, LBJ Infrastructure, Revenue Bonds | 5,000,000 | 5,672,700 | ||||||
7.50%, due 6/30/32 | 4,095,000 | 4,741,969 | ||||||
7.50%, due 6/30/33 | 5,500,000 | 6,349,585 | ||||||
Texas Private Activity Bond Surface Transportation Corp., Senior Lien, NTE Mobility, Revenue Bonds | 7,965,000 | 8,977,033 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 27 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Texas (continued) |
| |||||||
Texas Public Finance Authority, Financing System-Texas Southern University, Revenue Bonds | $ | 1,000,000 | $ | 1,028,210 | ||||
Insured: BAM | 1,295,000 | 1,323,529 | ||||||
Texas Public Finance Authority, Southern University Financing System, Revenue Bonds | 155,000 | 171,360 | ||||||
Viridian Municipal Management District, Unlimited General Obligation | 500,000 | 613,330 | ||||||
|
| |||||||
150,414,660 | ||||||||
|
| |||||||
U.S. Virgin Islands 2.3% |
| |||||||
Virgin Islands Public Finance Authority, Matching Fund Loan, Revenue Bonds | 5,100,000 | 4,324,953 | ||||||
Series A | 6,960,000 | 5,778,679 | ||||||
Series A | 5,000,000 | 4,017,050 | ||||||
¨Virgin Islands Public Finance Authority, Revenue Bonds | 5,000,000 | 5,477,650 | ||||||
Series C | 18,500,000 | 14,459,600 | ||||||
Series A, Insured: AGM | 15,440,000 | 16,309,118 | ||||||
Series C, Insured: AGM | 5,800,000 | 6,096,960 | ||||||
|
| |||||||
56,464,010 | ||||||||
|
| |||||||
Utah 0.0%‡ |
| |||||||
City of Herriman UT, Towne Centre Assessment Area, Special Assessment | 55,000 | 61,174 | ||||||
|
| |||||||
Virginia 0.6% |
| |||||||
Chesapeake Bay Bridge & Tunnel District, | 14,250,000 | 16,165,628 | ||||||
|
|
Principal Amount | Value | |||||||
Wisconsin 0.7% |
| |||||||
Wisconsin Center District, Junior Dedicated, Revenue Bonds | $ | 3,665,000 | $ | 3,992,468 | ||||
Series A | 2,850,000 | 3,093,931 | ||||||
Wisconsin State Health & Educational Facilities Authority, Medical College of Wisconsin, Revenue Bonds | 10,300,000 | 11,575,861 | ||||||
|
| |||||||
18,662,260 | ||||||||
|
| |||||||
Wyoming 0.0%‡ |
| |||||||
West Park Hospital District, Revenue Bonds | 1,000,000 | 1,129,460 | ||||||
|
| |||||||
Total Municipal Bonds |
| 2,462,502,958 | ||||||
|
| |||||||
Total Investments | 98.6 | % | 2,462,502,958 | |||||
Other Assets, Less Liabilities | 1.4 | 33,942,205 | ||||||
Net Assets | 100.0 | % | $ | 2,496,445,163 |
‡ | Less than one-tenth of a percent. |
(a) | 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, 2017. |
(b) | Interest on these securities was subject to alternative minimum tax. |
(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) | As of April 30, 2017, cost was $2,457,085,838 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 52,735,476 | ||||
Gross unrealized depreciation | (47,318,356 | ) | ||||
|
| |||||
Net unrealized appreciation | $ | 5,417,120 | ||||
|
|
28 | 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. |
As of April 30, 2017, the Fund held the following futures contracts1:
Type | Number of Contracts (Short) | Expiration Date | Notional Amount | Unrealized Appreciation (Depreciation)2 | ||||||||||||
10-Year United States Treasury Note | (4,605 | ) | June 2017 | $ | (578,934,844 | ) | $ | (3,540,800 | ) | |||||||
United States Treasury Long Bond | (600 | ) | June 2017 | (91,781,250 | ) | (770,160 | ) | |||||||||
|
|
|
| |||||||||||||
$ | (670,716,094 | ) | $ | (4,310,960 | ) | |||||||||||
|
|
|
|
1. | As of April 30, 2017, cash in the amount of $9,077,250 was on deposit with a broker for futures transactions. |
2. | Represents the difference between the value of the contracts at the time they were opened and the value as of April 30, 2017. |
The following abbreviations are used in the preceding pages:
AGC—Assured Guaranty Corp.
AGM—Assured Guaranty Municipal Corp.
AMBAC—Ambac Assurance Corp.
BAM—Build America Mutual Assurance Co.
NATL-RE—National Public Finance Guarantee Corp.
Q-SBLF—Qualified School Board Loan Fund
The following is a summary of the fair valuations according to the inputs used as of April 30, 2017, 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 | $ | — | $ | 2,462,502,958 | $ | — | $ | 2,462,502,958 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | — | $ | 2,462,502,958 | $ | — | $ | 2,462,502,958 | ||||||||
|
|
|
|
|
|
|
|
Liability Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts (b) | $ | (4,310,960 | ) | $ | — | $ | — | $ | (4,310,960 | ) | ||||||
|
|
|
|
|
|
|
|
(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, 2017, the Fund did not have any transfers among levels. (See Note 2)
As of April 30, 2017, 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. | 29 |
Statement of Assets and Liabilities as of April 30, 2017 (Unaudited)
Assets | ||||
Investment in securities, at value | $ | 2,462,502,958 | ||
Cash | 11,909,548 | |||
Cash collateral on deposit at broker | 9,077,250 | |||
Receivables: | ||||
Interest | 29,442,306 | |||
Fund shares sold | 8,237,112 | |||
Investment securities sold | 3,740,089 | |||
Other assets | 188,890 | |||
|
| |||
Total assets | 2,525,098,153 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Fund shares redeemed | 14,145,058 | |||
Investment securities purchased | 10,406,485 | |||
Manager (See Note 3) | 871,493 | |||
Variation margin on futures contracts | 509,766 | |||
NYLIFE Distributors (See Note 3) | 387,283 | |||
Transfer agent (See Note 3) | 354,290 | |||
Shareholder communication | 61,645 | |||
Professional fees | 53,740 | |||
Custodian | 21,730 | |||
Trustees | 3,432 | |||
Accrued expenses | 16,195 | |||
Interest expense and fees payable | 22 | |||
Dividend payable | 1,821,851 | |||
|
| |||
Total liabilities | 28,652,990 | |||
|
| |||
Net assets | $ | 2,496,445,163 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 2,524,173 | ||
Additional paid-in capital | 2,523,418,419 | |||
|
| |||
2,525,942,592 | ||||
Distributions in excess of net investment income | (590,400 | ) | ||
Accumulated net realized gain (loss) on investments and futures transactions | (30,177,184 | ) | ||
Net unrealized appreciation (depreciation) on investments and futures contracts | 1,270,155 | |||
|
| |||
Net assets | $ | 2,496,445,163 | ||
|
|
Class A | ||||
Net assets applicable to outstanding shares | $ | 1,337,174,011 | ||
|
| |||
Shares of beneficial interest outstanding | 135,221,622 | |||
|
| |||
Net asset value per share outstanding | $ | 9.89 | ||
Maximum sales charge (4.50% of offering price) | 0.47 | |||
|
| |||
Maximum offering price per share outstanding | $ | 10.36 | ||
|
| |||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 16,314,910 | ||
|
| |||
Shares of beneficial interest outstanding | 1,642,402 | |||
|
| |||
Net asset value per share outstanding | $ | 9.93 | ||
Maximum sales charge (4.50% of offering price) | 0.47 | |||
|
| |||
Maximum offering price per share outstanding | $ | 10.40 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 18,760,102 | ||
|
| |||
Shares of beneficial interest outstanding | 1,897,667 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.89 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 246,937,333 | ||
|
| |||
Shares of beneficial interest outstanding | 24,964,738 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.89 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 877,258,807 | ||
|
| |||
Shares of beneficial interest outstanding | 88,690,893 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.89 | ||
|
|
30 | 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, 2017 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 47,101,749 | ||
Other income | 1,601 | |||
|
| |||
Total income | 47,103,350 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 4,996,614 | |||
Distribution/Service—Class A (See Note 3) | 1,517,381 | |||
Distribution/Service—Investor Class (See Note 3) | 19,629 | |||
Distribution/Service—Class B (See Note 3) | 46,498 | |||
Distribution/Service—Class C (See Note 3) | 637,750 | |||
Transfer agent (See Note 3) | 1,157,071 | |||
Registration | 133,240 | |||
Shareholder communication | 84,058 | |||
Professional fees | 71,405 | |||
Trustees | 28,833 | |||
Custodian | 13,229 | |||
Interest expense | 22 | |||
Miscellaneous | 42,769 | |||
|
| |||
Total expenses | 8,748,499 | |||
|
| |||
Net investment income (loss) | 38,354,851 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments and Futures Contracts | ||||
Net realized gain (loss) on: | ||||
Investment transactions | (10,742,744 | ) | ||
Futures transactions | 10,137,501 | |||
|
| |||
Net realized gain (loss) on investments and futures transactions | (605,243 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (61,708,497 | ) | ||
Futures contracts | (7,154,009 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on investments and futures contracts | (68,862,506 | ) | ||
|
| |||
Net realized and unrealized gain (loss) on investments and futures transactions | (69,467,749 | ) | ||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | (31,112,898 | ) | |
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 31 |
Statements of Changes in Net Assets
for the six months ended April 30, 2017 (Unaudited) and the year ended October 31, 2016
2017 | 2016 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 38,354,851 | $ | 60,957,004 | ||||
Net realized gain (loss) on investments and futures transactions | (605,243 | ) | 11,584,969 | |||||
Net change in unrealized appreciation (depreciation) on investments and futures contracts | (68,862,506 | ) | 20,765,756 | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | (31,112,898 | ) | 93,307,729 | |||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Class A | (19,507,313 | ) | (29,941,632 | ) | ||||
Investor Class | (254,626 | ) | (523,544 | ) | ||||
Class B | (278,362 | ) | (513,958 | ) | ||||
Class C | (3,816,726 | ) | (6,517,375 | ) | ||||
Class I | (14,497,869 | ) | (23,448,205 | ) | ||||
|
| |||||||
Total dividends to shareholders | (38,354,896 | ) | (60,944,714 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 945,338,422 | 1,340,967,616 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 27,363,117 | 40,908,955 | ||||||
Cost of shares redeemed | (863,030,080 | ) | (450,743,183 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | 109,671,459 | 931,133,388 | ||||||
|
| |||||||
Net increase (decrease) in net assets | 40,203,665 | 963,496,403 | ||||||
Net Assets | ||||||||
Beginning of period | 2,456,241,498 | 1,492,745,095 | ||||||
|
| |||||||
End of period | $ | 2,496,445,163 | $ | 2,456,241,498 | ||||
|
| |||||||
Distributions in excess of net investment income at end of period | $ | (590,400 | ) | $ | (590,355 | ) | ||
|
|
32 | 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, | |||||||||||||||||||||||
Class A | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Net asset value at beginning of period | $ | 10.18 | $ | 9.93 | $ | 10.03 | $ | 9.33 | $ | 10.04 | $ | 9.26 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) | 0.16 | 0.32 | 0.35 | 0.39 | 0.38 | 0.38 | (a) | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.29 | ) | 0.25 | (0.10 | ) | 0.70 | (0.72 | ) | 0.79 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | (0.13 | ) | 0.57 | 0.25 | 1.09 | (0.34 | ) | 1.17 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||
From net investment income | (0.16 | ) | (0.32 | ) | (0.35 | ) | (0.39 | ) | (0.37 | ) | (0.39 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 9.89 | $ | 10.18 | $ | 9.93 | $ | 10.03 | $ | 9.33 | $ | 10.04 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | (1.28 | %) | 5.73 | % | 2.58 | % | 11.86 | % | (3.52 | %) | 12.81 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | 3.21 | % †† | 3.04 | % | 3.51 | % | 3.99 | % | 3.72 | % | 3.91 | % | ||||||||||||
Net expenses | 0.81 | % †† | 0.80 | % | 0.81 | % | 0.78 | % | 0.78 | % | 0.79 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 0.81 | % †† | 0.80 | % | 0.82 | % | 0.83 | % | 0.83 | % | 0.84 | % | ||||||||||||
Portfolio turnover rate | 38 | % | 47 | % | 46 | % | 68 | % | 111 | % | 125 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 1,337,174 | $ | 1,248,065 | $ | 761,278 | $ | 427,586 | $ | 417,984 | $ | 424,757 |
* | 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. For periods of less than one year, total return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Investor Class | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Net asset value at beginning of period | $ | 10.23 | $ | 9.97 | $ | 10.08 | $ | 9.38 | $ | 10.08 | $ | 9.31 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) | 0.16 | 0.32 | 0.35 | 0.39 | 0.36 | 0.38 | (a) | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.30 | ) | 0.26 | (0.11 | ) | 0.69 | (0.70 | ) | 0.77 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | (0.14 | ) | 0.58 | 0.24 | 1.08 | (0.34 | ) | 1.15 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends: | ||||||||||||||||||||||||
From net investment income | (0.16 | ) | (0.32 | ) | (0.35 | ) | (0.38 | ) | (0.36 | ) | (0.38 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 9.93 | $ | 10.23 | $ | 9.97 | $ | 10.08 | $ | 9.38 | $ | 10.08 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | (1.36 | %) | 5.83 | % | 2.47 | % | 11.76 | % | (3.45 | %) | 12.58 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | 3.24 | % †† | 3.11 | % | 3.54 | % | 3.94 | % | 3.67 | % | 3.92 | % | ||||||||||||
Net expenses | 0.79 | % †† | 0.79 | % | 0.82 | % | 0.84 | % | 0.84 | % | 0.86 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 0.79 | % †† | 0.79 | % | 0.83 | % | 0.89 | % | 0.89 | % | 0.91 | % | ||||||||||||
Portfolio turnover rate | 38 | % | 47 | % | 46 | % | 68 | % | 111 | % | 125 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 16,315 | $ | 16,344 | $ | 17,259 | $ | 18,264 | $ | 19,094 | $ | 21,437 |
* | 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. For periods of less than one year, total 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. | 33 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Class B | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Net asset value at beginning of period | $ | 10.18 | $ | 9.92 | $ | 10.03 | $ | 9.33 | $ | 10.03 | $ | 9.26 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) | 0.15 | 0.29 | 0.33 | 0.35 | 0.34 | 0.35 | (a) | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.29 | ) | 0.26 | (0.11 | ) | 0.71 | (0.70 | ) | 0.78 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | (0.14 | ) | 0.55 | 0.22 | 1.06 | (0.36 | ) | 1.13 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||
From net investment income | (0.15 | ) | (0.29 | ) | (0.33 | ) | (0.36 | ) | (0.34 | ) | (0.36 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 9.89 | $ | 10.18 | $ | 9.92 | $ | 10.03 | $ | 9.33 | $ | 10.03 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | (1.39 | %) | 5.58 | % | 2.21 | % | 11.52 | % | (3.73 | %) | 12.34 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | 2.99 | % †† | 2.84 | % | 3.28 | % | 3.69 | % | 3.41 | % | 3.59 | % | ||||||||||||
Net expenses | 1.04 | % †† | 1.04 | % | 1.07 | % | 1.09 | % | 1.09 | % | 1.11 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.04 | % †† | 1.04 | % | 1.08 | % | 1.14 | % | 1.14 | % | 1.16 | % | ||||||||||||
Portfolio turnover rate | 38 | % | 47 | % | 46 | % | 68 | % | 111 | % | 125 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 18,760 | $ | 19,318 | $ | 16,806 | $ | 12,439 | $ | 12,459 | $ | 13,230 |
* | 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. For periods of less than one year, total return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Class C | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Net asset value at beginning of period | $ | 10.18 | $ | 9.93 | $ | 10.03 | $ | 9.34 | $ | 10.04 | $ | 9.27 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) | 0.15 | 0.29 | 0.33 | 0.36 | 0.35 | 0.35 | (a) | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.29 | ) | 0.25 | (0.10 | ) | 0.69 | (0.71 | ) | 0.78 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | (0.14 | ) | 0.54 | 0.23 | 1.05 | (0.36 | ) | 1.13 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends: | ||||||||||||||||||||||||
From net investment income | (0.15 | ) | (0.29 | ) | (0.33 | ) | (0.36 | ) | (0.34 | ) | (0.36 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 9.89 | $ | 10.18 | $ | 9.93 | $ | 10.03 | $ | 9.34 | $ | 10.04 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | (1.39 | %) | 5.48 | % | 2.31 | % | 11.40 | % | (3.72 | %) | 12.33 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | 2.99 | % †† | 2.81 | % | 3.28 | % | 3.68 | % | 3.42 | % | 3.58 | % | ||||||||||||
Net expenses | 1.04 | % †† | 1.04 | % | 1.07 | % | 1.09 | % | 1.09 | % | 1.11 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.04 | % †† | 1.04 | % | 1.08 | % | 1.14 | % | 1.14 | % | 1.16 | % | ||||||||||||
Portfolio turnover rate | 38 | % | 47 | % | 46 | % | 68 | % | 111 | % | 125 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 246,937 | $ | 273,386 | $ | 183,509 | $ | 154,863 | $ | 150,244 | $ | 142,246 |
* | 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. For periods of less than one year, total return is not annualized. |
34 | 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, | |||||||||||||||||||||||
Class I | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Net asset value at beginning of period | $ | 10.18 | $ | 9.93 | $ | 10.03 | $ | 9.34 | $ | 10.04 | $ | 9.27 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) | 0.17 | 0.34 | 0.38 | 0.41 | 0.40 | 0.40 | (a) | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.29 | ) | 0.25 | (0.10 | ) | 0.69 | (0.71 | ) | 0.78 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | (0.12 | ) | 0.59 | 0.28 | 1.10 | (0.31 | ) | 1.18 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends: | ||||||||||||||||||||||||
From net investment income | (0.17 | ) | (0.34 | ) | (0.38 | ) | (0.41 | ) | (0.39 | ) | (0.41 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 9.89 | $ | 10.18 | $ | 9.93 | $ | 10.03 | $ | 9.34 | $ | 10.04 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | (1.16 | %) | 5.99 | % | 2.83 | % | 12.02 | % | (3.18 | %) | 12.97 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | 3.46 | % †† | 3.29 | % | 3.78 | % | 4.21 | % | 4.00 | % | 4.06 | % | ||||||||||||
Net expenses | 0.56 | % †† | 0.55 | % | 0.56 | % | 0.53 | % | 0.54 | % | 0.54 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 0.56 | % †† | 0.55 | % | 0.57 | % | 0.58 | % | 0.59 | % | 0.59 | % | ||||||||||||
Portfolio turnover rate | 38 | % | 47 | % | 46 | % | 68 | % | 111 | % | 125 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 877,259 | $ | 899,128 | $ | 513,893 | $ | 314,005 | $ | 236,531 | $ | 142,603 |
* | 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. For periods of less than one year, total 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. | 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, and is governed by a Declaration of Trust, 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, as that term is defined in the 1940 Act, as interpreted or modified by regulatory authorities having jurisdiction, from time to time.
The Fund currently offers seven 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. Class R6 and Class T shares of the Fund were registered for sale effective as of February 28, 2017. As of the period ended April 30, 2017, Class R6 and Class T shares had no investment operations. Effective February 28, 2017, Class B shares of the MainStay Group of Funds were closed to all new purchases as well as additional investments by existing Class B shareholders. Existing Class B shareholders may continue to reinvest dividends and capital gains distributions, as well as exchange their Class B shares for Class B shares of other Funds as permitted by the current exchange privileges. Class B shareholders continue to be subject to any applicable contingent deferred sales charge at the time of redemption. All other features of the Class B shares, including but not limited to the fees and expenses applicable to Class B shares, remain unchanged. Unless redeemed, Class B shareholders will remain in Class B shares of their respective Fund until the Class B shares are converted to Class A or Investor Class shares pursuant to the applicable conversion schedule.
Class A and Investor Class shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No initial sales charge applies to investments of $250,000 or more (and certain other qualified purchases) in Class A and Investor Class shares. Effective August 1, 2017, a contingent deferred sales charge (“CDSC”) of 1.00% may be imposed on certain redemptions of such shares made within 18 months of the date of purchase on shares that were purchased without an initial sales charge. For purchases of Class A and Investor Class shares made from January 1, 2017, through July 31, 2017, a CDSC of 1.00% may be imposed on certain redemptions made within 24 months of the date of purchase on shares that were purchased without an initial sales charge. For purchases of Class A and Investor Class shares made prior to January 1, 2017, a CDSC of 1.00% may be imposed on certain redemptions made within one year of the date of purchase on shares that were purchased without an initial sales charge. Class C shares are offered at NAV without an initial sales charge, although a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. When Class B shares were offered, they were offered at NAV without an initial sales charge, although a CDSC that declines depending on the number of years a shareholder has held its Class B shares may be imposed on redemptions made within six years of the date of purchase of such shares. Class T shares are offered at NAV per share plus an initial sales charge. Class I 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. Under certain circumstances and as may be permitted by the Trust’s multiple class plan under Rule 18f-3 of the 1940 Act, an exchange/conversion may be made from specified share classes of the Fund to one or more other share classes of the Fund as disclosed in the capital share transactions within these notes. The seven 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 under distribution plans pursuant to Rule 12b-1 under the 1940 Act, Class B and Class C shares are subject to higher distribution and/or service fee rates than Class A, Investor Class and Class T shares. Class I and Class R6 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 is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services—Investment Companies. 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 usually valued as of the close of regular trading on the New York Stock Exchange (the “Exchange”) (usually 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 establishing methodologies for the valuation of the Fund’s securities and other assets and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Trust (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 establishing the prices of securities for which market quotations are not readily available or the prices of which are not otherwise readily determinable under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. Subsequently, the Valuation Committee meets 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 the day-to-day valuation of portfolio assets (including fair value measurements for the Fund’s assets and liabilities) 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, Subadvisor 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
36 | MainStay Tax Free Bond Fund |
day prices and challenges prices with changes 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, if appropriate, 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 or other asset is submitted by the Valuation Committee to the Board for its review and ratification, if appropriate, at its next regularly scheduled meeting.
“Fair value” is defined as the price the Fund would reasonably expect to 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 establishes 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 assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities. 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) |
The level of an asset or liability within the fair value hierarchy is based on the lowest level of an input, both individually and in the aggregate, that is significant to the fair value measurement. As of April 30, 2017, the aggregate value by input level of the Fund’s assets and 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 is valued by methods deemed reasonable 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. Fair value represents a good faith approximation of the value of a security. Fair value determinations involve the consideration of a number of subjective factors, an analysis of applicable facts and circumstances and the exercise of judgment. As a result, it is possible that the fair value for a security determined in good faith in accordance with the Fund’s valuation procedures may differ from valuations for the same security determined by other funds using their own valuation procedures. Although the Fund’s valuation procedures are designed to value a security at the price the Fund may reasonably expect to receive upon its sale in an orderly transaction, there can be no assurance that any fair value determination thereunder would, in fact, approximate the amount that the Fund would actually realize upon the sale of the security or the price at which the security would trade if a reliable market price were readily available. During the six-month period ended April 30, 2017, there were 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, 2017, there were no securities held by the Fund 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 mutual
37 |
Notes to Financial Statements (Unaudited) (continued)
funds, including money market 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 values reflect broker/dealer supplied prices and electronic data processing techniques, if the evaluated bid or mean 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 at the time of purchase 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 using the amortized cost method of valuation, unless the use of such method would be inappropriate. 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 using the amortized cost method are not valued using quoted prices in an active market and are generally categorized as Level 2 in the hierarchy.
The information above is not intended to reflect an exhaustive list of the methodologies that may be used to value portfolio investments. The valuation procedures permit the use of a variety of valuation methodologies in connection with valuing portfolio investments. The methodology used for a specific type of investment may vary based on the market data available or other considerations. The methodologies summarized above may not represent the specific means by which portfolio investments are valued on any particular business day.
A Fund security or other asset may be determined to be illiquid under procedures approved by the Board. Illiquidity of a security 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 the 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 materially 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 determines 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 are often valued in accordance with methods deemed by the Board in good faith to be
reasonable and appropriate to accurately reflect their fair value. The liquidity of the Fund’s investments, as shown in the Portfolio of Investments, was determined as of April 30, 2017 and can change at any time in response to, among other relevant factors, market conditions or events or developments with respect to an individual issuer or instrument.
(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 its 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 permitted only to the extent 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 amortized, respectively, on the effective interest rate method over the life of the respective securities. 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 accreted daily based on the effective interest method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated pro rata to separate classes of shares 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 security on non-accrual status and reduce related interest income by ceasing current accruals and writing off all or
38 | MainStay Tax Free Bond Fund |
a portion of any interest receivables when the collection of all or a portion of such interest has become doubtful. A debt security 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/or 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 risks such as market price risk and/or interest rate risk in the normal course of investing in these transactions. Upon entering into a futures contract, the Fund is required to pledge to the broker or futures commission merchant an amount of cash and/or U.S. Government securities equal to a certain percentage of the collateral amount, known as the “initial margin.” 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 or futures commission merchant 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. There are several risks associated with the use of futures contracts as hedging techniques. There can be no assurance that a liquid market will exist at the time when the Fund seeks to close out a futures contract. If no liquid market exists, the Fund would remain obligated to meet margin requirements until the position is closed. Futures may involve a small initial investment relative to the risk assumed, which could result in losses greater than if they had not been used. Futures may be more volatile than direct investments in the instrument underlying the futures, and may not correlate to the underlying instrument, causing a given hedge not to achieve its objectives. 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 the entire 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 NAVs and may result in a loss to the Fund. As of April 30, 2017, all open futures contracts are shown in the Portfolio of Investments.
(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 (“SEC”). 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 collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund against counterparty risk. The loans will be collateralized by U.S. Treasury securities at least equal at all times to the market value of the securities loaned. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record a realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund bears the risk of any loss on investment of the collateral. The Fund will receive compensation for lending its securities in the form of fees or it will retain a portion of interest on the investment of any cash received as collateral. The Fund will also 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. During the six-month period ended April 30, 2017, the Fund did not have any portfolio securities on loan.
(I) Municipal Bond Risk. The Fund may invest more heavily in municipal bonds from certain cities, states or regions than others, which may increase the Fund’s exposure to losses resulting from economic, political, or regulatory occurrences impacting these particular cities, states or regions. In addition, many state and municipal governments that issue securities are under significant economic and financial stress and may not be able to satisfy their obligations. The Fund may invest a substantial amount of its assets in municipal bonds whose interest is paid solely from revenues of similar projects, such as tobacco settlement bonds. If the Fund concentrates its investments in this manner, it assumes the legal and economic risks relating to such projects and this may have a significant impact on the Fund’s investment performance.
Certain of the issuers in which the Fund may invest have recently experienced, or may experience, significant financial difficulties and repeated credit rating downgrades. On May 3, 2017, the Commonwealth of Puerto Rico began proceedings to seek bankruptcy-type protections from approximately $74 billion in debt and approximately $48 billion in unfunded pension obligations. Puerto Rico’s debt restructuring of $122 billion is significantly larger than the previous largest U.S. public bankruptcy, which covered approximately $18 billion of debt for the city of Detroit. As a result of Puerto Rico’s debt restructuring process, events could occur rapidly that significantly affect the value of municipal securities of Puerto Rico. The Fund’s vulnerability to potential losses associated with such developments may be reduced through investing in municipal securities that feature credit enhancements (such as bond
39 |
Notes to Financial Statements (Unaudited) (continued)
insurance). The bond insurance provider pays both principal and interest when due to the bond holder. The magnitude of Puerto Rico’s debt restructuring could pose significant strains on the ability of municipal securities insurers to meet all future claims. As of April 30, 2017, 100% of the Puerto Rico municipal securities held by the Fund were insured.
(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 related to 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. The Fund entered into futures contracts to help manage the duration and yield curve positioning of the portfolio. These derivatives are not accounted for as hedging instruments.
Fair value of derivative instruments as of April 30, 2017:
Liability Derivatives
Statement of Assets and Liabilities Location | Interest Rate Contracts Risk | Total | ||||||||
Futures Contracts | Net Assets-Net unrealized appreciation (depreciation) on investments and futures contracts (a) | $ | (4,310,960 | ) | $ | (4,310,960 | ) | |||
|
| |||||||||
Total Fair Value | $ | (4,310,960 | ) | $ | (4,310,960 | ) | ||||
|
|
(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, 2017:
Realized Gain (Loss)
Statement of Operations Location | Interest Rate Contracts Risk | Total | ||||||||
Futures Contracts | Net realized gain (loss) on futures transactions | $ | 10,137,501 | $ | 10,137,501 | |||||
|
| |||||||||
Total Realized Gain (Loss) | $ | 10,137,501 | $ | 10,137,501 | ||||||
|
|
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 | $ | (7,154,009 | ) | $ | (7,154,009 | ) | |||
|
| |||||||||
Total Change in Unrealized Appreciation (Depreciation) | $ | (7,154,009 | ) | $ | (7,154,009 | ) | ||||
|
|
Average Notional Amount
Interest Rate Contracts Risk | Total | |||||||
Futures Contracts Short | $ | (436,815,125 | ) | $ | (436,815,125 | ) | ||
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Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investments, a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life Insurance Company (“New York Life”), serves as the Fund’s Manager pursuant to an Amended and Restated Management Agreement (“Management Agreement”). The Manager provides offices, conducts clerical, recordkeeping and bookkeeping services, and keeps most of the financial and accounting records required to be maintained by the Fund. Except for the portion of salaries and expenses that are the responsibility of the Fund, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. The Fund reimburses New York Life Investments in an amount equal to a portion of the compensation of the Chief Compliance Officer attributable to 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 Amended and Restated Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and MacKay Shields, New York Life Investments pays for the services of the Subadvisor.
Under the Management Agreement, 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; 0.425% from $500 million to $1 billion; and 0.40% 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.
During the six-month period ended April 30, 2017, the effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.43% inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets.
40 | MainStay Tax Free Bond Fund |
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. 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 will apply an equivalent waiver or reimbursement, in an equal number of basis points, to the other share classes of the Fund, except R6. This agreement will remain in effect until February 28, 2018, 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 by the Board.
During the six-month period ended April 30, 2017, New York Life Investments earned fees from the Fund in the amount of $4,996,614.
State Street 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 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 Class A, Investor and Class T Class Plans, the Distributor receives a monthly distribution fee from the Class A, Investor Class and Class T shares at an annual rate of 0.25% of the average daily net assets of the Class A, Investor Class and Class T 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. During the six-month period ended April 30, 2017, the Fund was advised by the Distributor that the amount of initial sales charges retained on sales of Class A and Investor Class shares were $24,557 and $3,283, respectively.
During the six-month period ended April 30, 2017, the Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Class B and Class C shares of $159,700, $17,412 and $45,074, respectively.
(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. During the six-month period ended April 30, 2017, transfer agent expenses incurred by the Fund were as follows:
Class A | $ | 613,212 | ||
Investor Class | 6,532 | |||
Class B | 7,739 | |||
Class C | 106,053 | |||
Class I | 423,535 |
(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
During the years ended April 30, 2017 and October 31, 2016, the tax character of distributions paid as reflected in the Statement of Changes in Net Assets was as follows:
2016 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 407,328 | ||
Exempt Interest Dividends | 60,537,386 | |||
Total | $ | 60,944,714 |
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 transactions incurred by the Fund.
Note 6–Line of Credit
The Fund and certain other funds managed by New York Life Investments, 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 2, 2016, under an amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $600,000,000 with an additional uncommitted amount of $100,000,000. The commitment fee is an annual rate of 0.15% 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 their respective 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 1, 2017, although the
41 |
Notes to Financial Statements (Unaudited) (continued)
Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 2, 2016, the aggregate commitment amount was $600,000,000 with an additional uncommitted amount of $100,000,000, and the commitment fee was at an annual rate of 0.10% of the average commitment amount. During the six-month period ended April 30, 2017, there were no borrowings made or outstanding with respect to the Fund under the Credit Agreement.
Note 7–Interfund Lending Program
Pursuant to an exemptive order issued by the SEC, the Fund, along with certain other funds managed by New York Life Investments, may participate in an interfund lending program. The interfund lending program provides an alternative credit facility that permits the Fund and certain other funds managed by New York Life Investments to lend or borrow money for temporary purposes directly to or from one another, subject to the conditions of the exemptive order. During the six-month period ended April 30, 2017, there were no interfund loans made or outstanding with respect to the Fund.
Note 8–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2017, purchases and sales of securities, other than short-term securities, were $945,094 and $889,835, respectively.
Note 9–Capital Share Transactions
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 62,681,207 | $ | 615,092,493 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,689,007 | 16,589,961 | ||||||
Shares redeemed | (50,221,627 | ) | (493,267,260 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 14,148,587 | 138,415,194 | ||||||
Shares converted into Class A (See Note 1) | 61,999 | 606,340 | ||||||
Shares converted from Class A (See Note 1) | (1,574,455 | ) | (15,446,593 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 12,636,131 | $ | 123,574,941 | |||||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 70,104,399 | $ | 718,773,459 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 2,323,481 | 23,781,700 | ||||||
Shares redeemed | (26,748,385 | ) | (273,435,455 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 45,679,495 | 469,119,704 | ||||||
Shares converted into Class A (See Note 1) | 389,062 | 3,980,913 | ||||||
Shares converted from Class A (See Note 1) | (178,665 | ) | (1,844,440 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 45,889,892 | $ | 471,256,177 | |||||
|
|
|
| |||||
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 88,972 | $ | 879,419 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 23,229 | 229,164 | ||||||
Shares redeemed | (92,590 | ) | (914,783 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 19,611 | 193,800 | ||||||
Shares converted into Investor Class (See Note 1) | 74,039 | 730,519 | ||||||
Shares converted from Investor Class (See Note 1) | (49,385 | ) | (485,095 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 44,265 | $ | 439,224 | |||||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 298,750 | $ | 3,069,918 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 45,201 | 463,700 | ||||||
Shares redeemed | (167,244 | ) | (1,712,234 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 176,707 | 1,821,384 | ||||||
Shares converted into Investor Class (See Note 1) | 64,521 | 663,592 | ||||||
Shares converted from Investor Class (See Note 1) | (373,924 | ) | (3,842,733 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (132,696 | ) | $ | (1,357,757 | ) | |||
|
|
|
| |||||
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 161,236 | $ | 1,585,222 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 25,806 | 253,344 | ||||||
Shares redeemed | (166,636 | ) | (1,638,821 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 20,406 | 199,745 | ||||||
Shares converted from Class B (See Note 1) | (20,655 | ) | (202,031 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (249 | ) | $ | (2,286 | ) | |||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 630,080 | $ | 6,448,957 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 45,024 | 459,842 | ||||||
Shares redeemed | (446,357 | ) | (4,581,911 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 228,747 | 2,326,888 | ||||||
Shares converted from Class B (See Note 1) | (24,509 | ) | (250,623 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 204,238 | $ | 2,076,265 | |||||
|
|
|
| |||||
42 | MainStay Tax Free Bond Fund |
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 2,484,378 | $ | 24,488,719 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 285,759 | 2,807,443 | ||||||
Shares redeemed | (4,649,414 | ) | (45,705,891 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (1,879,277 | ) | $ | (18,409,729 | ) | |||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 10,920,726 | $ | 111,687,557 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 452,436 | 4,629,198 | ||||||
Shares redeemed | (3,007,809 | ) | (30,750,636 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 8,365,353 | 85,566,119 | ||||||
Shares converted from Class C (See Note 1) | (3,327 | ) | (34,435 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 8,362,026 | $ | 85,531,684 | |||||
|
|
|
| |||||
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 30,837,353 | $ | 303,292,569 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 761,610 | 7,483,205 | ||||||
Shares redeemed | (32,703,505 | ) | (321,503,325 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (1,104,542 | ) | (10,727,551 | ) | ||||
Shares converted into Class I (See Note 1) | 1,508,278 | 14,796,860 | ||||||
|
|
|
| |||||
Net increase (decrease) | 403,736 | $ | 4,069,309 | |||||
|
|
|
| |||||
Year ended October 31, 2016 : | ||||||||
Shares sold | 48,954,715 | $ | 500,987,725 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,130,288 | 11,574,515 | ||||||
Shares redeemed | (13,682,575 | ) | (140,262,947 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 36,402,428 | 372,299,293 | ||||||
Shares converted into Class I (See Note 1) | 128,216 | 1,327,726 | ||||||
|
|
|
| |||||
Net increase (decrease) | 36,530,644 | $ | 373,627,019 | |||||
|
|
|
|
Note 10–Recent Accounting Pronouncement
In October 2016, the SEC adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the Fund’s financial statements and related disclosures.
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, 2017, events and transactions subsequent to April 30, 2017, 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.
43 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited)
Section 15 of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of trustees initially approve and, following an initial term of up to two years, annually review and approve the fund’s investment advisory agreement(s). At its December 12-14, 2016 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 2016 and December 2016, as well as other relevant information furnished to the Board throughout the year. 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 fee and total expenses. The Board also considered information on the fees charged to any other investment advisory clients of New York Life Investments and MacKay Shields (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 Trustees who are not “interested persons” (as such term is defined under the 1940 Act) of the Fund (the “Independent Trustees”). Information provided to the Board in advance of and during meetings throughout the year included, among other items, information regarding the legal standards applicable to their consideration of the Agreements and 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, risk management, portfolio turnover, and sales and marketing activity. At various meetings, the Independent Trustees also met in executive session with their independent legal counsel, and met with senior management of New York Life Investments without other representatives of New York Life Investments present.
Throughout the year and specifically in connection with its June meeting each year, the Board also received an overview of the Funds’ distribution arrangements. In addition, the Board received information regarding the Fund’s asset levels, share purchase and redemption activity and the payment of Rule 12b-1 distribution and service fees by the Fund. New York Life Investments also provided the Board with
information regarding the revenue sharing payments made to intermediaries that promote the sale, distribution, and/or servicing of Fund shares.
In considering the Agreements, the Trustees comprehensively 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 described in greater detail below and included, among other items: (i) the nature, extent 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 have been realized or may be realized if the Fund grows and the extent to which economies of scale have benefited or may benefit Fund shareholders; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to any similar funds and accounts managed by New York Life Investments and MacKay Shields. Although the Board recognized that the comparisons between the Fund’s fees and expenses and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Board also considered the reasonableness of the Fund’s management fee and overall total ordinary operating expenses as compared to the peer funds identified by Strategic Insight.
While individual Trustees may have weighed certain factors or information differently, the Board’s decision to approve the Agreements was based on a consideration of the information provided to the Trustees throughout the year, as well as information furnished specifically in connection with the contract review process. Throughout the year, the Trustees are also afforded an opportunity to ask questions of and request additional information or materials from New York Life Investments and MacKay Shields. The Board’s conclusions with respect to the Agreements may have been based, in part, on the Board’s knowledge of New York Life Investments and MacKay Shields resulting from, among other things, the Board’s consideration of the MainStay Group of Funds’ advisory 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. The factors that figured prominently in the Board’s decision to approve the Agreements are summarized in more detail below.
Nature, Extent and Quality of Services to Be Provided by New York Life Investments and MacKay Shields
The Board examined the nature, extent and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience and capabilities 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
44 | MainStay Tax Free Bond Fund |
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 observed that New York Life Investments devotes significant resources and time to providing advisory and non-advisory services to the Fund, including its extensive oversight of MacKay Shields. The Board also considered the full range of services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and on-going oversight services provided by New York Life Investments’ Fund Administration and Accounting 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; (iv) legal services provided by New York Life Investments’ Office of the General Counsel; and (v) risk management and portfolio trading oversight and analysis by compliance and investment personnel. 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, infrastructure, technology, operational enhancements, cyber security, information security and shareholder privacy resources 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, extent and quality of the investment 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 records 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 further considered New York Life Investments’ policies, procedures and systems to reasonably assure compliance with applicable laws and regulations. In addition, the Board considered the policies and procedures in place with respect to matters that may involve conflicts of interest between the Fund’s investments and those of other accounts managed by MacKay Shields. 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, extent 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, and in light of market conditions. 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’s Investment Committee that occur regularly, generally 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 of the services provided by New York Life Investments and MacKay Shields and profits realized by 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
45 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
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 recognized that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds, among other benefits resulting from its relationship with New York Life Investments.
In addition, the Board acknowledged 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. In connection with the annual fund profitability analysis that New York Life Investments presents to the Board, the Board in 2014 engaged Bobroff Consulting, Inc., an independent third-party consultant, to review the methods used to allocate costs to the MainStay Funds, and among individual Funds. As part of this engagement, the consultant analyzed: (i) the various New York Life Investments’ business units and affiliated Subadvisers that provide services to the MainStay Funds; (ii) how costs are allocated to the Fund and other funds managed by New York Life Investments, and to other lines of businesses; and (iii) how New York Life Investments’ cost allocation methods and profitability reports compare to industry practices. The Board noted that the independent consultant had concluded that New York Life Investments’ methods for allocating costs and procedures for estimating overall profitability of the funds in the MainStay Group of Funds, including the Fund, are reasonable, consistent with industry practice and likely to produce reasonable profitability estimates. Although the Board recognized 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 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 incurred by New York Life Investments from its own resources.
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 Fund and other funds in the MainStay Group of Funds. 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, initially setting relatively low management fees or making additional investments to enhance shareholder services. 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. Additionally, the Board considered New York Life Investments’ assessment of the extent economies of scale existed for Funds that had experienced significant increases of assets during the year.
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, because 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 that follow similar investment strategies 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
46 | MainStay Tax Free Bond Fund |
fee schedules. The Board also took into account explanations provided by New York Life Investments about the different scope of services provided to registered investment companies 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 demonstrating 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 also noted information received from NYLIM Service Company LLC regarding the sub-transfer agency payments it made to intermediaries in connection with the 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 a number of 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 recognized 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) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iii) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (iv) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (v) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vi) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. The Board also considered that NYLIM Service Company LLC had waived its cost of living adjustments in 2015, 2016 and 2017. In addition, the
Board acknowledged New York Life Investments’ continued 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 and factors summarized above and the evaluation thereof, the Board as a whole, including the Independent Trustees who are not parties to the Agreements or “interested persons” of any such party voting separately, unanimously voted to approve the Agreements.
47 |
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 or proxy voting record 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).
48 | MainStay Tax Free Bond Fund |
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MainStay Funds
Equity
U.S. Equity
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay Epoch U.S. Small Cap Fund
MainStay ICAP Equity Fund1
MainStay ICAP Select Equity Fund1
MainStay Large Cap Growth Fund
MainStay MAP Equity Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
International/Global Equity
MainStay Emerging Markets Equity Fund
MainStay Epoch Capital Growth Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Choice Fund
MainStay Epoch International Small Cap Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond
MainStay Emerging Markets Debt Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay Indexed Bond Fund
MainStay Short Duration High Yield Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal/Tax Advantaged Bond
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Advantaged Short Term Bond Fund
MainStay Tax Free Bond Fund
Money Market
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
Alternative
MainStay Absolute Return Multi-Strategy Fund
MainStay Cushing Energy Income Fund
MainStay Cushing MLP Premier Fund
MainStay Cushing Renaissance Advantage 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
MainStay Retirement 2060 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Candriam France S.A.S.4
Paris, France
Cornerstone Capital Management Holdings LLC4
New York, New York
Cushing Asset Management, LP
Dallas, Texas
Epoch Investment Partners, Inc.
New York, New York
MacKay Shields LLC4
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC4
New York, New York
Winslow Capital Management, LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Washington, District of Columbia
Independent Registered Public Accounting Firm
KPMG LLP
Philadelphia, Pennsylvania
1. On May 8, 2017, the Fund merged into MainStay Epoch U.S. Equity Yield Fund. Former shareholders of this Fund can request the Fund’s Semiannual Report by calling 800-MAINSTAY (624-6782).
2. Class A and Class I shares of this Fund are registered for sale in AZ, CA, MI, NV, OR, TX, UT and WA. Class I shares are registered for sale in CO, FL, GA, HI, ID, MA, MD, NH, NJ and NY.
3. This Fund is registered for sale in CA, CT, DE, FL, MA, NJ, NY and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Semiannual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
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. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
©2017 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 |
1737619 MS144-17 | MST10-06/17 (NYLIM) NL013 |
MainStay Convertible Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2017
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Message from the President
The six months ended April 30, 2017, proved to be a strong period for many equity investors but presented challenges for some bond investors.
The reporting period began with considerable uncertainty about the outcome of the U.S. election. Once the Republicans gained control of the White House, the Senate and the House of Representatives, however, many investors hoped to see an end to political gridlock; and although debate has continued on a number of issues, the U.S. stock market steadily climbed through the end of the reporting period.
According to FTSE-Russell U.S. market data, stocks at all capitalization levels earned double-digit overall returns during the reporting period. Although growth stocks outperformed value stocks at most capitalization levels, value stocks outperformed growth stocks among micro-cap stocks.
In December 2016 and March 2017, the Federal Reserve announced increases in the target range for the federal funds rate. These moves, which brought the federal funds target range to 0.75% to 1.00%, were felt across the bond market. During the reporting period, yields rose on U.S. Treasury securities of all maturities, with the largest absolute increase on the 5-year U.S. Treasury note. On a percentage basis, however, the largest increases were at the short end of the maturity spectrum, with yields on the 1- and 3-month U.S. Treasury bills more than doubling during the reporting period.
When interest rates rise, bond prices tend to decline (and vice versa). As a result, several broad fixed-income asset classes—including U.S. government and agency bonds, mortgage-backed securities, investment-grade debt and municipal bonds—recorded negative total returns for the reporting period. Convertible securities, high-yield bonds and floating-rate loans, which tend to be less sensitive to interest-rate changes, provided positive total returns.
International stock markets generally advanced during the reporting period, with European stocks providing strong
double-digit returns. The Pacific region and Japan were weaker but provided positive returns in the single digits. Emerging markets also provided solid performance for the reporting period, despite modest commodity prices.
Many short-term political, economic and world events affected the markets during the reporting period. Nevertheless, at MainStay, we believe that the primary concern of our portfolio managers should be the long-term welfare of our shareholders, and we appreciate the discipline our portfolio managers seek to apply in their long-term investment decisions.
Our portfolio managers seek to pursue the investment objectives of their respective MainStay Funds using the various investment strategies outlined in the Fund’s Prospectus. Utilizing their years of professional market experience, they seek to enhance returns when possible, manage risk as necessary and view short-term events in light of long-term investment goals. At MainStay, we believe that shareholders who maintain a long-term perspective may be better able to weather turbulent markets, avoid selling when prices are low and stay focused on their reasons for choosing MainStay Funds.
The report that follows provides more detailed information about the markets, securities and decisions that affected your MainStay Fund during the six months ended April 30, 2017. We invite you to read it carefully and use the information as part of your ongoing portfolio evaluation and review.
Sincerely,
Stephen P. Fisher
President
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, 30 Hudson Street, Jersey City, NJ 07302 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 and other factors, 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, 2017
Class | Sales Charge | Inception Date | Six Months | One Year | Five Years | Ten Years | Gross Expense Ratio2 | |||||||||||||||||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges | 1/3/1995 | | 4.93 11.04 | %
| | 8.94 15.28 | %
| | 8.35 9.59 | %
| | 6.41 7.01 | %
| | 1.01 1.01 | %
| ||||||||||
Investor Class Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges | 2/28/2008 | | 4.79 10.88 |
| | 8.70 15.03 | | | 8.15 9.38 | | | 6.07 6.72 | | | 1.18 1.18 |
| ||||||||||
Class B Shares3 | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges | 5/1/1986 | | 5.49 10.49 |
| | 9.20 14.20 | | | 8.28 8.57 | | | 6.02 6.02 | | | 1.93 1.93 |
| ||||||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges | 9/1/1998 | | 9.50 10.50 |
| | 13.21 14.21 | | | 8.56 8.56 | | | 6.02 6.02 | | | 1.93 1.93 |
| ||||||||||
Class I Shares | No Sales Charge | 11/28/2008 | 11.16 | 15.55 | 9.88 | 13.59 | 0.76 |
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 if any 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 may 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 (if any), 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. | Class B shares are closed to all new purchases as well as additional investments by existing Class B shareholders. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
5 |
Benchmark Performance | Six Months | One Year | Five Years | Ten Years | ||||||||||||
BofA Merrill Lynch U.S. Convertible Index4 | 10.49 | % | 17.71 | % | 10.48 | % | 6.60 | % | ||||||||
Average Lipper Convertible Securities Fund5 | 8.83 | 14.19 | 7.66 | 4.89 |
4. | The BofA Merrill Lynch U.S. Convertible Index is the Fund’s primary broad-based securities market index for comparison purposes. The BofA Merrill Lynch U.S. Convertible 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. Results assume reinvestment of all income and capital gains. An investment cannot be made directly in an index. |
5. | 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, 2016, to April 30, 2017, 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, 2016, to April 30, 2017.
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, 2017. 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 11/1/16 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/17 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/17 | Expenses Paid During Period1 | Net Expense Ratio During Period2 | ||||||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,110.40 | $ | 5.18 | $ | 1,019.90 | $ | 4.96 | 0.99% | |||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,108.80 | $ | 6.01 | $ | 1,019.10 | $ | 5.76 | 1.15% | |||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,104.90 | $ | 9.92 | $ | 1,015.40 | $ | 9.49 | 1.90% | |||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,105.00 | $ | 9.92 | $ | 1,015.40 | $ | 9.49 | 1.90% | |||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,111.60 | $ | 3.61 | $ | 1,021.40 | $ | 3.46 | 0.69% |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class 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. |
2. | Expenses are equal to the Fund’s annualized expense ratio to reflect the six-month period. |
7 |
Portfolio Composition as of April 30, 2017 (Unaudited)
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
Top Ten Holdings or Issuers Held as of April 30, 2017 (excluding short-term investment) (Unaudited)
1. | Priceline Group, Inc., 0.35%–1.00%, due 3/15/18–6/15/20 |
2. | DISH Network Corp., 3.375%, due 8/15/26 |
3. | Teleflex, Inc., 3.875%, due 8/1/17 |
4. | Microchip Technology, Inc., 1.625%, due 2/15/25–2/15/27 |
5. | Danaher Corp., (zero coupon), due 1/22/21 |
6. | XPO Logistics, Inc., 4.50%, due 10/1/17 |
7. | Bank of America Corp. |
8. | Macquarie Infrastructure Corp., 2.875%, due 7/15/19 |
9. | Air Lease Corp., 3.875%, due 12/1/18 |
10. | Hologic, Inc., 2.00%, due 3/1/42 |
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 primary benchmark and peers during the six months ended April 30, 2017?
Excluding all sales charges, MainStay Convertible Fund returned 11.04% for Class A shares, 10.88% for Investor Class shares, 10.49% for Class B shares and 10.50% for Class C shares for the six months ended April 30, 2017. Over the same period, Class I shares returned 11.16%. During the reporting period, Class A, Investor Class, Class C and Class I shares outperformed—and Class B shares performed in line with—the 10.49% return of the BofA Merrill Lynch U.S. Convertible Index,1 which is the Fund’s broad-based securities-market index. During the six months ended April 30, 2017, all share classes outperformed the 8.83% 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 Fund’s relative performance benefited from a portfolio composition that differed significantly from that of the BofA Merrill Lynch U.S. Convertible Index and most of the Fund’s peers. The Fund’s most significant gainers—such as logistics and trucking company XPO Logistics, specialty medical devices company Teleflex and diversified industrial manufacturer Wabash National—did not have large weightings in the Index and were lightly held by the Fund’s peers, which helped the Fund’s relative performance. The Fund had a higher delta (a higher sensitivity to price changes in the underlying stocks) than the positions in the BofA Merrill Lynch U.S. Convertible Index, which also aided performance during the reporting period as stock prices rose.
What was the Fund’s duration3 during the reporting period?
Convertible bond prices tend to vary with changes in the price of the underlying equity security rather than with changes in interest rates. For this reason, duration does not guide our investment decisions regarding the Fund’s convertible security holdings. At the end of the reporting period, the effective duration of the Fund was 3.42 years.
During the reporting period, which sectors and securities were the strongest contributors to the Fund’s absolute performance and which were particularly weak?
The strongest contributions to absolute performance came from the information technology and transportation sectors. (Contributions take weightings and total returns into account.) Within the information technology sector, convertible bonds of
semiconductor chip developers Advanced Micro Devices, Nvidia and Xilinx were the Fund’s third-, fourth- and sixth-best performers, respectively, in terms of dollars earned. Semiconductor companies generally reported better-than-expected sales and earnings, as most of their end markets—including autos, gaming and emerging technologies such as self-driving automobiles—remained strong. Within the transportation sector, a convertible bond position in logistics and trucking company XPO Logistics was the Fund’s second-best performer during the reporting period. XPO Logistics was a standout performer after the company’s 2016 financial results allayed investor concerns that the company was making too many acquisitions and taking on too much debt. XPO Logistics’ year-end results showed that the company was generating free cash flow, selling less desirable operations and paying down debt. Also in the transportation sector, a convertible bond position in aircraft leasing company Air Lease Corp. was a significant contributor to the Fund’s absolute performance.
The biggest detractors from the Fund’s absolute performance came from the health care and energy sectors. Convertible securities of several health care–related companies were poor performers as investors shunned the sector in the wake of concerns surrounding pricing practices, as well as earnings misses by several health care companies. Convertible preferred shares of Teva Pharmaceutical Industries, along with the convertible bonds of specialty pharmaceuticals companies Depomed and AMAG Pharmaceuticals, were the Fund’s worst performing securities during the reporting period. Teva Pharmaceutical Industries convertible preferred shares declined after the company was forced to lower earnings estimates for the year and the company fired its chief executive officer. Depomed declined as it, too, missed earnings projections because doctors were reluctant to prescribe its largest selling product—an opioid with the potential for abuse. AMAG Pharmaceuticals’ shares declined after the company told investors that a product in development failed to meet expectations, which would likely affect the company’s future sales and profits. Convertible holdings of most of the Fund’s energy-related holdings declined during the reporting period, largely in response to weak crude oil prices. Fund holdings in synthetic convertible bonds of Schlumberger, Ltd.; convertible preferred shares of energy producer Southwestern Energy; and convertible bonds of energy service companies Helix Energy and Ensco were all noteworthy detractors from performance.
Did the Fund make any significant purchases or sales during the reporting period?
During the reporting period, noteworthy purchases included convertible bonds of satellite television provider DISH Networks.
1. | See footnote on page 6 for more information on the BofA Merrill Lynch All U.S. Convertible 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. |
9 |
We believed that there could be material upside if the company could realize value for Dish Network’s wireless spectrum assets. We initiated a position in convertible bonds of Latin American e-commerce company Mercadolibre, as the company had increased sales and free cash flow at a rapid rate. Finally, we initiated a position in convertible bonds of data analytics company NICE Systems, as its valuation, strong fundamental business and history of exceeding profit targets made it attractive.
Meaningful sales during the reporting period included convertible bonds of homebuilder Lennar Corp. These bonds were converted into common stock at maturity and were sold from the Fund. Convertible preferred shares of auto manufacturer Fiat Chrysler Automobiles also converted into common stock at maturity and were eliminated from the Fund. Convertible bonds of semiconductor chip maker Nvidia were sold because we believed that the company’s common shares were fully valued.
How did the Fund’s sector weightings change during the reporting period?
During the reporting period, the Fund decreased its weighting in the industrial sector, which was primarily the result of the
conversion and sale of its Stanley Black & Decker convertible preferred position. The Fund increased its weighting in the financial sector, largely through the purchase of MGIC Investment convertible bonds and the purchase of Bank of America and Wells Fargo convertible preferred securities.
How was the Fund positioned at the end of the reporting period?
As of April 30, 2017, the Fund held overweight positions relative to the BofA Merrill Lynch U.S. Convertible Index in the energy, health care and industrials sectors. As of the same date, the Fund held underweight positions relative to the Index in the financials, utilities and information technology sectors. As of April 30, 2017, the Fund held neutrally weighted positions in the consumer discretionary, consumer staples, materials and telecommunications sectors.
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 forecasts 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, 2017 (Unaudited)
Principal Amount | Value | |||||||
Convertible Securities 88.1%† Convertible Bonds 74.7% |
| |||||||
Auto Manufacturers 1.1% |
| |||||||
Wabash National Corp. | $ | 5,555,000 | $ | 11,064,866 | ||||
|
| |||||||
Banks 1.8% | ||||||||
JPMorgan Chase & Co. (Convertible into Schlumberger, Ltd.) | 14,750,000 | 18,829,850 | ||||||
|
| |||||||
Biotechnology 5.0% | ||||||||
AMAG Pharmaceuticals, Inc. | 6,962,000 | 7,949,734 | ||||||
BioMarin Pharmaceutical, Inc. | 15,698,000 | 18,572,696 | ||||||
Illumina, Inc. | 4,300,000 | 4,423,625 | ||||||
0.50%, due 6/15/21 | 6,977,000 | 7,469,751 | ||||||
Intercept Pharmaceuticals, Inc. | 6,684,000 | 6,266,250 | ||||||
Ionis Pharmaceuticals, Inc. | 7,495,000 | 7,832,275 | ||||||
|
| |||||||
52,514,331 | ||||||||
|
| |||||||
Commercial Services 3.0% | ||||||||
Carriage Services, Inc. | 6,573,000 | 8,651,711 | ||||||
¨Macquarie Infrastructure Corp. | 20,595,000 | 23,079,272 | ||||||
|
| |||||||
31,730,983 | ||||||||
|
| |||||||
Computers 1.1% | ||||||||
Lumentum Holdings, Inc. | 11,687,000 | 11,701,609 | ||||||
|
| |||||||
Finance—Credit Card 1.1% | ||||||||
Blackhawk Network Holdings, Inc. | 10,649,000 | 11,594,099 | ||||||
|
| |||||||
Finance—Leasing Companies 2.2% | ||||||||
¨Air Lease Corp. | 15,781,000 | 22,547,104 | ||||||
|
| |||||||
Health Care—Products 7.5% | ||||||||
¨Danaher Corp. | 8,558,000 | 27,262,579 | ||||||
¨ Hologic, Inc. | 14,453,000 | 21,128,479 |
Principal Amount | Value | |||||||
Health Care—Products (continued) | ||||||||
¨Teleflex, Inc. | $ | 8,849,000 | $ | 29,638,619 | ||||
|
| |||||||
78,029,677 | ||||||||
|
| |||||||
Health Care—Services 4.3% | ||||||||
Anthem, Inc. | 7,160,000 | 17,474,875 | ||||||
HealthSouth Corp. | 12,391,000 | 16,301,909 | ||||||
Molina Healthcare, Inc. | 10,151,000 | 11,140,723 | ||||||
|
| |||||||
44,917,507 | ||||||||
|
| |||||||
Internet 6.6% | ||||||||
MercadoLibre, Inc. | 5,685,000 | 10,606,078 | ||||||
¨Priceline Group, Inc. | ||||||||
0.35%, due 6/15/20 | 7,782,000 | 11,386,039 | ||||||
1.00%, due 3/15/18 | 12,338,000 | 24,105,367 | ||||||
Proofpoint, Inc. | ||||||||
0.75%, due 6/15/20 | 2,051,000 | 2,352,241 | ||||||
1.25%, due 12/15/18 | 1,889,000 | 3,663,479 | ||||||
Twitter, Inc. | 9,161,000 | 8,720,127 | ||||||
WebMD Health Corp. | ||||||||
1.50%, due 12/1/20 | 3,489,000 | 4,230,413 | ||||||
2.625%, due 6/15/23 (a) | 4,482,000 | 4,339,136 | ||||||
|
| |||||||
69,402,880 | ||||||||
|
| |||||||
Machinery—Diversified 1.1% | ||||||||
Chart Industries, Inc. | 11,153,000 | 11,118,147 | ||||||
|
| |||||||
Media 5.1% | ||||||||
¨DISH Network Corp. | 24,436,000 | 30,025,735 | ||||||
Liberty Media Corp-Liberty Formula One | 9,441,000 | 10,650,628 | ||||||
Liberty Media Corp. | 11,345,000 | 12,841,122 | ||||||
|
| |||||||
53,517,485 | ||||||||
|
| |||||||
Oil & Gas 2.0% | ||||||||
Ensco Jersey Finance, Ltd. | 8,306,000 | 7,709,006 | ||||||
Oasis Petroleum, Inc. | 10,653,000 | 12,983,344 | ||||||
|
| |||||||
20,692,350 | ||||||||
|
|
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings or issuers held, as of April 30, 2017, 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. | 11 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Convertible Bonds (continued) | ||||||||
Oil & Gas Services 3.2% | ||||||||
Helix Energy Solutions Group, Inc. | $ | 13,111,000 | $ | 12,119,481 | ||||
Newpark Resources, Inc. | 2,902,000 | 3,203,082 | ||||||
Weatherford International, Ltd. | 15,148,000 | 18,045,055 | ||||||
|
| |||||||
33,367,618 | ||||||||
|
| |||||||
Pharmaceuticals 1.8% | ||||||||
Depomed, Inc. | 5,456,000 | 5,087,720 | ||||||
Neurocrine Biosciences, Inc. | 1,906,000 | 1,982,240 | ||||||
Pacira Pharmaceuticals, Inc. | 5,218,000 | 5,544,125 | ||||||
Teva Pharmaceutical Finance Co. LLC | 5,832,000 | 6,203,790 | ||||||
|
| |||||||
18,817,875 | ||||||||
|
| |||||||
Real Estate Investment Trusts 1.2% | ||||||||
SL Green Operating Partnership, L.P. | 9,324,000 | 12,657,330 | ||||||
|
| |||||||
Semiconductors 12.7% | ||||||||
Advanced Micro Devices, Inc. | 4,965,000 | 9,154,219 | ||||||
Inphi Corp. | 7,021,000 | 8,732,369 | ||||||
Lam Research Corp. | 6,444,000 | 15,409,215 | ||||||
¨Microchip Technology, Inc. | 13,990,000 | 20,521,581 | ||||||
1.625%, due 2/15/27 (a) | 7,129,000 | 7,333,959 | ||||||
Micron Technology, Inc. | 7,770,000 | 8,430,450 | ||||||
NXP Semiconductors N.V. | 15,332,000 | 17,948,023 | ||||||
ON Semiconductor Corp. | 9,913,000 | 10,501,584 | ||||||
Rambus, Inc. | 7,638,000 | 8,798,021 | ||||||
Silicon Laboratories, Inc. | 12,142,000 | 12,802,221 | ||||||
Xilinx, Inc. | 6,078,000 | 13,401,990 | ||||||
|
| |||||||
133,033,632 | ||||||||
|
| |||||||
Software 8.0% | ||||||||
Citrix Systems, Inc. | 8,035,000 | 9,878,028 |
Principal Amount | Value | |||||||
Software (continued) | ||||||||
NICE Systems, Inc. | $ | 15,655,000 | $ | 16,261,631 | ||||
Nuance Communications, Inc. | 11,278,000 | 11,496,511 | ||||||
Red Hat, Inc. | 5,864,000 | 7,736,815 | ||||||
Salesforce.com, Inc. | 9,409,000 | 12,502,209 | ||||||
ServiceNow, Inc. | 6,825,000 | 9,213,750 | ||||||
Verint Systems, Inc. | 17,084,000 | 16,539,448 | ||||||
|
| |||||||
83,628,392 | ||||||||
|
| |||||||
Telecommunications 1.6% | ||||||||
Finisar Corp. | 6,569,000 | 6,133,804 | ||||||
Viavi Solutions, Inc. | 9,915,000 | 10,131,890 | ||||||
|
| |||||||
16,265,694 | ||||||||
|
| |||||||
Transportation 4.3% | ||||||||
Atlas Air Worldwide Holdings, Inc. | 10,926,000 | 11,998,114 | ||||||
Echo Global Logistics, Inc. | 8,755,000 | 8,229,700 | ||||||
¨XPO Logistics, Inc. | 8,323,000 | 25,062,633 | ||||||
|
| |||||||
45,290,447 | ||||||||
|
| |||||||
Total Convertible Bonds | 780,721,876 | |||||||
|
| |||||||
Shares | ||||||||
Convertible Preferred Stocks 13.4% | ||||||||
Aerospace & Defense 0.4% | ||||||||
Arconic, Inc. | 88,185 | 3,744,335 | ||||||
|
| |||||||
Banks 2.8% | ||||||||
¨Bank of America Corp. | 12,072 | 14,648,406 | ||||||
Wells Fargo & Co. | 11,552 | 14,671,040 | ||||||
|
| |||||||
29,319,446 | ||||||||
|
| |||||||
Chemicals 1.2% | ||||||||
A. Schulman, Inc. | 14,423 | 12,548,010 | ||||||
|
|
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. |
Shares | Value | |||||||
Convertible Preferred Stocks (continued) | ||||||||
Food 1.9% | ||||||||
Post Holdings, Inc. | 60,463 | $ | 10,929,413 | |||||
Tyson Foods, Inc. | 133,648 | 9,268,489 | ||||||
|
| |||||||
20,197,902 | ||||||||
|
| |||||||
Oil & Gas 2.1% | ||||||||
Hess Corp. | 293,774 | 17,523,619 | ||||||
Sanchez Energy Corp. | 35,932 | 1,027,321 | ||||||
Southwestern Energy Co. | 184,819 | 3,415,455 | ||||||
|
| |||||||
21,966,395 | ||||||||
|
| |||||||
Pharmaceuticals 2.6% | ||||||||
Allergan PLC | 16,171 | 14,000,528 | ||||||
Teva Pharmaceutical Industries, Ltd. | 22,694 | 12,958,274 | ||||||
|
| |||||||
26,958,802 | ||||||||
|
| |||||||
Real Estate Investment Trusts 1.5% | ||||||||
American Tower Corp. | 109,017 | 12,813,858 | ||||||
Welltower, Inc. | 47,800 | 3,021,438 | ||||||
|
| |||||||
15,835,296 | ||||||||
|
| |||||||
Telecommunications 0.9% | ||||||||
T-Mobile U.S., Inc. | 85,219 | 9,350,229 | ||||||
|
| |||||||
Total Convertible Preferred Stocks | 139,920,415 | |||||||
|
| |||||||
Total Convertible Securities | 920,642,291 | |||||||
|
| |||||||
Common Stocks 3.1% | ||||||||
Aerospace & Defense 0.6% |
| |||||||
United Technologies Corp. | 53,105 | 6,318,964 | ||||||
|
| |||||||
Airlines 0.7% |
| |||||||
Delta Air Lines, Inc. | 175,965 | 7,995,849 | ||||||
|
| |||||||
Banks 0.9% |
| |||||||
¨Bank of America Corp. | 398,621 | 9,303,814 | ||||||
|
|
Shares | Value | |||||||
Insurance 0.1% |
| |||||||
MGIC Investment Corp. (d) | 98,181 | $ | 1,034,828 | |||||
|
| |||||||
Oil & Gas 0.0%‡ |
| |||||||
Sanchez Energy Corp. (d) | 9,996 | 77,369 | ||||||
|
| |||||||
Oil & Gas Services 0.8% | ||||||||
Baker Hughes, Inc. | 51,357 | 3,049,065 | ||||||
Halliburton Co. | 113,326 | 5,199,397 | ||||||
|
| |||||||
8,248,462 | ||||||||
|
| |||||||
Total Common Stocks (Cost $28,908,610) | 32,979,286 | |||||||
|
| |||||||
Principal Amount | ||||||||
Short-Term Investment 12.0% | ||||||||
Repurchase Agreement 12.0% | ||||||||
Fixed Income Clearing Corp. | $ | 125,522,974 | 125,522,974 | |||||
|
| |||||||
Total Short-Term Investment (Cost $125,522,974) | 125,522,974 | |||||||
|
| |||||||
Total Investments | 103.2 | % | 1,079,144,551 | |||||
Other Assets, Less Liabilities | (3.2 | ) | (33,822,567 | ) | ||||
Net Assets | 100.0 | % | $ | 1,045,321,984 |
‡ | 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) | Synthetic Convertible Bond—Security structured by an investment bank that provides exposure to a specific company’s stock. As of April 30, 2017, the total market value of this security was $18,829,850, which represented 1.8% of the Fund’s net assets. |
(c) | Step coupon—Rate shown was the rate in effect as of April 30, 2017. |
(d) | Non-income producing security. |
(e) | As of April 30, 2017, cost was $989,475,172 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 140,566,246 | ||
Gross unrealized depreciation | (50,896,867 | ) | ||
|
| |||
Net unrealized appreciation | $ | 89,669,379 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 13 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
The following is a summary of the fair valuations according to the inputs used as of April 30, 2017, 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 | $ | — | $ | 780,721,876 | $ | — | $ | 780,721,876 | ||||||||
Convertible Preferred Stocks (b) | 115,415,671 | 24,504,744 | — | 139,920,415 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Convertible Securities | 115,415,671 | 805,226,620 | — | 920,642,291 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Common Stocks | 32,979,286 | — | — | 32,979,286 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 125,522,974 | — | 125,522,974 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | 148,394,957 | $ | 930,749,594 | $ | — | $ | 1,079,144,551 | ||||||||
|
|
|
|
|
|
|
|
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The level 2 securities valued at $12,548,010, $10,929,413 and $1,027,321 are held in Chemicals, Food, and Oil & Gas, respectively, in the Convertible Preferred 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, 2017, the Fund did not have any transfers among levels. (See Note 2)
As of April 30, 2017, the Fund did not hold any investments with significant unobservable inputs (Level 3). (See Note 2)
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. |
Statement of Assets and Liabilities as of April 30, 2017 (Unaudited)
Assets | ||||
Investment in securities, at value (identified cost $851,967,115) | $ | 953,621,577 | ||
Repurchase agreement, at value (identified cost $125,522,974 ) | 125,522,974 | |||
Cash | 28,476 | |||
Receivables: | ||||
Fund shares sold | 5,561,155 | |||
Dividends and interest | 3,908,965 | |||
Investment securities sold | 3,453,950 | |||
Other assets | 68,951 | |||
|
| |||
Total assets | 1,092,166,048 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 44,601,396 | |||
Fund shares redeemed | 1,295,485 | |||
Manager (See Note 3) | 440,314 | |||
Transfer agent (See Note 3) | 213,032 | |||
NYLIFE Distributors (See Note 3) | 188,306 | |||
Professional fees | 48,059 | |||
Shareholder communication | 44,768 | |||
Custodian | 6,497 | |||
Trustees | 945 | |||
Accrued expenses | 5,262 | |||
|
| |||
Total liabilities | 46,844,064 | |||
|
| |||
Net assets | $ | 1,045,321,984 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 613,394 | ||
Additional paid-in capital | 915,577,761 | |||
|
| |||
916,191,155 | ||||
Distributions in excess of net investment income | (11,015,176 | ) | ||
Accumulated net realized gain (loss) on investments | 38,491,543 | |||
Net unrealized appreciation (depreciation) on investments | 101,654,462 | |||
|
| |||
Net assets | $ | 1,045,321,984 | ||
|
|
Class A | ||||
Net assets applicable to outstanding shares | $ | 421,897,615 | ||
|
| |||
Shares of beneficial interest outstanding | 24,760,268 | |||
|
| |||
Net asset value per share outstanding | $ | 17.04 | ||
Maximum sales charge (5.50% of offering price) | 0.99 | |||
|
| |||
Maximum offering price per share outstanding | $ | 18.03 | ||
|
| |||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 83,932,777 | ||
|
| |||
Shares of beneficial interest outstanding | 4,927,994 | |||
|
| |||
Net asset value per share outstanding | $ | 17.03 | ||
Maximum sales charge (5.50% of offering price) | 0.99 | |||
|
| |||
Maximum offering price per share outstanding | $ | 18.02 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 21,587,677 | ||
|
| |||
Shares of beneficial interest outstanding | 1,272,747 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 16.96 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 84,100,974 | ||
|
| |||
Shares of beneficial interest outstanding | 4,964,446 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 16.94 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 433,802,941 | ||
|
| |||
Shares of beneficial interest outstanding | 25,413,985 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 17.07 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 15 |
Statement of Operations for the six months ended April 30, 2017 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 5,858,092 | ||
Dividends (a) | 3,708,657 | |||
Other income | 657 | |||
|
| |||
Total income | 9,567,406 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 2,730,444 | |||
Distribution/Service—Class A (See Note 3) | 500,329 | |||
Distribution/Service—Investor Class (See Note 3) | 102,959 | |||
Distribution/Service—Class B (See Note 3) | 108,669 | |||
Distribution/Service—Class C (See Note 3) | 400,167 | |||
Transfer agent (See Note 3) | 659,683 | |||
Shareholder communication | 56,853 | |||
Registration | 51,791 | |||
Professional fees | 48,786 | |||
Trustees | 10,979 | |||
Custodian | 4,597 | |||
Miscellaneous | 19,634 | |||
|
| |||
Total expenses before waiver/reimbursement | 4,694,891 | |||
Expense waiver/reimbursement from Manager (See Note 3) | (103,149 | ) | ||
|
| |||
Net expenses | 4,591,742 | |||
|
| |||
Net investment income (loss) | 4,975,664 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments | 38,503,431 | |||
Net change in unrealized appreciation (depreciation) on investments | 48,541,143 | |||
|
| |||
Net realized and unrealized gain (loss) on investments | 87,044,574 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 92,020,238 | ||
|
|
(a) | Dividends recorded net of foreign withholding taxes in the amount of $105,659. |
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. |
Statements of Changes in Net Assets
for the six months ended April 30, 2017 (Unaudited) and the year ended October 31, 2016
2017 | 2016 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 4,975,664 | $ | 10,115,737 | ||||
Net realized gain (loss) on investments | 38,503,431 | 15,873,363 | ||||||
Net change in unrealized appreciation (depreciation) on investments | 48,541,143 | (1,095,460 | ) | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 92,020,238 | 24,893,640 | ||||||
|
| |||||||
Dividends and distributions to shareholders: | ||||||||
From net investment income: | ||||||||
Class A | (3,387,899 | ) | (15,680,249 | ) | ||||
Investor Class | (648,167 | ) | (3,095,349 | ) | ||||
Class B | (94,930 | ) | (783,197 | ) | ||||
Class C | (343,776 | ) | (2,765,653 | ) | ||||
Class I | (3,157,942 | ) | (11,214,166 | ) | ||||
|
| |||||||
(7,632,714 | ) | (33,538,614 | ) | |||||
|
| |||||||
From net realized gain on investments: | ||||||||
Class A | (6,089,507 | ) | (17,162,761 | ) | ||||
Investor Class | (1,306,245 | ) | (3,477,638 | ) | ||||
Class B | (339,058 | ) | (1,106,480 | ) | ||||
Class C | (1,228,067 | ) | (3,897,027 | ) | ||||
Class I | (4,515,780 | ) | (11,748,242 | ) | ||||
|
| |||||||
(13,478,657 | ) | (37,392,148 | ) | |||||
|
| |||||||
Total dividends and distributions to shareholders | (21,111,371 | ) | (70,930,762 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 307,186,338 | 173,063,368 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 18,064,519 | 60,533,955 | ||||||
Cost of shares redeemed | (149,640,963 | ) | (295,260,583 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | 175,609,894 | (61,663,260 | ) | |||||
|
| |||||||
Net increase (decrease) in net assets | 246,518,761 | (107,700,382 | ) | |||||
Net Assets | ||||||||
Beginning of period | 798,803,223 | 906,503,605 | ||||||
|
| |||||||
End of period | $ | 1,045,321,984 | $ | 798,803,223 | ||||
|
| |||||||
Distributions in excess of net investment income at end of period | $ | (11,015,176 | ) | $ | (8,358,126 | ) | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 17 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class A | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 15.72 | $ | 16.51 | $ | 18.33 | $ | 17.33 | $ | 14.79 | $ | 15.12 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.09 | 0.20 | 0.11 | 0.15 | 0.18 | 0.29 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.63 | 0.35 | (0.00 | )‡ | 1.59 | 3.29 | 0.46 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 1.72 | 0.55 | 0.11 | 1.74 | 3.47 | 0.75 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.14 | ) | (0.64 | ) | (0.47 | ) | (0.51 | ) | (0.31 | ) | (0.31 | ) | ||||||||||||||||
From net realized gain on investments | (0.26 | ) | (0.70 | ) | (1.46 | ) | (0.23 | ) | (0.62 | ) | (0.77 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.40 | ) | (1.34 | ) | (1.93 | ) | (0.74 | ) | (0.93 | ) | (1.08 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 17.04 | $ | 15.72 | $ | 16.51 | $ | 18.33 | $ | 17.33 | $ | 14.79 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 11.04 | % | 3.71 | % | 0.58 | % | 10.42 | % | 24.78 | % | 5.30 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 1.09 | %†† | 1.31 | % | 0.62 | % | 0.86 | % | 1.13 | % | 1.96 | % | ||||||||||||||||
Net expenses | 0.99 | %†† | 1.01 | % | 0.99 | % | 0.97 | % | 0.99 | % | 1.00 | % | ||||||||||||||||
Portfolio turnover rate | 18 | % | 24 | % | 60 | % | 59 | % | 77 | % | 61 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 421,898 | $ | 368,583 | $ | 408,067 | $ | 384,987 | $ | 391,577 | $ | 317,267 |
* | 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. For periods of less than one year, total return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Investor Class | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 15.72 | $ | 16.50 | $ | 18.33 | $ | 17.32 | $ | 14.79 | $ | 15.11 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.08 | 0.18 | 0.08 | 0.12 | 0.15 | 0.26 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.62 | 0.36 | (0.01 | ) | 1.60 | 3.28 | 0.47 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 1.70 | 0.54 | 0.07 | 1.72 | 3.43 | 0.73 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.13 | ) | (0.62 | ) | (0.44 | ) | (0.48 | ) | (0.28 | ) | (0.28 | ) | ||||||||||||||||
From net realized gain on investments | (0.26 | ) | (0.70 | ) | (1.46 | ) | (0.23 | ) | (0.62 | ) | (0.77 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.39 | ) | (1.32 | ) | (1.90 | ) | (0.71 | ) | (0.90 | ) | (1.05 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 17.03 | $ | 15.72 | $ | 16.50 | $ | 18.33 | $ | 17.32 | $ | 14.79 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 10.88 | % | 3.60 | % | 0.40 | % | 10.21 | % | 24.42 | % | 5.07 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 0.93 | %†† | 1.14 | % | 0.45 | % | 0.67 | % | 0.93 | % | 1.74 | % | ||||||||||||||||
Net expenses | 1.15 | %†† | 1.18 | % | 1.15 | % | 1.16 | % | 1.22 | % | 1.22 | % | ||||||||||||||||
Portfolio turnover rate | 18 | % | 24 | % | 60 | % | 59 | % | 77 | % | 61 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 83,933 | $ | 79,430 | $ | 82,052 | $ | 85,850 | $ | 86,136 | $ | 80,378 |
* | 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. For periods of less than one year, total return is not annualized. |
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, | |||||||||||||||||||||||||||
Class B | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 15.66 | $ | 16.45 | $ | 18.30 | $ | 17.37 | $ | 14.84 | $ | 15.15 | ||||||||||||||||
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| |||||||||||||||||
Net investment income (loss) (a) | 0.02 | 0.06 | (0.05 | ) | (0.01 | ) | 0.03 | 0.15 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.61 | 0.35 | 0.01 | 1.59 | 3.29 | 0.47 | ||||||||||||||||||||||
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Total from investment operations | 1.63 | 0.41 | (0.04 | ) | 1.58 | 3.32 | 0.62 | |||||||||||||||||||||
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Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.07 | ) | (0.50 | ) | (0.35 | ) | (0.42 | ) | (0.17 | ) | (0.16 | ) | ||||||||||||||||
From net realized gain on investments | (0.26 | ) | (0.70 | ) | (1.46 | ) | (0.23 | ) | (0.62 | ) | (0.77 | ) | ||||||||||||||||
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| |||||||||||||||||
Total dividends and distributions | (0.33 | ) | (1.20 | ) | (1.81 | ) | (0.65 | ) | (0.79 | ) | (0.93 | ) | ||||||||||||||||
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Net asset value at end of period | $ | 16.96 | $ | 15.66 | $ | 16.45 | $ | 18.30 | $ | 17.37 | $ | 14.84 | ||||||||||||||||
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| |||||||||||||||||
Total investment return (b) | 10.49 | % | 2.83 | % | (0.36 | %) | 9.41 | % | 23.50 | % | 4.31 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 0.19 | %†† | 0.39 | % | (0.30 | %) | (0.08 | %) | 0.19 | % | 0.99 | % | ||||||||||||||||
Net expenses | 1.90 | %†† | 1.93 | % | 1.90 | % | 1.91 | % | 1.97 | % | 1.97 | % | ||||||||||||||||
Portfolio turnover rate | 18 | % | 24 | % | 60 | % | 59 | % | 77 | % | 61 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 21,588 | $ | 21,436 | $ | 26,537 | $ | 29,765 | $ | 32,629 | $ | 33,103 |
* | 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. For periods of less than one year, total return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class C | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 15.64 | $ | 16.43 | $ | 18.29 | $ | 17.36 | $ | 14.82 | $ | 15.14 | ||||||||||||||||
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| |||||||||||||||||
Net investment income (loss) (a) | 0.01 | 0.06 | (0.05 | ) | (0.01 | ) | 0.03 | 0.15 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.62 | 0.35 | (0.00 | )‡ | 1.59 | 3.30 | 0.46 | |||||||||||||||||||||
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| |||||||||||||||||
Total from investment operations | 1.63 | 0.41 | (0.05 | ) | 1.58 | 3.33 | 0.61 | |||||||||||||||||||||
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Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.07 | ) | (0.50 | ) | (0.35 | ) | (0.42 | ) | (0.17 | ) | (0.16 | ) | ||||||||||||||||
From net realized gain on investments | (0.26 | ) | (0.70 | ) | (1.46 | ) | (0.23 | ) | (0.62 | ) | (0.77 | ) | ||||||||||||||||
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| |||||||||||||||||
Total dividends and distributions | (0.33 | ) | (1.20 | ) | (1.81 | ) | (0.65 | ) | (0.79 | ) | (0.93 | ) | ||||||||||||||||
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Net asset value at end of period | $ | 16.94 | $ | 15.64 | $ | 16.43 | $ | 18.29 | $ | 17.36 | $ | 14.82 | ||||||||||||||||
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| |||||||||||||||||
Total investment return (b) | 10.50 | % | 2.77 | % | (0.30 | %) | 9.35 | % | 23.60 | % | 4.24 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 0.18 | %†† | 0.39 | % | (0.30 | %) | (0.08 | %) | 0.19 | % | 0.98 | % | ||||||||||||||||
Net expenses | 1.90 | %†† | 1.93 | % | 1.90 | % | 1.91 | % | 1.97 | % | 1.97 | % | ||||||||||||||||
Portfolio turnover rate | 18 | % | 24 | % | 60 | % | 59 | % | 77 | % | 61 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 84,101 | $ | 76,501 | $ | 91,833 | $ | 92,118 | $ | 78,135 | $ | 75,372 |
* | 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. For periods of less than one year, total 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. | 19 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class I | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 15.75 | $ | 16.54 | $ | 18.36 | $ | 17.35 | $ | 14.81 | $ | 15.13 | ||||||||||||||||
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| |||||||||||||||||
Net investment income (loss) (a) | 0.11 | 0.24 | 0.15 | 0.20 | 0.22 | 0.33 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.63 | 0.35 | (0.00 | )‡ | 1.60 | 3.29 | 0.47 | |||||||||||||||||||||
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| |||||||||||||||||
Total from investment operations | 1.74 | 0.59 | 0.15 | 1.80 | 3.51 | 0.80 | ||||||||||||||||||||||
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| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.16 | ) | (0.68 | ) | (0.51 | ) | (0.56 | ) | (0.35 | ) | (0.35 | ) | ||||||||||||||||
From net realized gain on investments | (0.26 | ) | (0.70 | ) | (1.46 | ) | (0.23 | ) | (0.62 | ) | (0.77 | ) | ||||||||||||||||
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|
|
|
|
|
|
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|
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| |||||||||||||||||
Total dividends and distributions | (0.42 | ) | (1.38 | ) | (1.97 | ) | (0.79 | ) | (0.97 | ) | (1.12 | ) | ||||||||||||||||
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| |||||||||||||||||
Net asset value at end of period | $ | 17.07 | $ | 15.75 | $ | 16.54 | $ | 18.36 | $ | 17.35 | $ | 14.81 | ||||||||||||||||
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| |||||||||||||||||
Total investment return (b) | 11.16 | % | 3.96 | % | 0.84 | % | 10.74 | % | 25.05 | % | 5.56 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 1.36 | %†† | 1.56 | % | 0.87 | % | 1.11 | % | 1.37 | % | 2.21 | % | ||||||||||||||||
Net expenses | 0.69 | %†† | 0.76 | % | 0.74 | % | 0.72 | % | 0.74 | % | 0.75 | % | ||||||||||||||||
Expenses (before waiver/reimbursement) | 0.74 | %†† | 0.76 | % | 0.74 | % | 0.72 | % | 0.74 | % | 0.75 | % | ||||||||||||||||
Portfolio turnover rate | 18 | % | 24 | % | 60 | % | 59 | % | 77 | % | 61 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 433,803 | $ | 252,852 | $ | 298,015 | $ | 313,955 | $ | 258,279 | $ | 180,257 |
* | 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. For periods of less than one year, total 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. |
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, and is governed by a Declaration of 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, as that term is defined in the 1940 Act, as interpreted or modified by regulatory authorities having jurisdiction, from time to time.
The Fund currently offers seven 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. Class R6 and Class T shares of the Fund were registered for sale effective as of February 28, 2017. As of the period ended April 30, 2017, Class R6 and Class T shares had no investment operations. Effective February 28, 2017, Class B shares of the MainStay Group of Funds were closed to all new purchases as well as additional investments by existing Class B shareholders. Existing Class B shareholders may continue to reinvest dividends and capital gains distributions, as well as exchange their Class B shares for Class B shares of other Funds as permitted by the current exchange privileges. Class B shareholders continue to be subject to any applicable contingent deferred sales charge (“CDSC”) at the time of redemption. All other features of the Class B shares, including but not limited to the fees and expenses applicable to Class B shares, remain unchanged. Unless redeemed, Class B shareholders will remain in Class B shares of their respective Fund until the Class B shares are converted to Class A or Investor Class shares pursuant to the applicable conversion schedule.
Class A and Investor Class shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No initial sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Class A and Investor Class shares. Effective August 1, 2017, a CDSC of 1.00% may be imposed on certain redemptions of Class A and Investor Class shares made within 18 months of the date of purchase on shares that were purchased without an initial sales charge. For purchase of Class A and Investor Class shares made from January 1, 2017, through July 31, 2017, a CDSC of 1.00% may be imposed on certain redemptions of such shares made within 24 months of the date of purchase on shares that were purchased without an initial sales charge. For purchases of Class A and Investor Class shares made prior to January 1, 2017, a CDSC of 1.00% may be imposed on certain redemptions made within one year of the date of purchase on shares that were purchased without an initial sales charge. Class C shares are offered at NAV without an initial sales charge, although a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. When Class B shares were offered, they were offered at NAV without an initial sales charge, although a CDSC that declines depending on the number of years a shareholder has held its Class B shares may be imposed on redemptions made within six years of the date of purchase of such shares. Class T shares are offered
at NAV per share plus an initial sales charge. Class R6 and Class I shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Class A or Investor Class shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Class A shares may convert to Investor Class shares and Investor Class shares may convert to Class A shares. Under certain circumstances and as may be permitted by the Trust’s multiple class plan under Rule 18f-3 of the 1940 Act, an exchange/conversion may be made from specified share classes of the Fund to one or more other share classes of the Fund as disclosed in the capital share transactions within these notes. 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 under distribution plans pursuant to Rule 12b-1 under the 1940 Act, Class B and Class C shares are subject to higher distribution and/or service fee rates than Class A, Investor Class and Class T shares. Class I and Class R6 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 is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services—Investment Companies. 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 usually valued as of the close of regular trading on the New York Stock Exchange (the “Exchange”) (usually 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 establishing methodologies for the valuation of the Fund’s securities and other assets and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Trust (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 establishing the prices of securities for which market quotations are not readily available or the prices of which are not otherwise readily determinable under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. Subsequently, the Valuation Committee meets 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 the day-to-day valuation of portfolio assets (including fair value measurements for the Fund’s assets and liabilities) 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.
21 |
Notes to Financial Statements (Unaudited) (continued)
To assess the appropriateness of security valuations, the Manager, Subadvisor 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 with changes 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, if appropriate, 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 or other asset is submitted by the Valuation Committee to the Board for its review and ratification, if appropriate, at its next regularly scheduled meeting.
“Fair value” is defined as the price the Fund would reasonably expect to 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 establishes 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 assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities. 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) |
The level of an asset or liability within the fair value hierarchy is based on the lowest level of an input, both individually and in the aggregate, that is significant to the fair value measurement. As of April 30, 2017, the aggregate value by input level of the Fund’s assets and 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 is valued by methods deemed reasonable 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. Fair value represents a good faith approximation of the value of a security. Fair value determinations involve the consideration of a number of subjective factors, an analysis of applicable facts and circumstances and the exercise of judgment. As a result, it is possible that the fair value for a security determined in good faith in accordance with the Fund’s valuation procedures may differ from valuations for the same security determined by other funds using their own valuation procedures. Although the Fund’s valuation procedures are designed to value a security at the price the Fund may reasonably expect to receive upon its sale in an orderly transaction, there can be no assurance that any fair value determination thereunder would, in fact, approximate the amount that the Fund would actually realize upon the sale of the security or the price at which the security would trade if a reliable market price were readily available. During the six-month period ended April 30, 2017, there were 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, 2017, there were no securities held by the Fund that were fair valued in such a manner.
Equity securities and warrants are valued at the last quoted sales prices as of the close of regular trading on the relevant exchange on each
22 | MainStay Convertible Fund |
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 mutual funds, including money market 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 brokers selected by the Manager, in consultation with the Subadvisor. Those values reflect broker/dealer supplied prices and electronic data processing techniques, if the evaluated bid or mean 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, 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 at the time of purchase 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 using the amortized cost method of valuation, unless the use of such method would be inappropriate. 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 using the amortized cost method are not valued using quoted prices in an active market and are generally categorized as Level 2 in the hierarchy.
The information above is not intended to reflect an exhaustive list of the methodologies that may be used to value portfolio investments. The valuation procedures permit the use of a variety of valuation methodologies in connection with valuing portfolio investments. The methodology used for a specific type of investment may vary based on the market data available or other considerations. The methodologies summarized above may not represent the specific means by which portfolio investments are valued on any particular business day.
A Fund security or other asset may be determined to be illiquid under procedures approved by the Board. Illiquidity of a security 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 the 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 materially 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
determines 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 are often valued in accordance with methods deemed by the Board in good faith to be reasonable and appropriate to accurately reflect their fair value. The liquidity of the Fund’s investments, as shown in the Portfolio of Investments, was determined as of April 30, 2017 and can change at any time in response to, among other relevant factors, market conditions or events or developments with respect to an individual issuer or instrument. As of April 30, 2017, the Fund did not hold any securities deemed to be illiquid under procedures approved by the Board.
(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 its 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 permitted only to the extent 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. Discounts and premiums on Short-Term Investments are accreted and amortized,
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.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated pro rata to separate classes of shares 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 security on non-accrual status and reduce related interest income by ceasing current accruals and writing off all or a portion of any interest receivables when the collection of all or a portion of such interest has become doubtful. A debt security 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/or 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 (i.e., buy a security from another party with the agreement that it be sold back in the future) to earn income. The Fund may enter into repurchase agreements only with counterparties, usually 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 the Fund to the counterparty secured by the securities transferred to the Fund.
Repurchase agreements are subject to counterparty risk, meaning the Fund could lose money by the counterparty’s failure to perform under the terms of the agreement. The Fund mitigates this risk by ensuring the repurchase agreement is collateralized by cash, U.S. government securities, fixed income securities and/or other securities. The collateral is held by the Fund’s custodian 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 counterparty’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, realization and/or retention of the collateral may be limited or subject to delay, 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. 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, 2017, the Fund did not hold any rights or warrants.
(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 (“SEC”). 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 collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund against counterparty risk. The loans will be collateralized by U.S. Treasury securities at least equal at all times to the market value of the securities loaned. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record a realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund bears the risk of any loss on investment of the collateral. The Fund will receive compensation for lending its securities in the form of fees or it will retain a portion of interest on the investment of any cash received as collateral. The Fund will also 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. During the six-month period ended April 30, 2017, the Fund did not have any portfolio securities on loan.
(J) Convertible Securities Risk. Convertible securities may be subordinate to other securities. In part, the total return for a convertible security depends upon the performance of the underlying stock into which it can be converted. Also, issuers of convertible securities are often not as strong financially as those issuing securities with higher credit ratings, are more likely to encounter financial difficulties and typically are more vulnerable to changes in the economy, such as a recession or a sustained period of rising interest rates, which could affect their ability to make interest and principal payments.
(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
24 | MainStay Convertible Fund |
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 attributable to 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 Amended and Restated Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and MacKay Shields, New York Life Investments pays for the services of the Subadvisor.
Under the Management Agreement, 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. During the six-month period ended April 30, 2017, the effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.59%, inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets.
Effective February 28, 2017, 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 0.61% of the Fund’s average daily net assets. This agreement will remain in effect until February 28, 2018, 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 by the Board.
During the six-month period ended April 30, 2017, New York Life Investments earned fees from the Fund in the amount of $2,730,444 and waived its fees or reimbursed expenses in the amount of $103,149.
State Street 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 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 Class A, Investor Class and Class T Plans, the Distributor receives a monthly distribution fee from the Class A, Investor Class and Class T shares at an annual rate of 0.25% of the average daily net assets of the Class A, Investor Class and Class T 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 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.
(C) Sales Charges. During the six-month period ended April 30, 2017, the Fund was advised by the Distributor that the amount of initial sales charges retained on sales of Class A and Investor Class shares were $60,119 and $15,920, respectively. During the six-month period ended April 30, 2017, the Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Class B and Class C shares of $2,577, $13,960 and $2,547, respectively.
(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. During the six-month period ended April 30, 2017, transfer agent expenses incurred by the Fund were as follows:
Class A | $ | 220,718 | ||
Investor Class | 112,182 | |||
Class B | 29,608 | |||
Class C | 108,972 | |||
Class I | 188,203 |
(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.
25 |
Notes to Financial Statements (Unaudited) (continued)
Note 4–Federal Income Tax
During the year ended October 31, 2016, the tax character of distributions paid as reflected in the Statements of Changes in Net Assets was as follows:
2016 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 41,495,561 | ||
Long-Term Capital Gain | 29,435,201 | |||
Total | $ | 70,930,762 |
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 transactions incurred by the Fund.
Note 6–Line of Credit
The Fund and certain other funds managed by New York Life Investments, 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 2, 2016, under an amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $600,000,000 with an additional uncommitted amount of $100,000,000. The commitment fee is an annual rate of 0.15% 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 their respective 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 1, 2017, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 2, 2016, the aggregate commitment amount was $600,000,000 with an additional uncommitted amount of $100,000,000, and the commitment fee was at an annual rate of 0.10% of the average commitment amount. During the six-month period ended April 30, 2017, there were no borrowings made or outstanding with respect to the Fund under the Credit Agreement.
Note 7–Interfund Lending Program
Pursuant to an exemptive order issued by the SEC, the Fund, along with certain other funds managed by New York Life Investments, may participate in an interfund lending program. The interfund lending program provides an alternative credit facility that permits the Fund and certain other funds managed by New York Life Investments to lend or borrow money for temporary purposes directly to or from one another, subject to the conditions of the exemptive order. During the six-month period ended April 30, 2017, there were no interfund loans made or outstanding with respect to the Fund.
Note 8–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2017, purchases and sales of securities, other than short-term securities, were $254,580 and $154,444, respectively.
Note 9–Capital Share Transactions
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 4,166,137 | $ | 69,322,919 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 552,898 | 9,117,482 | ||||||
Shares redeemed | (3,160,364 | ) | (52,569,333 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 1,558,671 | 25,871,068 | ||||||
Shares converted into Class A (See Note 1) | 360,910 | 6,026,192 | ||||||
Shares converted from Class A (See Note 1) | (600,507 | ) | (10,130,124 | ) | ||||
|
| |||||||
Net increase (decrease) | 1,319,074 | $ | 21,767,136 | |||||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 3,284,280 | $ | 50,403,497 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 2,082,474 | 31,629,994 | ||||||
Shares redeemed | (6,883,719 | ) | (104,854,396 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (1,516,965 | ) | (22,820,905 | ) | ||||
Shares converted into Class A (See Note 1) | 396,841 | 6,120,797 | ||||||
Shares converted from Class A (See Note 1) | (154,110 | ) | (2,355,927 | ) | ||||
|
| |||||||
Net increase (decrease) | (1,274,234 | ) | $ | (19,056,035 | ) | |||
|
| |||||||
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 304,026 | $ | 5,087,679 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 118,023 | 1,943,944 | ||||||
Shares redeemed | (317,258 | ) | (5,285,866 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 104,791 | 1,745,757 | ||||||
Shares converted into Investor Class (See Note 1) | 113,312 | 1,900,245 | ||||||
Shares converted from Investor Class (See Note 1) | (343,917 | ) | (5,740,895 | ) | ||||
|
| |||||||
Net increase (decrease) | (125,814 | ) | $ | (2,094,893 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 327,950 | $ | 5,043,298 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 430,056 | 6,531,000 | ||||||
Shares redeemed | (586,510 | ) | (8,999,265 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 171,496 | 2,575,033 | ||||||
Shares converted into Investor Class (See Note 1) | 255,273 | 3,925,439 | ||||||
Shares converted from Investor Class (See Note 1) | (344,452 | ) | (5,327,822 | ) | ||||
|
| |||||||
Net increase (decrease) | 82,317 | $ | 1,172,650 | |||||
|
| |||||||
26 | MainStay Convertible Fund |
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 105,441 | $ | 1,744,404 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 23,701 | 388,695 | ||||||
Shares redeemed | (153,440 | ) | (2,533,981 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (24,298 | ) | (400,882 | ) | ||||
Shares converted from Class B (See Note 1) | (71,946 | ) | (1,197,747 | ) | ||||
|
| |||||||
Net increase (decrease) | (96,244 | ) | $ | (1,598,629 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 128,418 | $ | 1,958,707 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 110,154 | 1,666,215 | ||||||
Shares redeemed | (305,286 | ) | (4,642,547 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (66,714 | ) | (1,017,625 | ) | ||||
Shares converted from Class B (See Note 1) | (177,956 | ) | (2,732,887 | ) | ||||
|
| |||||||
Net increase (decrease) | (244,670 | ) | $ | (3,750,512 | ) | |||
|
| |||||||
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 813,044 | $ | 13,534,831 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 78,011 | 1,277,814 | ||||||
Shares redeemed | (817,452 | ) | (13,493,673 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 73,603 | 1,318,972 | ||||||
Shares converted from Class C (See Note 1) | (706 | ) | (11,550 | ) | ||||
|
| |||||||
Net increase (decrease) | 72,897 | $ | 1,307,422 | |||||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 705,686 | $ | 10,787,840 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 345,750 | 5,223,109 | ||||||
Shares redeemed | (1,744,065 | ) | (26,501,422 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (692,629 | ) | (10,490,473 | ) | ||||
Shares converted from Class C (See Note 1) | (6,021 | ) | (84,656 | ) | ||||
|
| |||||||
Net increase (decrease) | (698,650 | ) | $ | (10,575,129 | ) | |||
|
|
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 13,036,155 | $ | 217,496,505 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 322,613 | 5,336,584 | ||||||
Shares redeemed | (4,540,343 | ) | (75,758,110 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 8,818,425 | 147,074,979 | ||||||
Shares converted into Class I (See Note 1) | 541,398 | 9,153,879 | ||||||
|
| |||||||
Net increase (decrease) | 9,359,823 | $ | 156,228,858 | |||||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 6,838,634 | $ | 104,870,026 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,017,672 | 15,483,637 | ||||||
Shares redeemed | (9,853,762 | ) | (150,262,953 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (1,997,456 | ) | (29,909,290 | ) | ||||
Shares converted into Class I (See Note 1) | 29,411 | 455,056 | ||||||
|
| |||||||
Net increase (decrease) | (1,968,045 | ) | $ | (29,454,234 | ) | |||
|
|
Note 10–Recent Accounting Pronouncement
In October 2016, the SEC adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the Fund’s financial statements and related disclosures.
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, 2017, events and transactions subsequent to April 30, 2017, 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.
27 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited)
Section 15 of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of trustees initially approve and, following an initial term of up to two years, annually review and approve the fund’s investment advisory agreement(s). At its December 12-14, 2016 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 2016 and December 2016, as well as other relevant information furnished to the Board throughout the year. 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 fee and total expenses. The Board also considered information on the fees charged to any other investment advisory clients of New York Life Investments and MacKay Shields (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 Trustees who are not “interested persons” (as such term is defined under the 1940 Act) of the Fund (the “Independent Trustees”). Information provided to the Board in advance of and during meetings throughout the year included, among other items, information regarding the legal standards applicable to their consideration of the Agreements and 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, risk management, portfolio turnover, and sales and marketing activity. At various meetings, the Independent Trustees also met in executive session with their independent legal counsel, and met with senior management of New York Life Investments without other representatives of New York Life Investments present.
Throughout the year and specifically in connection with its June meeting each year, the Board also received an overview of the Funds’ distribution arrangements. In addition, the Board received information regarding the Fund’s asset levels, share purchase and redemption activity and the payment of Rule 12b-1 distribution and service fees by the Fund. New York Life Investments also provided the Board with
information regarding the revenue sharing payments made to intermediaries that promote the sale, distribution, and/or servicing of Fund shares.
In considering the Agreements, the Trustees comprehensively 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 described in greater detail below and included, among other items: (i) the nature, extent 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 have been realized or may be realized if the Fund grows and the extent to which economies of scale have benefited or may benefit Fund shareholders; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to any similar funds and accounts managed by New York Life Investments and MacKay Shields. Although the Board recognized that the comparisons between the Fund’s fees and expenses and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Board also considered the reasonableness of the Fund’s management fee and overall total ordinary operating expenses as compared to the peer funds identified by Strategic Insight.
While individual Trustees may have weighed certain factors or information differently, the Board’s decision to approve the Agreements was based on a consideration of the information provided to the Trustees throughout the year, as well as information furnished specifically in connection with the contract review process. Throughout the year, the Trustees are also afforded an opportunity to ask questions of and request additional information or materials from New York Life Investments and MacKay Shields. The Board’s conclusions with respect to the Agreements may have been based, in part, on the Board’s knowledge of New York Life Investments and MacKay Shields resulting from, among other things, the Board’s consideration of the MainStay Group of Funds’ advisory 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. The factors that figured prominently in the Board’s decision to approve the Agreements are summarized in more detail below.
Nature, Extent and Quality of Services to Be Provided by New York Life Investments and MacKay Shields
The Board examined the nature, extent and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience and capabilities 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
28 | MainStay Convertible Fund |
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 observed that New York Life Investments devotes significant resources and time to providing advisory and non-advisory services to the Fund, including its extensive oversight of MacKay Shields. The Board also considered the full range of services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and on-going oversight services provided by New York Life Investments’ Fund Administration and Accounting 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; (iv) legal services provided by New York Life Investments’ Office of the General Counsel; and (v) risk management and portfolio trading oversight and analysis by compliance and investment personnel. 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, infrastructure, technology, operational enhancements, cyber security, information security and shareholder privacy resources 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, extent and quality of the investment 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 records 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 further considered New York Life Investments’ policies, procedures and systems to reasonably assure compliance with applicable laws and regulations. In addition, the Board considered the policies and procedures in place with respect to matters that may involve conflicts of interest between the Fund’s investments and those of other accounts managed by MacKay Shields. 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 manager, the number of accounts managed by the portfolio manager and the method for compensating portfolio manager.
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, extent 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, and in light of market conditions. 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’s Investment Committee that occur regularly, generally 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 of the services provided by New York Life Investments and MacKay Shields and profits realized by 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
29 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
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 recognized that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds, among other benefits resulting from its relationship with New York Life Investments.
In addition, the Board acknowledged 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. In connection with the annual fund profitability analysis that New York Life Investments presents to the Board, the Board in 2014 engaged Bobroff Consulting, Inc., an independent third-party consultant, to review the methods used to allocate costs to the MainStay Funds, and among individual Funds. As part of this engagement, the consultant analyzed: (i) the various New York Life Investments’ business units and affiliated Subadvisers that provide services to the MainStay Funds; (ii) how costs are allocated to the Fund and other funds managed by New York Life Investments, and to other lines of businesses; and (iii) how New York Life Investments’ cost allocation methods and profitability reports compare to industry practices. The Board noted that the independent consultant had concluded that New York Life Investments’ methods for allocating costs and procedures for estimating overall profitability of the funds in the MainStay Group of Funds, including the Fund, are reasonable, consistent with industry practice and likely to produce reasonable profitability estimates. Although the Board recognized 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 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 incurred by New York Life Investments from its own resources.
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 Fund and other funds in the MainStay Group of Funds. 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, initially setting relatively low management fees or making additional investments to enhance shareholder services. 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. Additionally, the Board considered New York Life Investments’ assessment of the extent economies of scale existed for Funds that had experienced significant increases of assets during the year.
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, because 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 that follow similar investment strategies 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
30 | MainStay Convertible Fund |
by New York Life Investments about the different scope of services provided to registered investment companies 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 demonstrating 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 also noted information received from NYLIM Service Company LLC regarding the sub-transfer agency payments it made to intermediaries in connection with the 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 a number of 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 recognized 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) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iii) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (iv) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (v) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vi) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. The Board also considered that NYLIM Service Company LLC had waived its cost of living adjustments in 2015, 2016 and 2017. In addition, the Board acknowledged New York Life Investments’ continued 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 and factors summarized above and the evaluation thereof, the Board as a whole, including the Independent Trustees who are not parties to the Agreements or “interested persons” of any such party voting separately, unanimously voted to approve the Agreements.
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 or proxy voting record 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 Convertible Fund |
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MainStay Funds
Equity
U.S. Equity
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay Epoch U.S. Small Cap Fund
MainStay ICAP Equity Fund1
MainStay ICAP Select Equity Fund1
MainStay Large Cap Growth Fund
MainStay MAP Equity Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
International/Global Equity
MainStay Emerging Markets Equity Fund
MainStay Epoch Capital Growth Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Choice Fund
MainStay Epoch International Small Cap Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond
MainStay Emerging Markets Debt Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay Indexed Bond Fund
MainStay Short Duration High Yield Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal/Tax Advantaged Bond
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Advantaged Short Term Bond Fund
MainStay Tax Free Bond Fund
Money Market
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
Alternative
MainStay Absolute Return Multi-Strategy Fund
MainStay Cushing Energy Income Fund
MainStay Cushing MLP Premier Fund
MainStay Cushing Renaissance Advantage 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
MainStay Retirement 2060 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Candriam France S.A.S.4
Paris, France
Cornerstone Capital Management Holdings LLC4
New York, New York
Cushing Asset Management, LP
Dallas, Texas
Epoch Investment Partners, Inc.
New York, New York
MacKay Shields LLC4
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC4
New York, New York
Winslow Capital Management, LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Washington, District of Columbia
Independent Registered Public Accounting Firm
KPMG LLP
Philadelphia, Pennsylvania
1. On May 8, 2017, the Fund merged into MainStay Epoch U.S. Equity Yield Fund. Former shareholders of this Fund can request the Fund’s Semiannual Report by calling 800-MAINSTAY (624-6782).
2. Class A and Class I shares of this Fund are registered for sale in AZ, CA, MI, NV, OR, TX, UT and WA. Class I shares are registered for sale in CO, FL, GA, HI, ID, MA, MD, NH, NJ and NY.
3. This Fund is registered for sale in CA, CT, DE, FL, MA, NJ, NY and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Semiannual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
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. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
©2017 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 |
1737258 MS144-17 | MSC10-06/17 (NYLIM) NL005 |
MainStay Income Builder Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2017
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Message from the President
The six months ended April 30, 2017, proved to be a strong period for many equity investors but presented challenges for some bond investors.
The reporting period began with considerable uncertainty about the outcome of the U.S. election. Once the Republicans gained control of the White House, the Senate and the House of Representatives, however, many investors hoped to see an end to political gridlock; and although debate has continued on a number of issues, the U.S. stock market steadily climbed through the end of the reporting period.
According to FTSE-Russell U.S. market data, stocks at all capitalization levels earned double-digit overall returns during the reporting period. Although growth stocks outperformed value stocks at most capitalization levels, value stocks outperformed growth stocks among micro-cap stocks.
In December 2016 and March 2017, the Federal Reserve announced increases in the target range for the federal funds rate. These moves, which brought the federal funds target range to 0.75% to 1.00%, were felt across the bond market. During the reporting period, yields rose on U.S. Treasury securities of all maturities, with the largest absolute increase on the 5-year U.S. Treasury note. On a percentage basis, however, the largest increases were at the short end of the maturity spectrum, with yields on the 1- and 3-month U.S. Treasury bills more than doubling during the reporting period.
When interest rates rise, bond prices tend to decline (and vice versa). As a result, several broad fixed-income asset classes—including U.S. government and agency bonds, mortgage-backed securities, investment-grade debt and municipal bonds—recorded negative total returns for the reporting period. Convertible securities, high-yield bonds and floating-rate loans, which tend to be less sensitive to interest-rate changes, provided positive total returns.
International stock markets generally advanced during the reporting period, with European stocks providing strong
double-digit returns. The Pacific region and Japan were weaker but provided positive returns in the single digits. Emerging markets also provided solid performance for the reporting period, despite modest commodity prices.
Many short-term political, economic and world events affected the markets during the reporting period. Nevertheless, at MainStay, we believe that the primary concern of our portfolio managers should be the long-term welfare of our shareholders, and we appreciate the discipline our portfolio managers seek to apply in their long-term investment decisions.
Our portfolio managers seek to pursue the investment objectives of their respective MainStay Funds using the various investment strategies outlined in the Fund’s Prospectus. Utilizing their years of professional market experience, they seek to enhance returns when possible, manage risk as necessary and view short-term events in light of long-term investment goals. At MainStay, we believe that shareholders who maintain a long-term perspective may be better able to weather turbulent markets, avoid selling when prices are low and stay focused on their reasons for choosing MainStay Funds.
The report that follows provides more detailed information about the markets, securities and decisions that affected your MainStay Fund during the six months ended April 30, 2017. We invite you to read it carefully and use the information as part of your ongoing portfolio evaluation and review.
Sincerely,
Stephen P. Fisher
President
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, 30 Hudson Street, Jersey City, NJ 07302 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 and other factors, 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, 2017
Class | Sales Charge | Inception Date | Six Months | One Year | Five Years or Since Inception | Ten Years or Since Inception | Gross Expense Ratio2 | |||||||||||||||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges | 1/3/1995 | | 0.70 6.56 | %
| | 3.91 9.96 | %
| | 7.29 8.51 | %
| | 5.11 5.71 | %
| | 1.02 1.02 | %
| ||||||||
Investor Class Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges | 2/28/2008 | | 0.62 6.48 |
| | 3.82 9.86 |
| | 7.06 8.28 |
| | 5.59 6.25 |
| | 1.16 1.16 |
| ||||||||
Class B Shares3 | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges | 12/29/1987 | | 1.09 6.09 |
| | 4.04 9.04 |
| | 7.19 7.49 |
| | 4.70 4.70 |
| | 1.91 1.91 |
| ||||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges | 9/1/1998 | | 5.11 6.11 |
| | 8.00 9.00 |
| | 7.48 7.48 |
| | 4.69 4.69 |
| | 1.91 1.91 |
| ||||||||
Class I Shares | No Sales Charge | 1/2/2004 | 6.71 | 10.28 | 8.78 | 6.00 | 0.77 | |||||||||||||||||||
Class R2 Shares | No Sales Charge | 2/27/2015 | 6.52 | 9.87 | 2.91 | N/A | 1.12 | |||||||||||||||||||
Class R3 Shares | No Sales Charge | 2/29/2016 | 6.36 | 9.58 | 13.88 | N/A | 1.36 |
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, if any, 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 may 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 (if any), 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. | Class B shares are closed to all new purchases as well as additional investments by existing Class B shareholders. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
5 |
Benchmark Performance | Six Months | One Year | Five Years or Since Inception | Ten Years or Since Inception | ||||||||||||
MSCI World Index4 | 12.12 | % | 14.65 | % | 9.94 | % | 3.92 | % | ||||||||
Bloomberg Barclays U.S. Aggregate Bond Index5 | –0.67 | 0.83 | 2.27 | 4.30 | ||||||||||||
Blended Benchmark Index6 | 5.57 | 7.59 | 6.21 | 4.47 | ||||||||||||
Average Lipper Flexible Portfolio Fund7 | 6.63 | 9.58 | 5.30 | 4.01 |
4. | The MSCI World Index is the Fund’s primary broad-based securities market index for comparison purposes. 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. Results assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
5. | The Fund has selected the Bloomberg Barclays U.S. Aggregate Bond Index as a secondary benchmark. The Bloomberg 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. Results assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
6. | The Fund has selected the Blended Benchmark Index as an additional benchmark. The Blended Benchmark Index consists of the MSCI World Index and the Bloomberg Barclays U.S. Aggregate Bond Index weighted 50%/50%, respectively. Results assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
7. | The Average Lipper Flexible Portfolio Fund is representative of funds that allocate their investments across various asset classes, including domestic common stocks, bonds, and money market instruments, with a focus on total return. 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, 2016, to April 30, 2017, 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, 2016, to April 30, 2017.
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, 2017. 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 11/1/16 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/17 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/17 | Expenses Paid During Period1 | Net Expense Ratio During Period2 | ||||||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,065.60 | $ | 5.17 | $ | 1,019.80 | $ | 5.06 | 1.01% | |||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,064.80 | $ | 5.84 | $ | 1,019.10 | $ | 5.71 | 1.14% | |||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,060.90 | $ | 9.66 | $ | 1,015.40 | $ | 9.44 | 1.89% | |||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,061.10 | $ | 9.66 | $ | 1,015.40 | $ | 9.44 | 1.89% | |||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,067.10 | $ | 3.90 | $ | 1,021.00 | $ | 3.81 | 0.76% | |||||||||||
Class R2 Shares | $ | 1,000.00 | $ | 1,065.20 | $ | 5.63 | $ | 1,019.30 | $ | 5.51 | 1.10% | |||||||||||
Class R3 Shares | $ | 1,000.00 | $ | 1,063.60 | $ | 6.91 | $ | 1,018.10 | $ | 6.76 | 1.35% |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class 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. |
2. | Expenses are equal to the Fund’s annualized expense ratio to reflect the six-month period. |
7 |
Portfolio Composition as of April 30, 2017 (Unaudited)
See Portfolio of Investments beginning on page 13 for specific holdings within these categories.
Top Ten Holdings or Issuers Held as of April 30, 2017 (excluding short-term investment) (Unaudited)
1. | United States Treasury Notes, 1.25%–2.25%, due 7/31/21–11/15/26 |
2. | AT&T, Inc. |
3. | Verizon Communications, Inc. |
4. | Goldman Sachs Group, Inc., 3.625%–6.75%, due 7/27/21–12/29/49 |
5. | Philip Morris International, Inc. |
6. | BCE, Inc. |
7. | Welltower, Inc. |
8. | PPL Corp. |
9. | Morgan Stanley, 2.375%–6.375%, due 7/23/19–12/31/49 |
10. | Vodafone Group PLC |
8 | MainStay Income Builder Fund |
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Dan Roberts, PhD, Michael Kimble, CFA, and Louis N. Cohen, CFA, of MacKay Shields LLC (“MacKay Shields”), the Subadvisor for the fixed-income portion of the Fund, and Eric Sappenfield, William Priest, CFA, Michael 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, 2017?
Excluding all sales charges, MainStay Income Builder Fund returned 6.56% for Class A shares, 6.48% for Investor Class shares, 6.09% for Class B shares and 6.11% for Class C shares for the six months ended April 30, 2017. Over the same period, Class I shares returned 6.71%, Class R2 shares returned 6.52% and Class R3 shares returned 6.36%. For the six months ended April 30, 2017, all share classes underperformed the 12.12% return of the MSCI World Index,1 which is the Fund’s primary benchmark, and outperformed the –0.67% return of the Bloomberg Barclays U.S. Aggregate Bond Index,1 which is a secondary benchmark for the Fund. For the six months ended April 30, 2017, all share classes outperformed the 5.57% return of the Blended Benchmark Index,1 which is an additional benchmark for the Fund. Over the same period, Class I shares outperformed—and all other share classes underperformed—the 6.63% return of the Average Lipper2 Flexible Portfolio Fund. See page 5 for Fund returns with applicable sales charges.
During the reporting period, how was the Fund’s performance materially affected by investments in derivatives?
During the reporting period, the fixed-income portion of the Fund used S&P 500® futures, and to a lesser extent Euro Stoxx 50 and Nikkei 225 futures, to enhance the Fund’s equity beta.3 The futures added to the Fund’s returns.
What factors affected the relative performance of the equity portion of the Fund during the reporting period?
The equity portion of the Fund provided a positive absolute return but trailed the MSCI World Index for the six months ended April 30, 2017. The diversified group of companies held by the Fund continued to achieve growth in free cash flow and provide shareholders with positive returns from cash dividends, share buybacks and debt reduction. The equity portion of the Fund held overweight positions in the telecommunication services and utilities sectors that adversely affected relative performance. Stock selection in the consumer staples sector was a positive relative contributor. (Contributions take weightings and total returns into account.) From a regional perspective, stock selection in the United States proved troublesome and detracted from the relative performance of the equity portion of the Fund.
Which sectors were the strongest contributors to relative performance in the equity portion of the Fund and which sectors were particularly weak?
The equity portion of the Fund seeks returns primarily from finding companies that can grow free cash flow and are committed to returning a significant portion of that cash to shareholders. The vast majority of stocks in the equity portion of the Fund were able to achieve this and increase their dividends during the period.
Stock selection in the consumer staples and industrials sectors was the most significant contributor to the relative performance of the equity portion of the Fund. Overweight positions relative to the MSCI World Index in the telecommunication services and utilities sectors adversely affected the relative performance of the equity portion of the Fund.
During the reporting period, which individual stocks made the strongest contributions to absolute performance in the equity portion of the Fund and which stocks detracted the most?
Siemens, Reynolds American and Philip Morris were among the stocks that made the strongest contributions to absolute performance in the equity portion of the Fund.
Siemens is a diversified German industrial company. The company’s shares traded higher on strong fundamental performance and an upward revision to guidance for the year ahead. During the reporting, we believed that the company was well-positioned to participate in global markets for emerging power-generation technologies, such as wind power, as well as established products, such as turbines. Sales and order growth supported an outlook for continued growth in free cash flow to support the attractive, growing annual dividend. The company has also continued to execute its multiyear share repurchase program.
U.S. tobacco company Reynolds American continued to benefit from its total tobacco portfolio approach. Management appeared to be keenly focused on innovation and building sustainable growth. Pricing power, cost savings and relatively low capital expenditures drove attractive cash flow generation for the entire tobacco space. In our opinion, Reynolds was well positioned to take advantage of strong industry fundamentals and the company’s increased exposure to the growing premium and menthol segments. In addition, the stock reacted favorably to the proposed merger with British American Tobacco. Reynolds has continued to return cash to shareholders through an attractive and growing dividend.
1. | See footnote on page 6 for more information on this index. |
2. | See footnote on page 6 for more information on Lipper Inc. |
3. | Beta is a measure of volatility in relation to the market as a whole. A beta higher than 1 indicates that a security or portfolio will tend to exhibit higher volatility than the market. A beta lower than 1 indicates that a security or portfolio will tend to exhibit lower volatility than the market. |
9 |
Philip Morris is a U.S.-domiciled international tobacco company and the manufacturer of the largest international tobacco brand, Marlboro. Philip Morris continued to report solid results driven by strong pricing power. The pricing power of the tobacco industry has allowed for predictable revenue generation despite volume pressure. Investors have been increasingly excited about the next-generation products Philip Morris plans to offer. While still in the early stages, the company’s heat-not-burn product has shown strong trial conversions in markets where it has been available. The company has consistently generated attractive levels of free cash flow and has returned cash to shareholders through a significant and growing dividend.
Among the stocks that detracted the most from absolute performance in the equity portion of the Fund were Qualcomm, Occidental Petroleum and Telstra.
Qualcomm is a market leader in 3G, 4G and next generation wireless technologies. The company’s stock price was adversely affected by a lawsuit from Apple, which takes issue on size and the way in which royalty rates are calculated and determined. During April, Qualcomm confirmed that royalties were being withheld by contract manufacturers and Apple declared that it would cease paying contract manufacturers for Qualcomm’s patents until the dispute was resolved. As a result, Qualcomm reduced guidance for the full year. The company remained on track to close its pending acquisition of industrial- and automotive-focused company NXP. Qualcomm has paid a growing dividend that remains covered even without Apple payments. The company has also maintained its share repurchase program.
Occidental Petroleum is an international oil & gas exploration & production company that explores, produces and markets crude oil and natural gas around the globe. The company also owns midstream, marketing and chemical assets that provide cash flow diversification. After reacting positively to the December 2016 agreement between OPEC and non-OPEC oil-producing countries such as Russia to cut global oil production, the company’s shares gave back their gains as oil prices fell during the first quarter of 2017. While Occidental’s acquisition of Permian-basin assets supplemented the company’s existing assets and increased leverage to oil-price upside, the acquisition weighed on Occidental’s shares as oil prices fell. The company has remained committed to returning cash to shareholders through an attractive dividend.
Telecommunication services company Telstra is the dominant fixed and mobile line provider in Australia. Shares fell when competitor TPG Telecom purchased spectrum in a recent
auction and announced its intention to invest in building out a fourth wireless network in the country. We believed that Telstra was likely to retain pricing power given the quality and geographic coverage of its network. Telstra has continued to pay a stable dividend and has begun to examine how best to allocate its forecast payments from the rollout of the National Broadband Network fixed line network.
Did the equity portion of the Fund make any significant purchases or sales during the reporting period?
The equity portion of the Fund made several significant purchases during the reporting period. Among these were new purchases of banking company Royal Bank of Canada and Spanish utility Red Eléctrica de España. These stocks were added to the equity portion of the Fund because of their favorable shareholder yield attributes. The equity portion of the Fund sold its position in prison and detention center operator CoreCivic during the reporting period.
How did sector weightings change in the equity portion of the Fund during the reporting period?
Sector weights are generally a function of our bottom-up stock selection process. There were no significant weighting changes in the equity portion of the Fund during the reporting period.
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 that we believe are focused on generating significant free cash flow and returning it to shareholders through a combination of dividends, share repurchases and debt reduction.
As of April 30, 2017, the most significantly 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 most significantly underweight positions relative to the Index in the equity portion of the Fund were in the information technology and consumer discretionary sectors.
What factors affected the relative performance of the fixed-income portion of the Fund during the reporting period?
The fixed-income portion of the Fund outperformed the Bloomberg Barclays U.S. Aggregate Bond Index during the reporting period. The outperformance resulted primarily from an overweight position in spread product4—specifically high-yield
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. The term “spread product” refers to asset classes that typically trade at a spread to comparable U.S. Treasury securities. The term “credit spread” typically refers to the difference in yield between corporate or municipal bonds (or a specific category of these bonds) and comparable U.S. Treasury issues. |
10 | MainStay Income Builder Fund |
bonds and bank loans—as credit spreads tightened during the reporting period. The fixed-income portion of the Fund maintained an allocation to investment-grade and high-yield bonds and loans, while a short position in U.S. Treasury futures contributed to the shorter-duration5 profile of the fixed-income portion of the Fund.
During the reporting period, the U.S. Treasury yield curve6 flattened, as the Federal Reserve continued on its slow path toward the renormalization of interest rates. Most industries held in the fixed-income portion of the Fund generated positive returns, with banking, insurance, basic industry, capital goods and technology being the primary contributors to relative performance. (Contributions take weightings and total returns into account.) Throughout the reporting period, our strategy was to maintain overweight positions in spread product—more specifically, in high-yield bonds, bank loans and investment-grade credit. During the reporting period, however, the fixed-income portion of the Fund reduced exposure to high-yield credits and increased exposure to investment-grade credits.
What was duration strategy of the fixed-income portion of the Fund during the reporting period?
In order to reduce sensitivity to interest rates, the fixed-income portion of the Fund maintained a duration that was slightly shorter than that of the Bloomberg Barclays U.S. Aggregate Bond Index. At the end of the reporting period, the Fund’s duration was 5.5 years, compared to a duration of 6.0 years for the Fund’s fixed-income benchmark.
What specific factors, risks, or market forces prompted significant decisions for the Fund during the reporting period?
Throughout the reporting period, the fixed-income portion of the Fund promoted credit risk as the anticipated principal driver of performance, as it has done for the past few years. We expected corporate bonds (both investment grade and high yield) to have superior returns to government-related debt, since we believed that the low interest-rate environment could spark healthy demand for higher-yielding products. In our opinion, improving profitability signaled that corporations were doing more with less: less leverage, less short-term debt, and smaller funding gaps, which in turn strengthened credit fundamentals and supported the narrowing of spreads. Although we continued to believe that credit spreads could tighten modestly, we reduced exposure to high-yield credits in the fixed-income portion of the Fund in favor of investment-grade credits as
spreads continued to tighten during the reporting period. While we believed that valuations generally remained fair across all credit sectors, it was our opinion that greater vigilance was needed to navigate what we saw as the late stages of the current economic cycle.
Which market segments were the strongest contributors to the performance of the fixed-income portion of the Fund and which market segments were particularly weak?
During the reporting period, the position in high-yield bonds was the most significant contributor to absolute and relative performance in the fixed-income portion of the Fund. Bank loans and investment-grade corporate bonds also contributed positively to returns relative to the Bloomberg Barclays U.S. Aggregate Bond Index.
Within the high-yield bond component of the fixed-income portion of the Fund, transportation and telecommunication services were the most substantial contributors. Within the investment-grade component of the fixed-income portion of the Fund, financial holdings and consumer-related holdings generated positive excess returns.
Did the fixed-income portion of the Fund make any significant purchases or sales during the reporting period?
During the reporting period, the fixed-income portion of the Fund purchased loans of telecommunication services company Sprint and information technology company Dell. Both were new issues and came at yields that we found attractive. The fixed-income portion of the Fund sold bonds of trucking company XPO Logistics and health care company HCA when in our opinion these bonds had reached their fair value.
How did sector weightings change in the fixed-income portion of the Fund during the reporting period?
During the reporting period, we trimmed exposure to high-yield credits in the fixed-income portion of the Fund. At the same time, we increased exposure to investment-grade credits as spreads continued to narrow within the high-yield universe. In the fixed-income portion of the Fund, the weighting in bank loans remained flat throughout the reporting period.
How was the fixed-income portion of the Fund positioned at the end of the reporting period?
As of April 30, 2017, the fixed-income portion of the Fund remained overweight relative to the Bloomberg Barclays U.S.
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. | 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. |
11 |
Aggregate Bond Index in high-yield bonds, which were trimmed during the reporting period, and in bank loans, which are represented in the Index. As of the same date, the Fund was over-
weight investment-grade corporate bonds and significantly underweight relative to the Bloomberg Barclays U.S. Aggregate Bond Index in U.S. Treasury securities and mortgage 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 forecasts 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, 2017 (Unaudited)
Principal Amount | Value | |||||||
Long-Term Bonds † 48.5% Asset-Backed Securities 0.2% |
| |||||||
Home Equity 0.2% | ||||||||
Ameriquest Mortgage Securities, Inc. | $ | 32,264 | $ | 32,445 | ||||
Carrington Mortgage Loan Trust | 95,438 | 93,922 | ||||||
Chase Funding Trust | 116,955 | 118,559 | ||||||
Citigroup Mortgage Loan Trust | 540,750 | 400,620 | ||||||
Countrywide Asset-Backed Certificates | 474,271 | 481,782 | ||||||
Equity One Mortgage Pass- | ||||||||
Series 2003-4, Class AF6 | 12,636 | 12,612 | ||||||
Series 2003-3, Class AF4 | 232,889 | 230,625 | ||||||
HSI Asset Securitization Corp. Trust | 2,812 | 1,934 | ||||||
JPMorgan Mortgage Acquisition Trust | 504,946 | 322,071 | ||||||
MASTR Asset-Backed Securities Trust | 667,389 | 314,385 | ||||||
Saxon Asset Securities Trust | 88,997 | 89,239 | ||||||
Soundview Home Loan Trust | 1,003,037 | 716,438 | ||||||
Specialty Underwriting & Residential Finance Trust | 720,433 | 333,238 | ||||||
Terwin Mortgage Trust | 41,463 | 41,927 | ||||||
|
| |||||||
3,189,797 | ||||||||
|
|
Principal Amount | Value | |||||||
Student Loans 0.0%‡ | ||||||||
KeyCorp Student Loan Trust | $ | 353,004 | $ | 341,812 | ||||
|
| |||||||
Total Asset-Backed Securities | 3,531,609 | |||||||
|
| |||||||
Corporate Bonds 37.5% | ||||||||
Advertising 0.0%‡ | ||||||||
Lamar Media Corp. | 625,000 | 659,375 | ||||||
|
| |||||||
Aerospace & Defense 0.3% | ||||||||
KLX, Inc. | 3,485,000 | 3,663,606 | ||||||
Triumph Group, Inc. | 1,205,000 | 1,180,900 | ||||||
|
| |||||||
4,844,506 | ||||||||
|
| |||||||
Agriculture 0.2% | ||||||||
¨Philip Morris International, Inc. | 3,550,000 | 3,538,306 | ||||||
Reynolds American, Inc. | 255,000 | 286,214 | ||||||
|
| |||||||
3,824,520 | ||||||||
|
| |||||||
Airlines 0.9% | ||||||||
American Airlines Group, Inc. | 3,700,000 | 3,764,750 | ||||||
American Airlines, Inc. | ||||||||
Series 2016-2, Class AA, | 680,000 | 666,400 | ||||||
Series 2015-2, Class AA, | 3,334,320 | 3,375,999 | ||||||
Series 2016-2, Class A, | 240,000 | 240,900 | ||||||
Continental Airlines, Inc. | ||||||||
Series 2009-2, Class A, | 1,497,715 | 1,663,152 | ||||||
Series 2003-ERJ1 | 306,602 | 314,267 | ||||||
U.S. Airways Group, Inc. | ||||||||
Series 2012-1, Class A | 1,842,623 | 2,066,208 |
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings or issuers held, as of April 30, 2017, 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. | 13 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Airlines (continued) | ||||||||
U.S. Airways Group, Inc. (continued) | ||||||||
Series 2010-1 Class A, | $ | 918,969 | $ | 1,001,676 | ||||
United Airlines, Inc. | 1,617,908 | 1,745,318 | ||||||
|
| |||||||
14,838,670 | ||||||||
|
| |||||||
Apparel 0.2% | ||||||||
Hanesbrands, Inc. | 3,575,000 | 3,548,188 | ||||||
|
| |||||||
Auto Manufacturers 1.0% | ||||||||
Ford Motor Co. | ||||||||
6.625%, due 10/1/28 | 1,500,000 | 1,768,708 | ||||||
7.45%, due 7/16/31 | 450,000 | 567,633 | ||||||
8.90%, due 1/15/32 | 215,000 | 291,624 | ||||||
Ford Motor Credit Co. LLC | 350,000 | 389,390 | ||||||
General Motors Financial Co., Inc. | ||||||||
3.20%, due 7/13/20 | 1,800,000 | 1,832,971 | ||||||
3.25%, due 5/15/18 | 325,000 | 329,223 | ||||||
3.45%, due 4/10/22 | 3,800,000 | 3,839,034 | ||||||
4.20%, due 3/1/21 | 2,585,000 | 2,701,721 | ||||||
Toyota Motor Credit Corp. | 4,600,000 | 4,631,321 | ||||||
|
| |||||||
16,351,625 | ||||||||
|
| |||||||
Auto Parts & Equipment 0.5% | ||||||||
Goodyear Tire & Rubber Co. | 2,540,000 | 2,672,029 | ||||||
Schaeffler Finance B.V. (Netherlands) | 3,345,000 | 3,487,163 | ||||||
Tenneco, Inc. | 1,660,000 | 1,661,859 | ||||||
|
| |||||||
7,821,051 | ||||||||
|
| |||||||
Banks 6.6% | ||||||||
Bank of America Corp. | ||||||||
4.875%, due 4/1/44 | 1,845,000 | 2,006,218 | ||||||
5.00%, due 1/21/44 | 1,440,000 | 1,579,858 | ||||||
5.125%, due 12/29/49 (b) | 575,000 | 577,875 | ||||||
5.625%, due 7/1/20 | 645,000 | 708,399 | ||||||
5.875%, due 2/7/42 | 500,000 | 610,324 | ||||||
6.11%, due 1/29/37 | 1,505,000 | 1,762,566 | ||||||
6.30%, due 12/29/49 (b) | 2,085,000 | 2,296,106 | ||||||
7.625%, due 6/1/19 | 1,015,000 | 1,127,979 | ||||||
8.57%, due 11/15/24 | 485,000 | 615,499 | ||||||
Bank of New York Mellon Corp. | 3,275,000 | 3,225,875 |
Principal Amount | Value | |||||||
Banks (continued) | ||||||||
Barclays PLC (United Kingdom) | $ | 870,000 | $ | 893,672 | ||||
5.20%, due 5/12/26 | 1,590,000 | 1,650,755 | ||||||
BB&T Corp. | 4,100,000 | 4,153,685 | ||||||
Capital One Financial Corp. | ||||||||
4.20%, due 10/29/25 | 435,000 | 438,047 | ||||||
5.55%, due 12/29/49 (b) | 2,660,000 | 2,766,400 | ||||||
Citigroup, Inc. | ||||||||
4.05%, due 7/30/22 | 105,000 | 109,940 | ||||||
4.65%, due 7/30/45 | 1,178,000 | 1,228,179 | ||||||
5.30%, due 5/6/44 | 1,200,000 | 1,297,888 | ||||||
6.625%, due 6/15/32 | 770,000 | 947,940 | ||||||
6.875%, due 6/1/25 | 1,715,000 | 2,048,348 | ||||||
Citizens Bank N.A. | 1,050,000 | 1,050,256 | ||||||
Citizens Financial Group, Inc. | 3,405,000 | 3,544,990 | ||||||
Discover Bank | 1,064,000 | 1,205,394 | ||||||
¨Goldman Sachs Group, Inc. | ||||||||
3.625%, due 1/22/23 | 3,045,000 | 3,145,671 | ||||||
4.75%, due 10/21/45 | 2,000,000 | 2,129,584 | ||||||
4.80%, due 7/8/44 | 2,385,000 | 2,560,290 | ||||||
5.25%, due 7/27/21 | 805,000 | 885,526 | ||||||
5.30%, due 12/29/49 (b) | 2,756,000 | 2,861,072 | ||||||
6.75%, due 10/1/37 | 3,815,000 | 4,757,065 | ||||||
Huntington Bancshares, Inc. | 3,535,000 | 3,612,272 | ||||||
JPMorgan Chase & Co. | ||||||||
3.54%, due 5/1/28 (b) | 2,240,000 | 2,230,948 | ||||||
4.95%, due 6/1/45 | 730,000 | 776,998 | ||||||
5.15%, due 12/29/49 (b) | 2,080,000 | 2,100,800 | ||||||
6.40%, due 5/15/38 | 820,000 | 1,067,287 | ||||||
Kreditanstalt fuer Wiederaufbau (Germany) | 8,170,000 | 8,176,291 | ||||||
Lloyds Banking Group PLC (United Kingdom) | 1,605,000 | 1,666,627 | ||||||
¨Morgan Stanley | ||||||||
2.375%, due 7/23/19 | 1,750,000 | 1,762,182 | ||||||
4.30%, due 1/27/45 | 3,075,000 | 3,073,675 | ||||||
4.375%, due 1/22/47 | 1,230,000 | 1,244,414 | ||||||
4.875%, due 11/1/22 | 1,125,000 | 1,223,412 | ||||||
5.00%, due 11/24/25 | 2,535,000 | 2,752,009 | ||||||
5.45%, due 12/31/49 (b) | 2,310,000 | 2,364,862 | ||||||
6.375%, due 7/24/42 | 490,000 | 634,651 | ||||||
PNC Bank N.A. | 3,100,000 | 3,099,011 | ||||||
2.55%, due 12/9/21 | 2,185,000 | 2,198,372 |
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) | ||||||||
Banks (continued) | ||||||||
Royal Bank of Scotland Group PLC (United Kingdom) | ||||||||
6.00%, due 12/19/23 | $ | 190,000 | $ | 204,917 | ||||
6.125%, due 12/15/22 | 1,530,000 | 1,647,792 | ||||||
Santander Holdings USA, Inc. | 3,875,000 | 3,865,413 | ||||||
State Street Corp. | 2,605,000 | 2,643,757 | ||||||
Toronto-Dominion Bank (Canada) | 4,295,000 | 4,212,033 | ||||||
U.S. Bank N.A. | 4,050,000 | 4,073,895 | ||||||
Wachovia Corp. | ||||||||
5.50%, due 8/1/35 | 315,000 | 357,550 | ||||||
5.75%, due 2/1/18 | 1,000,000 | 1,029,958 | ||||||
Wells Fargo & Co. | ||||||||
4.90%, due 11/17/45 | 55,000 | 57,766 | ||||||
5.375%, due 11/2/43 | 690,000 | 764,745 | ||||||
5.90%, due 12/29/49 (b) | 2,520,000 | 2,677,500 | ||||||
Wells Fargo Bank N.A. | 140,000 | 170,521 | ||||||
Wells Fargo Capital X | 715,000 | 772,200 | ||||||
|
| |||||||
112,647,259 | ||||||||
|
| |||||||
Beverages 1.1% | ||||||||
Anheuser-Busch InBev Finance, Inc. | 4,000,000 | 4,076,124 | ||||||
Coca-Cola Co. | 3,845,000 | 3,831,185 | ||||||
Constellation Brands, Inc. | 2,100,000 | 2,243,825 | ||||||
Molson Coors Brewing Co. | 2,000,000 | 1,920,056 | ||||||
PepsiCo, Inc. | 2,225,000 | 2,210,553 | ||||||
1.55%, due 5/2/19 | 1,650,000 | 1,648,317 | ||||||
2.375%, due 10/6/26 | 2,225,000 | 2,121,037 | ||||||
|
| |||||||
18,051,097 | ||||||||
|
| |||||||
Biotechnology 0.4% | ||||||||
Biogen, Inc. | 3,480,000 | 3,625,032 | ||||||
Celgene Corp. | 3,600,000 | 3,688,614 | ||||||
|
| |||||||
7,313,646 | ||||||||
|
| |||||||
Building Materials 0.7% | ||||||||
Fortune Brands Home & Security, Inc. | 4,420,000 | 4,603,098 |
Principal Amount | Value | |||||||
Building Materials (continued) | ||||||||
Johnson Controls International | $ | 1,305,000 | $ | 1,334,804 | ||||
Masco Corp. | 1,575,000 | 1,665,720 | ||||||
Standard Industries, Inc. | 2,940,000 | 3,064,950 | ||||||
USG Corp. | 1,330,000 | 1,394,838 | ||||||
|
| |||||||
12,063,410 | ||||||||
|
| |||||||
Chemicals 0.6% | ||||||||
Air Liquide Finance S.A. (France) (c) | ||||||||
1.375%, due 9/27/19 | 2,535,000 | 2,494,884 | ||||||
1.75%, due 9/27/21 | 1,725,000 | 1,678,038 | ||||||
Ashland LLC | 1,890,000 | 1,970,325 | ||||||
Dow Chemical Co. | ||||||||
4.125%, due 11/15/21 | 1,605,000 | 1,704,948 | ||||||
8.55%, due 5/15/19 | 75,000 | 84,606 | ||||||
WR Grace & Co. | 1,885,000 | 2,024,019 | ||||||
|
| |||||||
9,956,820 | ||||||||
|
| |||||||
Commercial Services 0.4% | ||||||||
Herc Rentals, Inc. | 1,906,000 | 2,079,923 | ||||||
Service Corp. International | 3,600,000 | 3,712,500 | ||||||
United Rentals North America, Inc. | 965,000 | 1,001,718 | ||||||
|
| |||||||
6,794,141 | ||||||||
|
| |||||||
Computers 0.6% | ||||||||
Apple, Inc. | ||||||||
1.55%, due 2/8/19 | 860,000 | 861,292 | ||||||
1.55%, due 8/4/21 | 1,500,000 | 1,468,644 | ||||||
3.35%, due 2/9/27 | 3,480,000 | 3,559,327 | ||||||
3.85%, due 8/4/46 | 1,090,000 | 1,056,306 | ||||||
International Business Machines Corp. | 2,050,000 | 2,657,850 | ||||||
|
| |||||||
9,603,419 | ||||||||
|
| |||||||
Diversified Financial Services 2.0% | ||||||||
AerCap Ireland Capital DAC / AerCap Global Aviation Trust (Ireland) | 3,265,000 | 3,466,362 | ||||||
Air Lease Corp. | ||||||||
2.125%, due 1/15/20 | 1,950,000 | 1,937,647 | ||||||
4.25%, due 9/15/24 | 1,185,000 | 1,240,985 | ||||||
Ally Financial, Inc. | 3,250,000 | 3,290,625 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 15 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Diversified Financial Services (continued) |
| |||||||
Bear Stearns Cos. LLC | $ | 910,000 | $ | 947,647 | ||||
CIT Group, Inc. | ||||||||
3.875%, due 2/19/19 | 1,740,000 | 1,787,850 | ||||||
4.25%, due 8/15/17 | 340,000 | 342,295 | ||||||
5.00%, due 8/15/22 | 1,175,000 | 1,264,065 | ||||||
5.25%, due 3/15/18 | 310,000 | 319,858 | ||||||
6.625%, due 4/1/18 (c) | 750,000 | 784,125 | ||||||
Discover Financial Services | 1,491,000 | 1,528,402 | ||||||
GE Capital International Funding Co. (Ireland) | 6,500,000 | 6,542,588 | ||||||
International Lease Finance Corp. | 1,255,000 | 1,339,283 | ||||||
OneMain Financial Holdings LLC | 1,465,000 | 1,523,761 | ||||||
Peachtree Corners Funding Trust | 940,000 | 953,230 | ||||||
Springleaf Finance Corp. | ||||||||
5.25%, due 12/15/19 | 700,000 | 710,647 | ||||||
6.00%, due 6/1/20 | 475,000 | 486,281 | ||||||
Synchrony Financial | 5,000,000 | 5,136,625 | ||||||
|
| |||||||
33,602,276 | ||||||||
|
| |||||||
Electric 1.3% | ||||||||
AEP Transmission Co. LLC | 2,350,000 | 2,346,748 | ||||||
CMS Energy Corp. | ||||||||
3.875%, due 3/1/24 | 1,540,000 | 1,599,216 | ||||||
5.05%, due 3/15/22 | 1,220,000 | 1,343,627 | ||||||
6.25%, due 2/1/20 | 1,225,000 | 1,352,933 | ||||||
Consolidated Edison, Inc. | 1,205,000 | 1,205,352 | ||||||
FirstEnergy Transmission LLC | 2,555,000 | 2,831,241 | ||||||
Great Plains Energy, Inc. | 1,130,000 | 1,241,124 | ||||||
MidAmerican Energy Co. | 835,000 | 836,910 | ||||||
4.40%, due 10/15/44 | 2,200,000 | 2,359,944 | ||||||
Pacific Gas & Electric Co. | 3,100,000 | 3,101,786 | ||||||
PECO Energy Co. | 1,195,000 | 1,324,809 | ||||||
Puget Energy, Inc. | 815,000 | 905,996 | ||||||
WEC Energy Group, Inc. | 1,095,000 | 1,023,825 | ||||||
|
| |||||||
21,473,511 | ||||||||
|
|
Principal Amount | Value | |||||||
Electronics 0.3% | ||||||||
Honeywell International, Inc. | $ | 4,970,000 | $ | 4,934,002 | ||||
|
| |||||||
Environmental Controls 0.2% | ||||||||
Republic Services, Inc. | 1,615,000 | 1,784,614 | ||||||
Waste Management, Inc. | 2,275,000 | 2,241,375 | ||||||
|
| |||||||
4,025,989 | ||||||||
|
| |||||||
Food 1.8% | ||||||||
J.M. Smucker Co. | 3,500,000 | 3,503,920 | ||||||
Kerry Group Financial Services (Ireland) | 2,899,000 | 2,886,636 | ||||||
Kraft Heinz Foods Co. | ||||||||
3.00%, due 6/1/26 | 1,000,000 | 952,787 | ||||||
4.875%, due 2/15/25 (c) | 2,123,000 | 2,273,240 | ||||||
5.00%, due 6/4/42 | 1,600,000 | 1,648,784 | ||||||
Kroger Co. | 2,555,000 | 2,524,882 | ||||||
Mondelez International Holdings Netherlands B.V. (Netherlands) (c) | ||||||||
1.625%, due 10/28/19 | 2,790,000 | 2,749,118 | ||||||
2.00%, due 10/28/21 | 3,050,000 | 2,953,788 | ||||||
Smithfield Foods, Inc. (c) | ||||||||
2.70%, due 1/31/20 | 1,690,000 | 1,693,735 | ||||||
3.35%, due 2/1/22 | 1,575,000 | 1,583,662 | ||||||
Tyson Foods, Inc. | 4,235,000 | 4,357,658 | ||||||
Whole Foods Market, Inc. | 3,375,000 | 3,536,386 | ||||||
|
| |||||||
30,664,596 | ||||||||
|
| |||||||
Gas 0.1% | ||||||||
AmeriGas Partners, L.P. / AmeriGas Finance Corp. | 735,000 | 742,350 | ||||||
5.625%, due 5/20/24 | 1,140,000 | 1,159,950 | ||||||
5.75%, due 5/20/27 | 520,000 | 521,300 | ||||||
|
| |||||||
2,423,600 | ||||||||
|
| |||||||
Health Care—Products 0.9% | ||||||||
Baxter International, Inc. | 4,330,000 | 3,766,961 | ||||||
Boston Scientific Corp. | 3,740,000 | 3,793,381 | ||||||
Medtronic Global Holdings SCA (Luxembourg) | 3,090,000 | 3,088,829 | ||||||
Stryker Corp. | 3,395,000 | 3,434,535 |
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) | ||||||||
Health Care—Products (continued) |
| |||||||
Thermo Fisher Scientific, Inc. | $ | 1,425,000 | $ | 1,431,226 | ||||
|
| |||||||
15,514,932 | ||||||||
|
| |||||||
Health Care—Services 0.5% | ||||||||
Cigna Corp. | 270,000 | 287,662 | ||||||
Fresenius Medical Care U.S. Finance II, Inc. | 1,985,000 | 2,176,056 | ||||||
Laboratory Corp. of America Holdings | 3,510,000 | 3,541,952 | ||||||
Tenet Healthcare Corp. | 2,950,000 | 2,964,750 | ||||||
|
| |||||||
8,970,420 | ||||||||
|
| |||||||
Home Builders 0.9% | ||||||||
CalAtlantic Group, Inc. | ||||||||
5.875%, due 11/15/24 | 1,345,000 | 1,445,875 | ||||||
8.375%, due 5/15/18 | 2,000,000 | 2,120,000 | ||||||
Lennar Corp. | ||||||||
4.50%, due 6/15/19 | 2,400,000 | 2,478,000 | ||||||
4.50%, due 11/15/19 | 750,000 | 775,313 | ||||||
MDC Holdings, Inc. | 2,750,000 | 2,969,450 | ||||||
Toll Brothers Finance Corp. | 1,340,000 | 1,478,355 | ||||||
TRI Pointe Group, Inc. / TRI Pointe Homes, Inc. | ||||||||
4.375%, due 6/15/19 | 1,000,000 | 1,030,000 | ||||||
5.875%, due 6/15/24 | 2,935,000 | 3,089,087 | ||||||
|
| |||||||
15,386,080 | ||||||||
|
| |||||||
Housewares 0.4% | ||||||||
Newell Brands, Inc. | 5,750,000 | 6,004,139 | ||||||
|
| |||||||
Insurance 2.6% | ||||||||
Alterra Finance LLC | 200,000 | 224,122 | ||||||
Berkshire Hathaway Finance Corp. | 3,515,000 | 3,519,376 | ||||||
Chubb Corp. | 1,660,000 | 1,643,400 | ||||||
Jackson National Life Global Funding | 3,580,000 | 3,583,100 | ||||||
Liberty Mutual Group, Inc. (c) | ||||||||
4.25%, due 6/15/23 | 850,000 | 904,759 | ||||||
6.50%, due 3/15/35 | 220,000 | 268,034 | ||||||
7.80%, due 3/7/87 | 1,760,000 | 2,037,200 | ||||||
10.75%, due 6/15/88 (b) | 750,000 | 1,158,750 |
Principal Amount | Value | |||||||
Insurance (continued) | ||||||||
Markel Corp. | $ | 2,350,000 | $ | 2,469,751 | ||||
MassMutual Global Funding II (c) | 1,200,000 | 1,207,932 | ||||||
2.50%, due 10/17/22 | 3,347,000 | 3,305,447 | ||||||
Oil Insurance, Ltd. | 1,320,000 | 1,122,000 | ||||||
Pacific Life Insurance Co. | 2,575,000 | 3,164,902 | ||||||
Pricoa Global Funding I | 2,135,000 | 2,148,884 | ||||||
Principal Life Global Funding II | 4,070,000 | 4,030,806 | ||||||
Protective Life Corp. | 1,640,000 | 2,353,935 | ||||||
Provident Cos., Inc. | 2,115,000 | 2,696,107 | ||||||
Prudential Financial, Inc. | 1,760,000 | 1,920,600 | ||||||
Validus Holdings, Ltd. | 905,000 | 1,276,976 | ||||||
Voya Financial, Inc. | 690,000 | 687,152 | ||||||
XLIT, Ltd. (Ireland) | ||||||||
3.616%, due 10/29/49 (b) | 2,120,000 | 1,802,000 | ||||||
4.45%, due 3/31/25 | 2,615,000 | 2,686,382 | ||||||
|
| |||||||
44,211,615 | ||||||||
|
| |||||||
Internet 0.8% | ||||||||
Amazon.com, Inc. | 2,185,000 | 2,273,523 | ||||||
eBay, Inc. | 3,840,000 | 4,012,627 | ||||||
Match Group, Inc. | 3,995,000 | 4,349,556 | ||||||
Priceline Group, Inc. | 2,225,000 | 2,239,821 | ||||||
|
| |||||||
12,875,527 | ||||||||
|
| |||||||
Iron & Steel 0.3% | ||||||||
ArcelorMittal (Luxembourg) | ||||||||
7.00%, due 2/25/22 | 1,500,000 | 1,700,625 | ||||||
7.75%, due 10/15/39 | 2,300,000 | 2,627,750 | ||||||
|
| |||||||
4,328,375 | ||||||||
|
| |||||||
Lodging 1.0% | ||||||||
Choice Hotels International, Inc. | 3,260,000 | 3,577,850 | ||||||
Hilton Domestic Operating Co., Inc. | 2,390,000 | 2,407,925 | ||||||
Marriott International, Inc. | ||||||||
2.30%, due 1/15/22 | 2,450,000 | 2,417,050 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 17 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Lodging (continued) | ||||||||
Marriott International, Inc. (continued) | ||||||||
6.75%, due 5/15/18 | $ | 265,000 | $ | 277,995 | ||||
7.15%, due 12/1/19 | 1,900,000 | 2,122,511 | ||||||
MGM Resorts International | ||||||||
6.75%, due 10/1/20 | 2,390,000 | 2,658,875 | ||||||
8.625%, due 2/1/19 | 80,000 | 88,400 | ||||||
Wyndham Worldwide Corp. | 1,765,000 | 1,799,963 | ||||||
Wynn Las Vegas LLC / Wynn Las Vegas Capital Corp. | 1,850,000 | 1,840,750 | ||||||
|
| |||||||
17,191,319 | ||||||||
|
| |||||||
Machinery—Diversified 0.3% | ||||||||
CNH Industrial Capital LLC | 3,945,000 | 4,142,250 | ||||||
Zebra Technologies Corp. | 1,505,000 | 1,627,281 | ||||||
|
| |||||||
5,769,531 | ||||||||
|
| |||||||
Media 0.6% | ||||||||
DISH DBS Corp. | 2,050,000 | 2,171,545 | ||||||
NBC Universal Media LLC | 160,000 | 174,778 | ||||||
Sky PLC (United Kingdom) | 2,620,000 | 2,669,374 | ||||||
Time Warner Entertainment Co., L.P. | 800,000 | 1,005,524 | ||||||
Time Warner, Inc. | 2,500,000 | 2,485,020 | ||||||
UPCB Finance IV, Ltd. (Netherlands) | 2,050,000 | 2,085,875 | ||||||
|
| |||||||
10,592,116 | ||||||||
|
| |||||||
Metal Fabricate & Hardware 0.2% | ||||||||
Precision Castparts Corp. | 4,040,000 | 4,131,231 | ||||||
|
| |||||||
Mining 0.2% | ||||||||
FMG Resources (August 2006) Pty, Ltd. (Australia) | 3,185,000 | 3,664,741 | ||||||
|
| |||||||
Miscellaneous—Manufacturing 0.5% |
| |||||||
Amsted Industries, Inc. | 3,785,000 | 3,879,625 | ||||||
Siemens Financieringsmaatschappij N.V. (Netherlands) | 2,130,000 | 2,151,091 |
Principal Amount | Value | |||||||
Miscellaneous—Manufacturing (continued) |
| |||||||
Textron Financial Corp. | $ | 3,540,000 | $ | 2,840,850 | ||||
|
| |||||||
8,871,566 | ||||||||
|
| |||||||
Oil & Gas 0.6% | ||||||||
Chevron Corp. | 2,000,000 | 2,002,262 | ||||||
CITGO Petroleum Corp. | 1,980,000 | 2,019,600 | ||||||
ConocoPhillips Co. | 3,050,000 | 3,104,567 | ||||||
Valero Energy Corp. | 2,385,000 | 2,630,882 | ||||||
|
| |||||||
9,757,311 | ||||||||
|
| |||||||
Packaging & Containers 0.7% | ||||||||
Ball Corp. | 3,700,000 | 3,949,750 | ||||||
Crown Americas LLC / Crown Americas Capital Corp. IV | 1,400,000 | 1,445,500 | ||||||
Kloeckner Pentaplast of America, Inc. | EU | R 1,045,000 |
| 1,178,159 | ||||
Reynolds Group Issuer, Inc. / Reynolds Group Issuer LLC | $ | 2,000,000 | 2,060,000 | |||||
Sealed Air Corp. (c) | ||||||||
4.875%, due 12/1/22 | 475,000 | 495,188 | ||||||
5.50%, due 9/15/25 | 1,900,000 | 2,033,000 | ||||||
|
| |||||||
11,161,597 | ||||||||
|
| |||||||
Pharmaceuticals 0.7% | ||||||||
Actavis Funding SCS (Luxembourg) | 4,050,000 | 4,163,356 | ||||||
Johnson & Johnson | 3,570,000 | 3,600,591 | ||||||
Novartis Capital Corp. | 4,115,000 | 4,116,506 | ||||||
|
| |||||||
11,880,453 | ||||||||
|
| |||||||
Pipelines 1.0% | ||||||||
Columbia Pipeline Group, Inc. | 2,995,000 | 3,053,304 | ||||||
Hiland Partners Holdings LLC / Hiland Partners Finance Corp. | 1,710,000 | 1,780,537 | ||||||
MPLX, L.P. | ||||||||
4.875%, due 6/1/25 | 100,000 | 106,362 | ||||||
5.50%, due 2/15/23 | 1,975,000 | 2,046,594 | ||||||
Plains All American Pipeline, L.P. / PAA Finance Corp. | 1,520,000 | 1,411,702 |
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) | ||||||||
Pipelines (continued) | ||||||||
Southern Natural Gas Co. LLC | $ | 880,000 | $ | 907,540 | ||||
Spectra Energy Partners, L.P. | 1,740,000 | 1,860,471 | ||||||
Targa Resources Partners, L.P. / Targa Resources Partners Finance Corp. | 2,120,000 | 2,183,600 | ||||||
Tesoro Logistics, L.P. / Tesoro Logistics Finance Corp. | ||||||||
5.50%, due 10/15/19 | 1,845,000 | 1,955,700 | ||||||
5.875%, due 10/1/20 | 1,725,000 | 1,764,675 | ||||||
|
| |||||||
17,070,485 | ||||||||
|
| |||||||
Real Estate Investment Trusts 0.9% | ||||||||
American Tower Corp. | 2,945,000 | 2,868,389 | ||||||
CoreCivic, Inc. | 810,000 | 812,025 | ||||||
Crown Castle International Corp. | ||||||||
3.40%, due 2/15/21 | 2,080,000 | 2,122,921 | ||||||
5.25%, due 1/15/23 | 3,510,000 | 3,883,941 | ||||||
Essex Portfolio, L.P. | 1,490,000 | 1,466,084 | ||||||
Iron Mountain, Inc. | 3,300,000 | 3,386,625 | ||||||
¨Welltower, Inc. | 290,000 | 293,237 | ||||||
|
| |||||||
14,833,222 | ||||||||
|
| |||||||
Retail 1.9% | ||||||||
AutoZone, Inc. | 1,500,000 | 1,512,012 | ||||||
Brinker International, Inc. | 1,885,000 | 1,892,069 | ||||||
CVS Health Corp. | 3,725,000 | 3,937,377 | ||||||
CVS Pass-Through Trust | 185,859 | 204,770 | ||||||
McDonald’s Corp. | 965,000 | 873,748 | ||||||
QVC, Inc. | 4,800,000 | 4,892,011 | ||||||
Signet UK Finance PLC (United Kingdom) | 3,200,000 | 3,161,168 | ||||||
Starbucks Corp. | 2,220,000 | 2,142,020 | ||||||
Suburban Propane Partners, L.P. / Suburban Energy Finance Corp. | 2,465,000 | 2,446,513 | ||||||
Tiffany & Co. | 4,715,000 | 4,750,815 |
Principal Amount | Value | |||||||
Retail (continued) | ||||||||
TJX Cos., Inc. | $ | 6,450,000 | $ | 6,006,485 | ||||
Wal-Mart Stores, Inc. | 314,000 | 389,067 | ||||||
|
| |||||||
32,208,055 | ||||||||
|
| |||||||
Semiconductors 0.8% | ||||||||
NXP B.V. / NXP Funding | ||||||||
4.625%, due 6/15/22 | 1,610,000 | 1,728,738 | ||||||
4.625%, due 6/1/23 | 3,850,000 | 4,143,562 | ||||||
Qorvo, Inc. | 3,740,000 | 4,151,400 | ||||||
Sensata Technologies B.V. (Netherlands) | 2,990,000 | 3,053,537 | ||||||
|
| |||||||
13,077,237 | ||||||||
|
| |||||||
Software 0.6% | ||||||||
Microsoft Corp. | 2,615,000 | 2,624,932 | ||||||
3.70%, due 8/8/46 | 2,060,000 | 1,964,243 | ||||||
MSCI, Inc. | 3,610,000 | 3,889,775 | ||||||
PTC, Inc. | 1,415,000 | 1,514,050 | ||||||
|
| |||||||
9,993,000 | ||||||||
|
| |||||||
Telecommunications 1.7% | ||||||||
¨AT&T, Inc. | 3,800,000 | 3,874,195 | ||||||
Cisco Systems, Inc. | 2,000,000 | 2,035,802 | ||||||
CommScope Technologies LLC | 850,000 | 906,313 | ||||||
CommScope, Inc. | 3,090,000 | 3,174,975 | ||||||
Hughes Satellite Systems Corp. | ||||||||
6.50%, due 6/15/19 | 990,000 | 1,070,437 | ||||||
7.625%, due 6/15/21 | 460,000 | 519,409 | ||||||
Sprint Spectrum Co. LLC / Sprint Spectrum Co. II LLC / Sprint Spectrum Co. III LLC | 5,350,000 | 5,396,812 | ||||||
T-Mobile USA, Inc. | 3,515,000 | 3,712,719 | ||||||
Telecom Italia Capital S.A. (Italy) | 315,000 | 363,038 | ||||||
Telefonica Emisiones SAU (Spain) | ||||||||
5.213%, due 3/8/47 | 1,735,000 | 1,802,677 | ||||||
4.57%, due 4/27/23 | 2,552,000 | 2,752,825 | ||||||
5.462%, due 2/16/21 | 395,000 | 435,345 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 19 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Telecommunications (continued) |
| |||||||
¨Verizon Communications, Inc. | ||||||||
4.125%, due 3/16/27 | $ | 995,000 | $ | 1,017,434 | ||||
5.15%, due 9/15/23 | 2,325,000 | 2,573,059 | ||||||
|
| |||||||
29,635,040 | ||||||||
|
| |||||||
Transportation 0.1% | ||||||||
XPO Logistics, Inc. | 1,015,000 | 1,074,631 | ||||||
|
| |||||||
Trucking & Leasing 0.1% | ||||||||
Aviation Capital Group Corp. | 2,580,000 | 2,568,774 | ||||||
|
| |||||||
Total Corporate Bonds | 636,213,098 | |||||||
|
| |||||||
Foreign Bonds 0.1% | ||||||||
Banks 0.1% | ||||||||
Barclays Bank PLC (United Kingdom) Series Reg S | GBP | 1,186,000 | 1,980,746 | |||||
|
| |||||||
Total Foreign Bond | 1,980,746 | |||||||
|
| |||||||
Loan Assignments 6.3% (e) | ||||||||
Advertising 0.4% | ||||||||
Allied Universal Holdco LLC | $ | 2,543,563 | 2,545,853 | |||||
Global Payments, Inc. | 1,340,000 | 1,340,000 | ||||||
Outfront Media Capital LLC | 2,200,000 | 2,213,292 | ||||||
|
| |||||||
6,099,145 | ||||||||
|
| |||||||
Building Materials 0.4% | ||||||||
Builders FirstSource, Inc. | 1,795,500 | 1,789,665 | ||||||
Forterra Finance LLC | 2,935,250 | 2,930,665 | ||||||
Quikrete Holdings, Inc. | 2,488,762 | 2,504,835 | ||||||
|
| |||||||
7,225,165 | ||||||||
|
|
Principal Amount | Value | |||||||
Commercial Services 0.4% | ||||||||
ExamWorks Group, Inc. (New Zealand) | $ | 3,641,723 | $ | 3,671,312 | ||||
U.S. Security Associates Holdings, Inc. | 3,980,000 | 3,996,584 | ||||||
|
| |||||||
7,667,896 | ||||||||
|
| |||||||
Containers, Packaging & Glass 0.2% |
| |||||||
BWAY Holding Co. | 2,835,000 | 2,820,825 | ||||||
Reynolds Group Holdings, Inc. | 870,630 | 874,771 | ||||||
|
| |||||||
3,695,596 | ||||||||
|
| |||||||
Electric 0.3% | ||||||||
Calpine Corp. | 4,962,500 | 4,976,678 | ||||||
|
| |||||||
Electrical Components & Equipment 0.1% |
| |||||||
Electro Rent Corp. | 2,104,725 | 2,117,879 | ||||||
|
| |||||||
Entertainment 0.3% | ||||||||
Regal Cinemas Corp. | 3,541,125 | 3,576,536 | ||||||
Scientific Games International, Inc. | 1,904,241 | 1,930,821 | ||||||
|
| |||||||
5,507,357 | ||||||||
|
| |||||||
Environmental Controls 0.4% | ||||||||
Advanced Disposal Services, Inc. | 3,518,396 | 3,546,543 | ||||||
GFL Environmental, Inc. (Canada) | 3,482,500 | 3,489,754 | ||||||
|
| |||||||
7,036,297 | ||||||||
|
| |||||||
Food & Staples Retailing 0.3% | ||||||||
U.S. Foods, Inc. | 5,275,138 | 5,320,008 | ||||||
|
| |||||||
Health Care—Products 0.3% | ||||||||
Ortho-Clinical Diagnostics, Inc. | 2,280,513 | 2,266,622 |
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 | |||||||
Loan Assignments (continued) | ||||||||
Health Care—Products (continued) | ||||||||
Sterigenics-Nordion Holdings LLC | $ | 3,050,000 | $ | 3,034,750 | ||||
|
| |||||||
5,301,372 | ||||||||
|
| |||||||
Health Care—Services 0.6% | ||||||||
inVentiv Health, Inc. (New Zealand) | 4,468,800 | 4,492,543 | ||||||
MPH Acquisition Holdings LLC | 4,058,862 | 4,109,597 | ||||||
U.S. Renal Care, Inc. | 1,700,000 | 1,542,750 | ||||||
|
| |||||||
10,144,890 | ||||||||
|
| |||||||
Household Products & Wares 0.6% | ||||||||
KIK Custom Products, Inc. | 7,110,294 | 7,176,953 | ||||||
Prestige Brands, Inc. | 2,210,361 | 2,227,398 | ||||||
|
| |||||||
9,404,351 | ||||||||
|
| |||||||
Iron & Steel 0.4% | ||||||||
Signode Industrial Group U.S., Inc. | 7,046,569 | 7,103,822 | ||||||
|
| |||||||
Media 0.3% | ||||||||
Nielsen Finance LLC | 890,000 | 893,090 | ||||||
Virgin Media Bristol LLC | 3,650,000 | 3,661,863 | ||||||
|
| |||||||
4,554,953 | ||||||||
|
| |||||||
Packaging & Containers 0.4% | ||||||||
Berry Plastics Group, Inc. (New Zealand) | 7,306,184 | 7,353,879 | ||||||
|
| |||||||
Software 0.2% | ||||||||
First Data Corp. | 2,698,987 | 2,698,987 | ||||||
|
| |||||||
Telecommunications 0.6% | ||||||||
Level 3 Financing, Inc. | 10,000,000 | 10,027,500 | ||||||
|
|
Principal Amount | Value | |||||||
Transportation 0.1% | ||||||||
XPO Logistics, Inc. | $ | 1,575,000 | $ | 1,583,280 | ||||
|
| |||||||
Total Loan Assignments |
| 107,819,055 | ||||||
|
| |||||||
Mortgage-Backed Securities 0.6% | ||||||||
Commercial Mortgage Loans |
| |||||||
Bayview Commercial Asset Trust | 142,498 | 127,885 | ||||||
Citigroup Commercial Mortgage Trust | 141,080 | 142,166 | ||||||
Four Times Square Trust | 852,057 | 937,960 | ||||||
|
| |||||||
1,208,011 | ||||||||
|
| |||||||
Residential Mortgages (Collateralized Mortgage Obligations) 0.5% |
| |||||||
Japan Finance Organization for | 8,780,000 | 8,747,233 | ||||||
Mortgage Equity Conversion Asset Trust | 470,591 | 401,451 | ||||||
WaMu Mortgage Pass- | 424,036 | 377,427 | ||||||
|
| |||||||
9,526,111 | ||||||||
|
| |||||||
Total Mortgage-Backed Securities |
| 10,734,122 | ||||||
|
| |||||||
U.S. Government & Federal Agencies 3.8% | ||||||||
Federal Home Loan Mortgage Corporation |
| |||||||
6.50%, due 2/1/27 | 34 | 38 | ||||||
6.50%, due 5/1/29 | 25,814 | 28,669 | ||||||
6.50%, due 6/1/29 | 6,593 | 7,323 | ||||||
6.50%, due 7/1/29 | 30,995 | 34,493 | ||||||
6.50%, due 8/1/29 | 8,594 | 9,544 | ||||||
6.50%, due 9/1/29 | 675 | 755 | ||||||
6.50%, due 6/1/32 | 2,741 | 3,112 | ||||||
6.50%, due 1/1/37 | 2,245 | 2,516 | ||||||
7.00%, due 9/1/26 | 4,797 | 5,281 | ||||||
7.00%, due 7/1/32 | 10,999 | 12,602 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 21 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
U.S. Government & Federal Agencies (continued) | ||||||||
Federal Home Loan Mortgage Corporation |
| |||||||
7.50%, due 5/1/32 | $ | 4,657 | $ | 4,990 | ||||
|
| |||||||
109,323 | ||||||||
|
| |||||||
Federal National Mortgage Association |
| |||||||
4.50%, due 7/1/20 | 991 | 1,017 | ||||||
4.50%, due 3/1/21 | 2,044 | 2,097 | ||||||
6.00%, due 4/1/19 | 346 | 392 | ||||||
7.00%, due 10/1/37 | 582 | 667 | ||||||
7.00%, due 11/1/37 | 16,045 | 18,268 | ||||||
|
| |||||||
22,441 | ||||||||
|
| |||||||
Government National Mortgage Association |
| |||||||
5.00%, due 12/15/37 | 2,517 | 2,788 | ||||||
5.50%, due 9/15/35 | 6,684 | 7,467 | ||||||
6.50%, due 4/15/29 | 13 | 15 | ||||||
6.50%, due 8/15/29 | 10 | 11 | ||||||
6.50%, due 10/15/31 | 2,453 | 2,826 | ||||||
7.00%, due 12/15/25 | 3,358 | 3,395 | ||||||
7.00%, due 11/15/27 | 9,033 | 9,881 | ||||||
7.00%, due 12/15/27 | 39,324 | 43,028 | ||||||
7.00%, due 6/15/28 | 3,828 | 3,924 | ||||||
7.50%, due 6/15/26 | 349 | 384 | ||||||
7.50%, due 10/15/30 | 16,324 | 17,013 | ||||||
8.00%, due 10/15/26 | 3,794 | 4,142 | ||||||
8.50%, due 11/15/26 | 18,562 | 18,856 | ||||||
|
| |||||||
113,730 | ||||||||
|
| |||||||
United States Treasury Bond 0.3% |
| |||||||
3.125%, due 11/15/41 | 5,340,000 | 5,536,913 | ||||||
|
| |||||||
¨United States Treasury Notes 3.5% |
| |||||||
1.25%, due 7/31/23 | 25,125,000 | 23,973,773 | ||||||
2.00%, due 8/15/25 | 15,530,000 | 15,264,297 | ||||||
2.00%, due 11/15/26 | 13,800,000 | 13,464,701 | ||||||
2.25%, due 7/31/21 | 5,575,000 | 5,693,686 | ||||||
|
| |||||||
58,396,457 | ||||||||
|
| |||||||
Total U.S. Government & Federal Agencies |
| 64,178,864 | ||||||
|
| |||||||
Total Long-Term Bonds |
| 824,457,494 | ||||||
|
| |||||||
Shares | ||||||||
Common Stocks 43.7% | ||||||||
Aerospace & Defense 0.9% |
| |||||||
BAE Systems PLC (United Kingdom) | 1,201,830 | 9,759,940 | ||||||
Lockheed Martin Corp. | 17,859 | 4,812,108 | ||||||
|
| |||||||
14,572,048 | ||||||||
|
|
Shares | Value | |||||||
Agriculture 3.3% |
| |||||||
Altria Group, Inc. | 174,911 | $ | 12,555,112 | |||||
British American Tobacco PLC (United Kingdom) | 166,680 | 11,258,340 | ||||||
Imperial Brands PLC (United Kingdom) | 215,965 | 10,578,923 | ||||||
¨Philip Morris International, Inc. | 114,483 | 12,689,296 | ||||||
Reynolds American, Inc. | 150,828 | 9,728,406 | ||||||
|
| |||||||
56,810,077 | ||||||||
|
| |||||||
Auto Manufacturers 0.5% |
| |||||||
Daimler A.G. (Germany), | 117,635 | 8,764,760 | ||||||
|
| |||||||
Auto Parts & Equipment 0.4% |
| |||||||
Cie Generale des Etablissements Michelin (France) | 53,320 | 6,966,871 | ||||||
|
| |||||||
Banks 1.6% |
| |||||||
Commonwealth Bank of Australia (Australia) | 83,310 | 5,452,233 | ||||||
Royal Bank of Canada (Canada) | 77,230 | 5,288,223 | ||||||
Svenska Handelsbanken AB (Sweden), Class A | 367,663 | 5,217,757 | ||||||
Wells Fargo & Co. | 97,745 | 5,262,591 | ||||||
Westpac Banking Corp. (Australia) | 197,541 | 5,186,030 | ||||||
|
| |||||||
26,406,834 | ||||||||
|
| |||||||
Beverages 0.9% |
| |||||||
Coca-Cola Co. | 98,050 | 4,230,857 | ||||||
Diageo PLC (United Kingdom) | 190,000 | 5,528,364 | ||||||
PepsiCo., Inc. | 44,110 | 4,996,781 | ||||||
|
| |||||||
14,756,002 | ||||||||
|
| |||||||
Chemicals 1.4% |
| |||||||
Agrium, Inc. (Canada) | 46,445 | 4,362,579 | ||||||
BASF S.E. (Germany) | 90,180 | 8,787,928 | ||||||
Dow Chemical Co. | 159,061 | 9,989,031 | ||||||
|
| |||||||
23,139,538 | ||||||||
|
| |||||||
Commercial Services 0.3% |
| |||||||
Automatic Data Processing, Inc. | 51,920 | 5,425,121 | ||||||
|
| |||||||
Cosmetics & Personal Care 0.8% |
| |||||||
Procter & Gamble Co. | 66,345 | 5,793,909 | ||||||
Unilever PLC (United Kingdom) | 150,510 | 7,743,034 | ||||||
|
| |||||||
13,536,943 | ||||||||
|
| |||||||
Diversified Financial Services 0.5% |
| |||||||
CME Group, Inc. | 40,013 | 4,649,110 | ||||||
Singapore Exchange, Ltd. (Singapore) | 758,886 | 4,019,437 | ||||||
|
| |||||||
8,668,547 | ||||||||
|
| |||||||
Electric 5.4% |
| |||||||
Ameren Corp. | 177,605 | 9,713,217 | ||||||
Dominion Resources, Inc. | 98,285 | 7,610,208 |
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) | ||||||||
Electric (continued) |
| |||||||
Duke Energy Corp. | 152,483 | $ | 12,579,848 | |||||
Entergy Corp. | 111,838 | 8,528,766 | ||||||
¨PPL Corp. | 356,690 | 13,593,456 | ||||||
Red Electrica Corp. S.A. (Spain) | 294,505 | 5,742,395 | ||||||
Southern Co. | 118,795 | 5,915,991 | ||||||
SSE PLC (United Kingdom) | 334,765 | 6,031,200 | ||||||
Terna Rete Elettrica Nazionale S.p.A. (Italy) | 2,159,470 | 10,891,195 | ||||||
WEC Energy Group, Inc. | 174,324 | 10,550,089 | ||||||
|
| |||||||
91,156,365 | ||||||||
|
| |||||||
Electrical Components & Equipment 0.3% |
| |||||||
Emerson Electric Co. | 97,470 | 5,875,492 | ||||||
|
| |||||||
Engineering & Construction 0.4% |
| |||||||
Vinci S.A. (France) | 70,935 | 6,034,746 | ||||||
|
| |||||||
Entertainment 0.3% |
| |||||||
Regal Entertainment Group, Class A | 261,800 | 5,777,926 | ||||||
|
| |||||||
Environmental Controls 0.4% |
| |||||||
Waste Management, Inc. | 85,920 | 6,253,258 | ||||||
|
| |||||||
Food 0.8% |
| |||||||
Nestle S.A. (Switzerland), Registered | 105,302 | 8,111,958 | ||||||
Orkla ASA (Norway) | 698,070 | 6,321,330 | ||||||
|
| |||||||
14,433,288 | ||||||||
|
| |||||||
Gas 1.5% |
| |||||||
Gas Natural SDG S.A. (Spain) | 243,380 | 5,503,762 | ||||||
National Grid PLC (United Kingdom) | 959,360 | 12,425,623 | ||||||
Snam S.p.A. (Italy) | 1,809,356 | 7,998,038 | ||||||
|
| |||||||
25,927,423 | ||||||||
|
| |||||||
Health Care—Services 0.3% |
| |||||||
Sonic Healthcare, Ltd. (Australia) | 266,170 | 4,402,716 | ||||||
|
| |||||||
Household Products & Wares 0.4% |
| |||||||
Kimberly-Clark Corp. | 58,815 | 7,631,246 | ||||||
|
| |||||||
Insurance 2.3% |
| |||||||
Allianz S.E. (Germany), Registered | 46,407 | 8,836,338 | ||||||
Arthur J. Gallagher & Co. | 82,190 | 4,587,024 | ||||||
AXA S.A. (France) | 293,850 | 7,845,423 | ||||||
Muenchener Rueckversicherungs-Gesellschaft A.G. (Germany), Registered | 61,420 | 11,771,897 | ||||||
SCOR S.E. (France) | 146,466 | 5,794,688 | ||||||
|
| |||||||
38,835,370 | ||||||||
|
| |||||||
Investment Management/Advisory Services 0.3% |
| |||||||
BlackRock, Inc. | 12,975 | 4,989,796 | ||||||
|
|
Shares | Value | |||||||
Media 0.5% |
| |||||||
ION Media Networks, Inc. (d)(g)(h) | 12 | $ | 8,143 | |||||
Sky PLC (United Kingdom) | 637,139 | 8,186,202 | ||||||
|
| |||||||
8,194,345 | ||||||||
|
| |||||||
Miscellaneous—Manufacturing 1.0% |
| |||||||
Eaton Corp. PLC (Ireland) | 86,235 | 6,522,815 | ||||||
Siemens A.G. (Germany), Registered | 67,781 | 9,716,531 | ||||||
|
| |||||||
16,239,346 | ||||||||
|
| |||||||
Oil & Gas 2.6% |
| |||||||
Exxon Mobil Corp. | 104,940 | 8,568,351 | ||||||
Occidental Petroleum Corp. | 133,230 | 8,198,974 | ||||||
Royal Dutch Shell PLC (United Kingdom), Class A, Sponsored ADR | 188,595 | 9,842,773 | ||||||
Statoil ASA (Norway) | 446,380 | 7,366,882 | ||||||
Total S.A. (France) | 215,388 | 11,067,124 | ||||||
|
| |||||||
45,044,104 | ||||||||
|
| |||||||
Pharmaceuticals 4.1% |
| |||||||
AbbVie, Inc. | 124,255 | 8,193,375 | ||||||
AstraZeneca PLC (United Kingdom), Sponsored ADR | 302,190 | 9,141,247 | ||||||
GlaxoSmithKline PLC (United Kingdom) | 497,420 | 9,985,999 | ||||||
Johnson & Johnson | 42,655 | 5,266,613 | ||||||
Merck & Co., Inc. | 94,859 | 5,912,561 | ||||||
Novartis A.G. (Switzerland), Registered | 100,531 | 7,734,320 | ||||||
Pfizer, Inc. | 241,587 | 8,194,631 | ||||||
Roche Holding A.G. (Switzerland) | 32,858 | 8,595,917 | ||||||
Sanofi (France) | 70,645 | 6,664,949 | ||||||
|
| |||||||
69,689,612 | ||||||||
|
| |||||||
Pipelines 0.4% |
| |||||||
Enterprise Products Partners, L.P. | 268,740 | 7,341,977 | ||||||
|
| |||||||
Real Estate Investment Trusts 1.9% | ||||||||
Iron Mountain, Inc. | 222,050 | 7,718,458 | ||||||
Unibail-Rodamco S.E. (France) | 45,905 | 11,273,470 | ||||||
¨Welltower, Inc. | 189,710 | �� | 13,552,882 | |||||
|
| |||||||
32,544,810 | ||||||||
|
| |||||||
Retail 0.5% |
| |||||||
McDonald’s Corp. | 60,633 | 8,484,376 | ||||||
|
| |||||||
Savings & Loans 0.3% | ||||||||
People’s United Financial, Inc. | 277,105 | 4,841,024 | ||||||
|
| |||||||
Semiconductors 1.7% | ||||||||
Microchip Technology, Inc. | 83,343 | 6,299,064 | ||||||
QUALCOMM, Inc. | 185,128 | 9,948,779 | ||||||
Taiwan Semiconductor Manufacturing Co., Ltd. (Taiwan), Sponsored ADR | 170,999 | 5,654,937 | ||||||
Texas Instruments, Inc. | 81,084 | 6,420,231 | ||||||
|
| |||||||
28,323,011 | ||||||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 23 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Software 0.3% |
| |||||||
Microsoft Corp. | 86,818 | $ | 5,943,560 | |||||
|
| |||||||
Telecommunications 6.5% | ||||||||
¨AT&T, Inc. | 326,639 | 12,944,703 | ||||||
¨BCE, Inc. (Canada) | 324,146 | 14,758,195 | ||||||
CenturyLink, Inc. | 171,286 | 4,396,912 | ||||||
Cisco Systems, Inc. | 249,400 | 8,497,058 | ||||||
Deutsche Telekom A.G. (Germany), Registered | 563,885 | 9,889,260 | ||||||
Rogers Communications, Inc. (Canada), Class B | 201,220 | 9,226,299 | ||||||
Singapore Telecommunications, Ltd. (Singapore) (Diversified Telecommunication Services) | 1,730,115 | 4,630,947 | ||||||
Swisscom A.G. (Switzerland), Registered | 19,313 | 8,423,962 | ||||||
Telstra Corp., Ltd. (Australia) | 2,119,380 | 6,697,106 | ||||||
TELUS Corp. (Canada) | 151,446 | 5,039,139 | ||||||
¨Verizon Communications, Inc. | 278,046 | 12,765,092 | ||||||
¨Vodafone Group PLC (United Kingdom) | 5,058,233 | 13,040,600 | ||||||
|
| |||||||
110,309,273 | ||||||||
|
| |||||||
Transportation 0.9% |
| |||||||
Deutsche Post A.G. (Germany), Registered | 220,259 | 7,917,626 | ||||||
United Parcel Service, Inc., Class B | 69,209 | 7,437,199 | ||||||
|
| |||||||
15,354,825 | ||||||||
|
| |||||||
Total Common Stocks |
| 742,674,630 | ||||||
|
| |||||||
Principal Amount | ||||||||
Short-Term Investments 8.0% | ||||||||
Repurchase Agreement 8.0% | ||||||||
Fixed Income Clearing Corp. | $ | 135,919,312 | 135,919,312 | |||||
|
| |||||||
Total Short-Term Investment | 135,919,312 | |||||||
|
| |||||||
Total Investments | 100.2 | % | 1,703,051,436 | |||||
Other Assets, Less Liabilities | (0.2 | ) | (4,212,857 | ) | ||||
Net Assets | 100.0 | % | $ | 1,698,838,579 |
‡ | Less than one-tenth of a percent. |
(a) | Step coupon—Rate shown was the rate in effect as of April 30, 2017. |
(b) | Floating rate—Rate shown was the rate in effect as of April 30, 2017. |
(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) | Fair valued security—Represents fair value as measured in good faith under procedures approved by the Board of Trustees. As of April 30, 2017, the total market value of these securities was $614,364, which represented less than one-tenth of a percent of the Fund’s net assets. |
(e) | 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, 2017. |
(f) | 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, 2017. |
(g) | Illiquid security—As of April 30, 2017, the total market value of these securities deemed illiquid under procedures approved by the Board of Trustees was $409,594, which represented less than one-tenth of a percent of the Fund’s net assets. |
(h) | Restricted security. |
(i) | As of April 30, 2017, cost was $1,627,061,887 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 108,224,360 | ||
Gross unrealized depreciation | (32,234,811 | ) | ||
|
| |||
Net unrealized appreciation | $ | 75,989,549 | ||
|
|
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. |
Foreign Currency Buy Contracts | Expiration Date | Counterparty | Contract Amount Purchased | Contract Sold | Unrealized Appreciation (Depreciation) | |||||||||||||||||
Canadian Dollar vs. U.S. Dollar | 5/2/17 | JPMorgan Chase Bank | CAD | 23,040,000 | $ | 17,043,941 | $ | (165,191 | ) | |||||||||||||
Euro vs. U.S. Dollar | 5/2/17 | JPMorgan Chase Bank | EUR | 94,031,000 | 100,585,193 | 1,842,747 | ||||||||||||||||
Euro vs. U.S. Dollar | 8/1/17 | JPMorgan Chase Bank | 1,620,000 | 1,778,183 | (5,372 | ) | ||||||||||||||||
Pound Sterling vs. U.S. Dollar | 5/2/17 | JPMorgan Chase Bank | GBP | 41,938,000 | 53,485,139 | 832,926 | ||||||||||||||||
Foreign Currency Sales Contracts | Contract Sold | Contract Amount Purchased | ||||||||||||||||||||
Canadian Dollar vs. U.S. Dollar | 5/2/17 | JPMorgan Chase Bank | CAD | 23,040,000 | 17,559,090 | 680,340 | ||||||||||||||||
Canadian Dollar vs. U.S. Dollar | 8/1/17 | JPMorgan Chase Bank | 23,160,000 | 17,156,191 | 166,256 | |||||||||||||||||
Euro vs. U.S. Dollar | 5/2/17 | JPMorgan Chase Bank | EUR | 94,031,000 | 100,897,448 | (1,530,492 | ) | |||||||||||||||
Euro vs. U.S. Dollar | 8/1/17 | JPMorgan Chase Bank | 93,385,000 | 100,348,719 | (1,845,094 | ) | ||||||||||||||||
Pound Sterling vs. U.S. Dollar | 5/2/17 | JPMorgan Chase Bank | GBP | 41,938,000 | 52,722,785 | (1,595,279 | ) | |||||||||||||||
Pound Sterling vs. U.S. Dollar | 8/1/17 | JPMorgan Chase Bank | 37,355,000 | 47,857,358 | (650,211 | ) | ||||||||||||||||
Net unrealized appreciation (depreciation) on foreign currency forward contracts |
| $ | (2,269,370 | ) |
As of April 30, 2017, the Fund held the following futures contracts1:
Type | Number of Contracts Long (Short) | Expiration Date | Notional Amount | Unrealized Appreciation (Depreciation)2 | ||||||||||||
2-Year United States Treasury Note | (338 | ) | June 2017 | $ | (73,213,969 | ) | $ | (640 | ) | |||||||
5-Year United States Treasury Note | 779 | June 2017 | 92,238,469 | 535,792 | ||||||||||||
10-Year United States Treasury Note | 137 | June 2017 | 17,223,469 | 189,182 | ||||||||||||
EURO STOXX 50 | 1,965 | June 2017 | 75,087,824 | 3,566,009 | ||||||||||||
Nikkei 225 | 595 | June 2017 | 51,280,220 | (308,786 | ) | |||||||||||
Standard & Poor’s 500 Index Mini | 1,480 | June 2017 | 176,157,000 | 873,718 | ||||||||||||
United States Treasury Bond | 436 | June 2017 | 66,694,375 | 1,298,936 | ||||||||||||
|
|
|
| |||||||||||||
$ | 405,467,388 | $ | 6,154,211 | |||||||||||||
|
|
|
|
1. | As of April 30, 2017, cash in the amount of $17,848,930 was on deposit with a broker for futures transactions. |
2. | Represents the difference between the value of the contracts at the time they were opened and the value as of April 30, 2017. |
The following abbreviations are used in the preceding pages:
ADR—American Depositary Receipt
CAD—Canadian Dollar
EUR—Euro
GBP—British Pound Sterling
TBD—To Be Determined
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 25 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
The following is a summary of the fair valuations according to the inputs used as of April 30, 2017, 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 | $ | — | $ | 3,531,609 | $ | — | $ | 3,531,609 | ||||||||
Corporate Bonds | — | 636,213,098 | — | 636,213,098 | ||||||||||||
Foreign Bonds | — | 1,980,746 | — | 1,980,746 | ||||||||||||
Loan Assignments (b) | — | 103,241,555 | 4,577,500 | 107,819,055 | ||||||||||||
Mortgage-Backed Securities (c) | — | 10,332,671 | 401,451 | 10,734,122 | ||||||||||||
U.S. Government & Federal Agencies | — | 64,178,864 | — | 64,178,864 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Long-Term Bonds | — | 819,478,543 | 4,978,951 | 824,457,494 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Common Stocks (d) | 742,666,487 | — | 8,143 | 742,674,630 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 135,919,312 | — | 135,919,312 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 742,666,487 | 955,397,855 | 4,987,094 | 1,703,051,436 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other Financial Instruments | ||||||||||||||||
Foreign Currency Forward Contracts (e) | 3,522,269 | — | — | 3,522,269 | ||||||||||||
Futures Contracts (e) | 6,463,637 | — | — | 6,463,637 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Other Financial Instruments | 9,985,906 | — | — | 9,985,906 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities and Other Financial Instruments | $ | 752,652,393 | $ | 955,397,855 | $ | 4,987,094 | $ | 1,713,037,342 | ||||||||
|
|
|
|
|
|
|
|
Liability Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Foreign Currency Forward Contracts (e) | $ | (5,791,639 | ) | $ | — | $ | — | $ | (5,791,639 | ) | ||||||
Futures Contracts (e) | (309,426 | ) | — | — | (309,426 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Other Financial Instruments | $ | (6,101,065 | ) | $ | — | $ | — | $ | (6,101,065 | ) | ||||||
|
|
|
|
|
|
|
|
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The Level 3 securities valued at $4,577,500 are held in Health Care—Products and Health Care—Services within the Loan Assignments section of the Portfolio of Investments. |
(c) | The Level 3 security valued at $401,451 is held in Residential Mortgage (Collateralized Mortgage Obligation) within the Mortgage-Backed Securities section of the Portfolio of Investments. |
(d) | The Level 3 security valued at $8,143 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.
For the period ended April 30, 2017, the Fund did not have any transfers between among levels. (See Note 2)
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. |
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, 2016 | 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, 2017 | Change in Unrealized Appreciation (Depreciation) from Investments Still Held at April 30, 2017 (b) | ||||||||||||||||||||||||||||||
Long-Term Bonds | ||||||||||||||||||||||||||||||||||||||||
Loan Assignments | ||||||||||||||||||||||||||||||||||||||||
Health Care—Products | $ | — | $ | 58 | $ | — | $ | (7,683 | ) | $ | 3,042,375 | $ | — | $ | — | $ | — | $ | 3,034,750 | $ | (7,683 | ) | ||||||||||||||||||
Health Care—Services | 1,623,500 | 2,110 | — | (82,860 | ) | — | — | — | — | 1,542,750 | (82,860 | ) | ||||||||||||||||||||||||||||
Mortgage-Backed Securities | ||||||||||||||||||||||||||||||||||||||||
Residential Mortgages (Collateralized Mortgage Obligations) | 422,378 | — | — | 5,397 | — | (26,324 | ) | — | — | 401,451 | 1,336 | |||||||||||||||||||||||||||||
Common Stocks | ||||||||||||||||||||||||||||||||||||||||
Media | 6,425 | — | — | 1,718 | — | — | — | — | 8,143 | 1,718 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total | $ | 2,052,303 | $ | 2,168 | $ | — | $ | (83,428 | ) | $ | 3,042,375 | $ | (26,324 | ) | $ | — | $ | — | $ | 4,987,094 | $ | (87,489 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Sales include principal reductions. |
(b) | Included in “Net change in unrealized appreciation (depreciation) on investments” in the Statement of Operations. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 27 |
Statement of Assets and Liabilities as of April 30, 2017 (Unaudited)
Assets | ||||
Investment in securities, at value | $ | 1,703,051,436 | ||
Cash collateral on deposit at broker | 17,848,930 | |||
Cash denominated in foreign currencies | 16,062 | |||
Receivables: | ||||
Dividends and interest | 10,267,609 | |||
Variation margin on futures contracts | 186,184 | |||
Fund shares sold | 4,358,595 | |||
Investment securities sold | 3,180,537 | |||
Other assets | 100,162 | |||
Unrealized appreciation on foreign currency forward contracts | 3,522,269 | |||
|
| |||
Total assets | 1,742,531,784 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 32,126,274 | |||
Fund shares redeemed | 3,546,185 | |||
Manager (See Note 3) | 849,195 | |||
NYLIFE Distributors (See Note 3) | 395,903 | |||
Transfer agent (See Note 3) | 357,312 | |||
Shareholder communication | 89,083 | |||
Professional fees | 56,011 | |||
Custodian | 44,378 | |||
Trustees | 2,772 | |||
Accrued expenses | 26,187 | |||
Dividend payable | 408,266 | |||
Unrealized depreciation on foreign currency forward contracts | 5,791,639 | |||
|
| |||
Total liabilities | 43,693,205 | |||
|
| |||
Net assets | $ | 1,698,838,579 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 880,937 | ||
Additional paid-in capital | 1,615,699,257 | |||
|
| |||
1,616,580,194 | ||||
Undistributed net investment income | 4,793,388 | |||
Accumulated net realized gain (loss) on investments, unfunded commitments, futures transactions and foreign currency transactions | (2,594,055 | ) | ||
Net unrealized appreciation (depreciation) on investments and futures contracts | 82,104,286 | |||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (2,045,234 | ) | ||
|
| |||
Net assets | $ | 1,698,838,579 | ||
|
|
Class A | ||||
Net assets applicable to outstanding shares | $ | 568,040,522 | ||
|
| |||
Shares of beneficial interest outstanding | 29,583,264 | |||
|
| |||
Net asset value per share outstanding | $ | 19.20 | ||
Maximum sales charge (5.50% of offering price) | 1.12 | |||
|
| |||
Maximum offering price per share outstanding | $ | 20.32 | ||
|
| |||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 155,774,043 | ||
|
| |||
Shares of beneficial interest outstanding | 8,108,031 | |||
|
| |||
Net asset value per share outstanding | $ | 19.21 | ||
Maximum sales charge (5.50% of offering price) | 1.12 | |||
|
| |||
Maximum offering price per share outstanding | $ | 20.33 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 41,910,822 | ||
|
| |||
Shares of beneficial interest outstanding | 2,168,689 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 19.33 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 260,573,220 | ||
|
| |||
Shares of beneficial interest outstanding | 13,507,811 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 19.29 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 668,837,385 | ||
|
| |||
Shares of beneficial interest outstanding | 34,532,994 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 19.37 | ||
|
| |||
Class R2 | ||||
Net assets applicable to outstanding shares | $ | 3,556,194 | ||
|
| |||
Shares of beneficial interest outstanding | 185,327 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 19.19 | ||
|
| |||
Class R3 | ||||
Net assets applicable to outstanding shares | $ | 146,393 | ||
|
| |||
Shares of beneficial interest outstanding | 7,625 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 19.20 | ||
|
|
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. |
Statement of Operations for the six months ended April 30, 2017 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Interest (a) | $ | 15,742,569 | ||
Dividends (b) | 13,593,280 | |||
Other income | 1,091 | |||
|
| |||
Total income | 29,336,940 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 4,940,540 | |||
Distribution/Service—Class A (See Note 3) | 706,747 | |||
Distribution/Service—Investor Class (See Note 3) | 191,203 | |||
Distribution/Service—Class B (See Note 3) | 209,464 | |||
Distribution/Service—Class C (See Note 3) | 1,263,243 | |||
Distribution/Service—Class R2 (See Note 3) | 2,468 | |||
Distribution/Service—Class R3 (See Note 3) | 225 | |||
Transfer agent (See Note 3) | 1,084,183 | |||
Shareholder communication | 117,047 | |||
Registration | 84,034 | |||
Professional fees | 66,614 | |||
Custodian | 50,236 | |||
Trustees | 20,111 | |||
Interest expense | 1,276 | |||
Shareholder service (See Note 3) | 1,033 | |||
Miscellaneous | 43,026 | |||
|
| |||
Total expenses | 8,781,450 | |||
|
| |||
Net investment income (loss) | 20,555,490 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 15,377,693 | |||
Futures transactions | 24,450,196 | |||
Foreign currency transactions | 5,343,033 | |||
|
| |||
Net realized gain (loss) on investments, futures transactions and foreign currency transactions | 45,170,922 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments and unfunded commitments | 31,686,157 | |||
Futures contracts | 11,872,690 | |||
Translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (6,177,626 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on investments, unfunded commitments, futures contracts and foreign currency transactions | 37,381,221 | |||
|
| |||
Net realized and unrealized gain (loss) on investments, unfunded commitments, futures transactions and foreign currency transactions | 82,552,143 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 103,107,633 | ||
|
|
(a) | Interest recorded net of foreign withholding taxes in the amount of $2,884. |
(b) | Dividends recorded net of foreign withholding taxes in the amount of $802,717. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 29 |
Statements of Changes in Net Assets
for the six months ended April 30, 2017 (Unaudited) and the year ended October 31, 2016
2017 | 2016 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 20,555,490 | $ | 47,145,888 | ||||
Net realized gain (loss) on investments, futures transactions and foreign currency transactions | 45,170,922 | (22,993,779 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments, unfunded commitments, futures contracts and foreign currency transactions | 37,381,221 | 29,111,470 | ||||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 103,107,633 | 53,263,579 | ||||||
|
| |||||||
Dividends and distributions to shareholders: | ||||||||
From net investment income: | ||||||||
Class A | (8,908,140 | ) | (18,845,332 | ) | ||||
Investor Class | (2,291,810 | ) | (4,941,822 | ) | ||||
Class B | (442,057 | ) | (1,008,072 | ) | ||||
Class C | (2,660,952 | ) | (5,780,002 | ) | ||||
Class I | (10,099,287 | ) | (18,612,750 | ) | ||||
Class R2 | (33,006 | ) | (9,899 | ) | ||||
Class R3 | (1,131 | ) | (767 | ) | ||||
|
| |||||||
(24,436,383 | ) | (49,198,644 | ) | |||||
|
| |||||||
From net realized gain on investments: | ||||||||
Class A | — | (18,546,003 | ) | |||||
Investor Class | — | (4,978,803 | ) | |||||
Class B | — | (1,339,617 | ) | |||||
Class C | — | (7,349,774 | ) | |||||
Class I | — | (15,949,233 | ) | |||||
Class R2 | — | (6,680 | ) | |||||
|
| |||||||
— | (48,170,110 | ) | ||||||
|
| |||||||
Total dividends and distributions to shareholders | (24,436,383 | ) | (97,368,754 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 243,764,848 | 482,452,593 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 21,482,409 | 88,232,030 | ||||||
Cost of shares redeemed | (212,378,896 | ) | (495,069,609 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | 52,868,361 | 75,615,014 | ||||||
|
| |||||||
Net increase (decrease) in net assets | 131,539,611 | 31,509,839 |
2017 | 2016 | |||||||
Net Assets | ||||||||
Beginning of period | 1,567,298,968 | 1,535,789,129 | ||||||
|
| |||||||
End of period | $ | 1,698,838,579 | $ | 1,567,298,968 | ||||
|
| |||||||
Undistributed net investment income at end of period | $ | 4,793,388 | $ | 8,674,281 | ||||
|
|
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 A | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 18.30 | $ | 18.79 | $ | 20.51 | $ | 19.83 | $ | 17.46 | $ | 15.92 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.24 | 0.58 | 0.68 | 0.82 | 0.69 | 0.67 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.96 | (0.17 | ) | (0.98 | ) | 0.96 | 2.43 | 1.40 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.30 | 0.15 | 0.14 | (0.06 | ) | 0.14 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 1.19 | 0.71 | (0.15 | ) | 1.92 | 3.06 | 2.21 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.29 | ) | (0.61 | ) | (0.70 | ) | (0.72 | ) | (0.69 | ) | (0.67 | ) | ||||||||||||||||
From net realized gain on investments | — | (0.59 | ) | (0.87 | ) | (0.52 | ) | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.29 | ) | (1.20 | ) | (1.57 | ) | (1.24 | ) | (0.69 | ) | (0.67 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 19.20 | $ | 18.30 | $ | 18.79 | $ | 20.51 | $ | 19.83 | $ | 17.46 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 6.56 | % | 4.08 | % | (0.81 | %) | 10.08 | % | 17.90 | % | 14.16 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 2.63 | %†† | 3.21 | % | 3.49 | % | 4.06 | % | 3.71 | % | 4.03 | % | ||||||||||||||||
Net expenses | 1.01 | %†† | 1.02 | % | 1.02 | % | 1.01 | % | 1.04 | % | 1.06 | % | ||||||||||||||||
Portfolio turnover rate | 17 | % | 27 | % | 30 | % | 15 | % | 31 | % | 25 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 568,041 | $ | 574,390 | $ | 581,920 | $ | 497,591 | $ | 397,101 | $ | 292,603 |
* | 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. For periods of less than one year, total return is not annualized |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Investor Class | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 18.31 | $ | 18.80 | $ | 20.52 | $ | 19.84 | $ | 17.46 | $ | 15.93 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.23 | 0.56 | 0.65 | 0.78 | 0.64 | 0.62 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.96 | (0.16 | ) | (0.99 | ) | 0.95 | 2.44 | 1.39 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.28 | 0.15 | 0.14 | (0.06 | ) | 0.14 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 1.18 | 0.68 | (0.19 | ) | 1.87 | 3.02 | 2.15 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.28 | ) | (0.58 | ) | (0.66 | ) | (0.67 | ) | (0.64 | ) | (0.62 | ) | ||||||||||||||||
From net realized gain on investments | — | (0.59 | ) | (0.87 | ) | (0.52 | ) | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.28 | ) | (1.17 | ) | (1.53 | ) | (1.19 | ) | (0.64 | ) | (0.62 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 19.21 | $ | 18.31 | $ | 18.80 | $ | 20.52 | $ | 19.84 | $ | 17.46 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 6.48 | % | 3.93 | % | (0.97 | %) | 9.83 | % | 17.62 | % | 13.72 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 2.51 | %†† | 3.09 | % | 3.34 | % | 3.89 | % | 3.46 | % | 3.73 | % | ||||||||||||||||
Net expenses | 1.14 | %†† | 1.16 | % | 1.18 | % | 1.23 | % | 1.32 | % | 1.37 | % | ||||||||||||||||
Portfolio turnover rate | 17 | % | 27 | % | 30 | % | 15 | % | 31 | % | 25 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 155,774 | $ | 153,137 | $ | 159,798 | $ | 165,088 | $ | 168,097 | $ | 160,758 |
* | 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. For periods of less than one year, total 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. | 31 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class B | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 18.40 | $ | 18.89 | $ | 20.61 | $ | 19.93 | $ | 17.54 | $ | 15.99 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.16 | 0.42 | 0.51 | 0.63 | 0.51 | 0.50 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.98 | (0.17 | ) | (0.99 | ) | 0.96 | 2.44 | 1.40 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.30 | 0.15 | 0.14 | (0.06 | ) | 0.14 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 1.13 | 0.55 | (0.33 | ) | 1.73 | 2.89 | 2.04 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.20 | ) | (0.45 | ) | (0.52 | ) | (0.53 | ) | (0.50 | ) | (0.49 | ) | ||||||||||||||||
From net realized gain on investments | — | (0.59 | ) | (0.87 | ) | (0.52 | ) | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.20 | ) | (1.04 | ) | (1.39 | ) | (1.05 | ) | (0.50 | ) | (0.49 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 19.33 | $ | 18.40 | $ | 18.89 | $ | 20.61 | $ | 19.93 | $ | 17.54 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 6.09 | % | 3.20 | % | (1.70 | %) | 8.99 | % | 16.74 | % | 12.87 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 1.76 | %†† | 2.34 | % | 2.60 | % | 3.14 | % | 2.73 | % | 2.99 | % | ||||||||||||||||
Net expenses | 1.89 | %†† | 1.91 | % | 1.93 | % | 1.98 | % | 2.07 | % | 2.12 | % | ||||||||||||||||
Portfolio turnover rate | 17 | % | 27 | % | 30 | % | 15 | % | 31 | % | 25 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 41,911 | $ | 42,253 | $ | 44,441 | $ | 49,283 | $ | 51,138 | $ | 51,233 |
* | 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. For periods of less than one year, total return is not annualized |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class C | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 18.37 | * | $ | 18.86 | $ | 20.58 | $ | 19.90 | $ | 17.52 | $ | 15.97 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.16 | 0.42 | 0.50 | 0.60 | 0.49 | 0.49 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.97 | (0.17 | ) | (0.98 | ) | 0.98 | 2.45 | 1.41 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.30 | 0.15 | 0.15 | (0.06 | ) | 0.14 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 1.12 | 0.55 | (0.33 | ) | 1.73 | 2.88 | 2.04 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.20 | ) | (0.45 | ) | (0.52 | ) | (0.53 | ) | (0.50 | ) | (0.49 | ) | ||||||||||||||||
From net realized gain on investments | — | (0.59 | ) | (0.87 | ) | (0.52 | ) | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.20 | ) | (1.04 | ) | (1.39 | ) | (1.05 | ) | (0.50 | ) | (0.49 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 19.29 | $ | 18.37 | $ | 18.86 | $ | 20.58 | $ | 19.90 | $ | 17.52 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 6.11 | % | 3.15 | % | (1.70 | %) | 9.01 | % | 16.70 | % | 12.96 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 1.76 | %†† | 2.32 | % | 2.58 | % | 3.00 | % | 2.61 | % | 2.88 | % | ||||||||||||||||
Net expenses | 1.89 | %†† | 1.91 | % | 1.93 | % | 1.98 | % | 2.07 | % | 2.12 | % | ||||||||||||||||
Portfolio turnover rate | 17 | % | 27 | % | 30 | % | 15 | % | 31 | % | 25 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 260,573 | $ | 254,312 | $ | 235,811 | $ | 131,023 | $ | 55,889 | $ | 22,444 |
* | 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. For periods of less than one year, total return is not annualized. |
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. |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class I | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 18.46 | $ | 18.95 | $ | 20.66 | $ | 19.97 | $ | 17.57 | $ | 16.02 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.27 | 0.63 | 0.73 | 0.87 | 0.74 | 0.72 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.97 | (0.16 | ) | (0.98 | ) | 0.96 | 2.46 | 1.40 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.28 | 0.15 | 0.15 | (0.06 | ) | 0.14 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 1.23 | 0.75 | (0.10 | ) | 1.98 | 3.14 | 2.26 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.32 | ) | (0.65 | ) | (0.74 | ) | (0.77 | ) | (0.74 | ) | (0.71 | ) | ||||||||||||||||
From net realized gain on investments | — | (0.59 | ) | (0.87 | ) | (0.52 | ) | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.32 | ) | (1.24 | ) | (1.61 | ) | (1.29 | ) | (0.74 | ) | (0.71 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 19.37 | $ | 18.46 | $ | 18.95 | $ | 20.66 | $ | 19.97 | $ | 17.57 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 6.71 | % | 4.30 | % | (0.51 | %) | 10.33 | % | 18.25 | % | 14.41 | % | ||||||||||||||||
Ratios of net investment income (loss) to average net assets: | ||||||||||||||||||||||||||||
Net investment income (loss) | 2.90 | %†† | 3.44 | % | 3.75 | % | 4.29 | % | 3.97 | % | 4.28 | % | ||||||||||||||||
Net expenses | 0.76 | %†† | 0.77 | % | 0.77 | % | 0.76 | % | 0.79 | % | 0.81 | % | ||||||||||||||||
Portfolio turnover rate | 17 | % | 27 | % | 30 | % | 15 | % | 31 | % | 25 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 668,837 | $ | 542,330 | $ | 513,629 | $ | 430,408 | $ | 286,425 | $ | 204,611 |
* | 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. For periods of less than one year, total return is not annualized. |
Class R2 | Six months ended April 30, 2017* | Year ended October 31, 2016 | February 27, 2015** through October 31, 2015 | |||||||||||||
Net asset value at beginning of period | $ | 18.29 | $ | 18.78 | $ | 20.08 | ||||||||||
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.23 | 0.55 | 0.36 | |||||||||||||
Net realized and unrealized gain (loss) on investments | 0.96 | (0.19 | ) | (1.35 | ) | |||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.33 | 0.20 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total from investment operations | 1.18 | 0.69 | (0.79 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||
From net investment income | (0.28 | ) | (0.59 | ) | (0.51 | ) | ||||||||||
From net realized gain on investments | — | (0.59 | ) | — | ||||||||||||
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.28 | ) | (1.18 | ) | (0.51 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Net asset value at end of period | $ | 19.19 | $ | 18.29 | $ | 18.78 | ||||||||||
|
|
|
|
|
| |||||||||||
Total investment return (b) | 6.52 | % | 3.99 | % | (3.92 | %)(c) | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||
Net investment income (loss) | 2.47 | %†† | 3.03 | % | 2.90 | % †† | ||||||||||
Net expenses | 1.10 | %†† | 1.12 | % | 1.12 | % †† | ||||||||||
Portfolio turnover rate | 17 | % | 27 | % | 30 | % | ||||||||||
Net assets at end of period (in 000’s) | $ | 3,556 | $ | 838 | $ | 190 |
* | 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 R2 shares are not subject to sales charges. For periods of less than one year, total 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. | 33 |
Financial Highlights selected per share data and ratios
Class R3 | Six months ended April 30, 2017* | February 29, 2016** through October 31, 2016 | ||||||
Net asset value at beginning of period | $ | 18.30 | $ | 17.10 | ||||
|
|
|
| |||||
Net investment income (loss) (a) | 0.23 | 0.35 | ||||||
Net realized and unrealized gain (loss) on investments | 0.94 | (1.69 | ) | |||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 2.95 | |||||
|
|
|
| |||||
Total from investment operations | 1.16 | 1.61 | ||||||
|
|
|
| |||||
Less dividends: | ||||||||
From net investment income | (0.26 | ) | (0.41 | ) | ||||
|
|
|
| |||||
Net asset value at end of period | $ | 19.20 | $ | 18.30 | ||||
|
|
|
| |||||
Total investment return (b) | 6.36 | % | 9.42 | % | ||||
Ratios (to average net assets)/Supplemental Data: | ||||||||
Net investment income (loss)†† | 2.42 | % | 2.81 | % | ||||
Net expenses†† | 1.35 | % | 1.36 | % | ||||
Portfolio turnover rate | 17 | % | 27 | % | ||||
Net assets at end of period (in 000’s) | $ | 146 | $ | 39 |
* | 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 R3 shares are not subject to sales charges. For periods of less than one year, total return is not annualized. |
34 | 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, as that term is defined in the 1940 Act, as interpreted or modified by regulatory authorities having jurisdiction, from time to time.
The Fund currently offers nine 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. Class R2 shares commenced operations on February 27, 2015. Class R3 shares commenced operations on February 29, 2016. Class R6 and Class T shares of the Fund were registered for sale effective as of February 28, 2017. As of the period ended April 30, 2017, Class R6 and Class T shares had no investment operations.
Effective February 28, 2017, Class B shares of the MainStay Group of Funds were closed to all new purchases as well as additional investments by existing Class B shareholders. Existing Class B shareholders may continue to reinvest dividends and capital gains distributions, as well as exchange their Class B shares for Class B shares of other Funds as permitted by the current exchange privileges. Class B shareholders continue to be subject to any applicable contingent deferred sales charge (“CDSC”) at the time of redemption. All other features of the Class B shares, including but not limited to the fees and expenses applicable to Class B shares, remain unchanged. Unless redeemed, Class B shareholders will remain in Class B shares of their respective Fund until the Class B shares are converted to Class A or Investor Class shares pursuant to the applicable conversion schedule.
Class A and Investor Class shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No initial sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Class A and Investor Class shares. Effective August 1, 2017, a CDSC of 1.00% may be imposed on certain redemptions of Class A and Investor Class shares made within 18 months of the date of purchase on shares that were purchased without an initial sales charge. For purchases of Class A and Investor Class shares made from January 1, 2017 through July 31, 2017, a CDSC of 1.00% may be imposed on certain redemptions made within 24 months of the date of purchase on shares that were purchased without an initial sales charge. For purchases of Class A and Investor Class shares made prior to January 1, 2017, a CDSC of 1.00% may be imposed on certain redemptions made within one year of the date of purchase on shares that were purchased without an initial sales charge. Class C shares are offered at NAV without an initial sales charge, although a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. When Class B Shares were offered, they were offered at NAV without an initial sales charge, although a CDSC that declines depending on the number of years a shareholder has held its Class B shares may be imposed on redemptions made within
six years of the date of purchase of such shares. Class T shares are offered at NAV per share plus an initial sales charge. Class I, 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 Class A or Investor Class shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Class A shares may convert to Investor Class shares and Investor Class shares may convert to Class A shares. Under certain circumstances and as may be permitted by the Trust’s multiple class plan under Rule 18f-3 of the 1940 Act, an exchange/conversion may be made from specified share classes of the Fund to one or more other share classes of the Fund as disclosed in the capital share transactions within these Notes. 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 under distribution plans pursuant to Rule 12b-1 under the 1940 Act, Class B and Class C shares are subject to higher distribution and/or service fee rates than Class A, Investor Class, Class T, Class R2 and Class R3 shares. Class I and Class R6 shares are not subject to a distribution and/or service fee. 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 current income consistent with reasonable opportunity for future growth of capital and income.
Note 2–Significant Accounting Policies
The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services—Investment Companies. 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 usually valued as of the close of regular trading on the New York Stock Exchange (the “Exchange”) (usually 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 establishing methodologies for the valuation of the Fund’s securities and other assets and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Trust (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 establishing the prices of securities for which market quotations are not readily available or the prices of which are not otherwise readily determinable under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. Subsequently, the Valuation Committee meets 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 the day-to-day valuation of portfolio assets (including fair value measurements for the Fund’s assets and liabilities) 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.
35 |
Notes to Financial Statements (Unaudited) (continued)
To assess the appropriateness of security valuations, the Manager, Subadvisors 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 with changes 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, if appropriate, 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 or other asset is submitted by the Valuation Committee to the Board for its review and ratification, if appropriate, at its next regularly scheduled meeting.
“Fair value” is defined as the price the Fund would reasonably expect to 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 establishes 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 assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities. 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) |
The level of an asset or liability within the fair value hierarchy is based on the lowest level of an input, both individually and in the aggregate, that is significant to the fair value measurement. As of April 30, 2017, the aggregate value by input level of the Fund’s assets and 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 is valued by methods deemed reasonable 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. Fair value represents a good faith approximation of the value of a security. Fair value determinations involve the consideration of a number of subjective factors, an analysis of applicable facts and circumstances and the exercise of judgment. As a result, it is possible that the fair value for a security determined in good faith in accordance with the Fund’s valuation procedures may differ from valuations for the same security determined by other funds using their own valuation procedures. Although the Fund’s valuation procedures are designed to value a security at the price the Fund may reasonably expect to receive upon its sale in an orderly transaction, there can be no assurance that any fair value determination thereunder would, in fact, approximate the amount that the Fund would actually realize upon the sale of the security or the price at which the security would trade if a reliable market price were readily available. During the six-month period ended April 30, 2017, there were 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 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, 2017, securities that were fair valued in such a manner are shown in the Portfolio of Investments.
Certain securities held by the Fund may principally trade in foreign markets. Events may occur between the time the foreign markets close and the time at which the Fund’s NAVs are calculated. These events
36 | MainStay Income Builder Fund |
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 certain thresholds. In such cases, the securities are fair valued by applying factors provided by a third party vendor in accordance with valuation procedures adopted by the Board and are generally categorized as Level 2 in the hierarchy. As of April 30, 2017, no foreign equity securities held by the Fund were fair valued in such a manner.
Equity securities are valued at the last quoted sales prices as of the close of regular trading on the relevant 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. 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 brokers selected by the Manager, in consultation with the Subadvisors. Those values reflect broker/dealer supplied prices and electronic data processing techniques, if the evaluated bid or mean 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, convertible bonds, asset-backed securities and mortgage-backed 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 service and are generally categorized as Level 2 in the hierarchy. Certain loan assignments, participations and commitments may be valued by utilizing significant unobservable inputs obtained from the pricing service and are generally categorized as Level 3 in the hierarchy. As of April 30, 2017, the Fund held loan assignments categorized as Level 3 securities with a value of $4,577,500 that were valued by utilizing significant unobservable inputs.
Temporary cash investments acquired in excess of 60 days to maturity at the time of purchase 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 using the amortized cost method of valuation, unless the use of such method would be inappropriate. 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 using the amortized cost method are not valued using quoted prices in an active market and are generally categorized as Level 2 in the hierarchy.
The information above is not intended to reflect an exhaustive list of the methodologies that may be used to value portfolio investments. The valuation procedures permit the use of a variety of valuation methodologies in connection with valuing portfolio investments. The methodology used for a specific type of investment may vary based on the market data available or other considerations. The methodologies summarized above may not represent the specific means by which portfolio investments are valued on any particular business day.
A Fund security or other asset may be determined to be illiquid under procedures approved by the Board. Illiquidity of a security 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 the 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 materially 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 determine 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 are often valued in accordance with methods deemed by the Board in good faith to be reasonable and appropriate to accurately reflect their fair value. The liquidity of the Fund’s investments, as shown in the Portfolio of Investments, was determined as of April 30, 2017 and can change at any time in response to, among other relevant factors, market conditions or events or developments with respect to an individual issuer or instrument. As of April 30, 2017, securities deemed to be illiquid under procedures approved by the Board are shown in the Portfolio of Investments.
(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 its 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
37 |
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 permitted only to the extent 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 it invests. 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, 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 during the six-month period ended April 30, 2017, the Fund, 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 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 and includes any realized gains and losses from repayments of principal on mortgage-backed securities. 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. 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 accreted daily based on the effective interest method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated pro rata to separate classes of shares 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 security on non-accrual status and reduce related interest income by ceasing current accruals and writing off all or a portion of any interest receivables when the collection of all or a portion of such interest has become doubtful. A debt security 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/or 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 the Fund to the seller secured by the securities transferred to the Fund.
When the Fund enters into 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 participations (“loans”). Commitments are agreements to make money available to a borrower in a specified amount, at a specified rate and within a specified time. The Fund records an investment when the borrower withdraws money on a commitment or when a funded loan is purchased (trade date) and
38 | MainStay Income Builder Fund |
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. If the Fund purchases an assignment from a lender, the Fund will generally have direct contractual rights against the borrower in favor of the lender. If the Fund purchases a participation interest either from a lender or a participant, the Fund typically will have established a direct contractual relationship with the seller of the participation interest, but not with the borrower. Consequently, the Fund is subject to the credit risk of the lender or participant who sold the participation interest to the Fund, in addition to the usual credit risk of the borrower. 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. Unfunded amounts, if any, are marked to market and any unrealized gains or losses are recorded in the Statement of Assets and Liabilities. As of April 30, 2017, the Fund did not hold any unfunded commitments.
(J) Futures Contracts. A futures contract is an agreement to purchase or sell a specified quantity of an underlying instrument at a specified future date and price, or to make or receive a cash payment based on the value of a financial instrument (e.g., foreign currency, interest rate, security, or securities index). The Fund is subject to risks such as market price risk and/or interest rate risk in the normal course of investing in these transactions. Upon entering into a futures contract, the Fund is required to pledge to the broker or futures commission merchant an amount of cash and/or U.S. Government securities equal to a certain percentage of the collateral amount, known as the “initial margin.” 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 or futures commission merchant 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. There are several risks associated with the use of futures contracts as hedging techniques. There can be no assurance that a liquid market will exist at the time when the Fund seeks to close out a futures contract. If no liquid market exists, the Fund would remain
obligated to meet margin requirements until the position is closed. Futures may involve a small initial investment relative to the risk assumed, which could result in losses greater than if they had not been used. Futures may be more volatile than direct investments in the instrument underlying the futures, and may not correlate to the underlying instrument, causing a given hedge not to achieve its objectives. 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 the entire 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 increase the equity sensitivity to the Fund. The Fund’s investment in futures contracts and other derivatives may increase the volatility of the Fund’s NAVs and may result in a loss to the Fund. As of April 30, 2017, all open futures are shown in the Portfolio of Investments.
(K) Foreign Currency Forward Contracts. The Fund may enter into foreign currency forward contracts, which are agreements to buy or sell foreign currencies 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 risk in excess of the amount recognized in the Statement of Assets and Liabilities, including counterparty risk, market risk, and illiquidity risk. Counterparty risk is heightened for these instruments because foreign currency forward contracts are not exchange-traded and therefore no clearinghouse or exchange stands ready to meet the obligations under such contracts. Thus, the Fund faces the risk that its counterparties under such contracts may not perform their obligations. Market risk is the risk that the value of a foreign currency forward contract will depreciate due to unfavorable changes in exchange rates. Illiquidity risk arises because the secondary market for foreign currency forward contracts may have less liquidity relative to markets for other securities and financial instruments. Risks also arise from the possible movements in the foreign exchange rates underlying these instruments. While the Fund may enter into forward
39 |
Notes to Financial Statements (Unaudited) (continued)
contracts to reduce currency exchange risks, changes in currency exchange rates may result in poorer overall performance for the Fund than if it had not engaged in such transactions. Exchange rate movements can be large, depending on the currency, and can last for extended periods of time, affecting the value of the Fund’s assets. Moreover, there may be an imperfect correlation between the Fund’s holdings of securities denominated in a particular currency and 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 also reflects the Fund’s exposure at the valuation date to credit loss in the event of a counterparty’s failure to perform its obligations.
(L) Foreign Currency Transactions. The Fund’s books and records are maintained 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) 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 (“SEC”). 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 collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund against counterparty risk. The loans will be collateralized by U.S. Treasury securities at least equal at all times to the market value of the securities loaned. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record a realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund bears the risk of any loss on investment of the collateral. The Fund will receive compensation for lending its securities in the form of fees or it will retain a portion of interest on the investment of any cash received as collateral. The Fund will also
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. During the six-month period ended April 30, 2017, the Fund did not have any portfolio securities on loan.
(N) Restricted Securities. Restricted securities, as disclosed in Note 5, are securities which have 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.
(O) Securities Risk. The Fund may invest in high-yield debt 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 higher interest rate or yield than investment grade debt securities — because of the increased risk of loss. These securities can also be subject to greater price volatility. In times of unusual or adverse market, economic or political conditions, these securities may experience higher than normal default rates.
The Fund may invest in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic securities. 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 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 rated debt securities. These investments pay investors a higher interest rate than investment grade debt securities 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 investments could decline significantly. As a result, the Fund’s NAVs could go down and you could lose money.
In addition, loans generally are subject to extended settlement periods that may be longer than seven days. As a result, the Fund may be adversely affected by selling other investments at an unfavorable time and/or under unfavorable conditions or engaging in borrowing transactions, such as borrowing against its credit facility, to raise cash to meet redemption obligations or pursue other investment opportunities.
The Fund may invest in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic securities. 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
40 | MainStay Income Builder 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 rated debt securities. These investments pay investors a higher interest rate than investment grade debt securities 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 investments could decline significantly. As a result of these and other events, the Fund’s NAVs could go down and you could lose money.
In addition, loans generally are subject to the extended settlement periods that may be longer than seven days. As a result, the Fund may be adversely affected by selling other investments at an unfavorable time and/or under unfavorable conditions or engaging in borrowing transactions, such as borrowing against its credit facility, to raise cash to meet redemption obligations or pursue other investment opportunities. In certain circumstances, floating rate loans may not be deemed to be securities. As a result, the fund may not have the protection of anti-fraud provisions of the federal securities laws. In such cases, the Fund generally must rely on the contractual provisions in the loan agreement and common-law fraud protections under applicable state law.
(P) 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.
(Q) Quantitative Disclosure of Derivative Holdings. The following tables show additional disclosures related to 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. The Fund entered into Treasury 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 also entered into domestic and foreign equity index futures contracts to increase the equity sensitivity to the Fund. Foreign currency forward contracts were used to gain exposure to a particular currency or to hedge against the risk of loss due to changing currency exchange rates. These derivatives are not accounted for as hedging instruments.
Fair value of derivative instruments as of April 30, 2017:
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 on investments and futures contracts (a) | $ | — | $ | 4,439,727 | $ | 2,023,910 | $ | 6,463,637 | |||||||||
Forward Contracts | Unrealized appreciation on foreign currency forward contracts | 3,522,269 | — | — | 3,522,269 | |||||||||||||
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Total Fair Value | $ | 3,522,269 | $ | 4,439,727 | $ | 2,023,910 | $ | 9,985,906 | ||||||||||
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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 depreciation on investments and futures contracts (a) | $ | — | $ | (308,786 | ) | $ | (640 | ) | $ | (309,426 | ) | ||||||
Forward Contracts | Unrealized depreciation on foreign currency forward contracts | (5,791,639 | ) | — | — | (5,791,639 | ) | |||||||||||
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| |||||||||||||||
Total Fair Value | $ | (5,791,639 | ) | $ | (308,786 | ) | $ | (640 | ) | $ | (6,101,065 | ) | ||||||
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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. |
41 |
Notes to Financial Statements (Unaudited) (continued)
The effect of derivative instruments on the Statement of Operations for the year ended April 30, 2017:
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 | $ | — | $ | 6,540,069 | $ | 17,910,127 | $ | 24,450,196 | |||||||||
Forward Contracts | Net realized gain (loss) on foreign currency transactions | 5,415,537 | — | — | 5,415,537 | |||||||||||||
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| |||||||||||||||
Total Realized Gain (Loss) | $ | 5,415,537 | $ | 6,540,069 | $ | 17,910,127 | $ | 29,865,733 | ||||||||||
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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 | $ | — | $ | (1,427,343 | ) | $ | 13,300,033 | $ | 11,872,690 | ||||||||
Forward Contracts | Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (6,879,759 | ) | — | — | (6,879,759 | ) | |||||||||||
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| |||||||||||||||
Total Change in Unrealized Appreciation (Depreciation) | $ | (6,879,759 | ) | $ | (1,427,343 | ) | $ | 13,300,033 | $ | 4,992,931 | ||||||||
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Average Notional Amount
Foreign Exchange Contracts Risk | Equity Contracts Risk | Interest Rate | Total | |||||||||||||
Futures Contracts Long | $ | — | $ | 289,771,925 | $ | 185,833,952 | $ | 475,605,877 | ||||||||
Futures Contracts Short (a) | $ | — | $ | — | $ | (54,605,839 | ) | $ | (54,605,839 | ) | ||||||
Forward Contracts Long | $ | 58,306,160 | $ | — | $ | — | $ | 58,306,160 | ||||||||
Forward Contracts Short | $ | (208,929,650 | ) | $ | — | $ | — | $ | (208,929,650 | ) | ||||||
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|
(a) | Positions were open three months during the reporting period. |
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 attributable to 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 the 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” and, together with MacKay Shields, the “Subadvisors”), 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.
Under the Management Agreement, 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
42 | MainStay Income Builder Fund |
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. During the six-month period ended April 30, 2017, the effective management fee rate was 0.60% inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets.
During the six-month period ended April 30, 2017, New York Life Investments earned fees from the Fund in the amount of $4,940,540.
State Street 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 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 Class A, Investor Class, Class T and Class R2 Plans, the Distributor receives a monthly distribution fee from the Class A, Investor Class, Class T and Class R2 shares at an annual rate of 0.25% of the average daily net assets of the Class A, Investor Class, Class T 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 R6 shares are not subject to a distribution and/or service fee.
The Plans provide that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund’s shares and service activities.
In accordance with the Shareholder Services Plan for the Class 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 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 R2 and Class R3 shares. This is in addition to any fees paid under a distribution plan, where applicable.
During the six-month period ended April 30, 2017, shareholder service fees incurred by the Fund were as follows:
Class R2 | $ | 988 | ||
Class R3 | 45 |
(C) Sales Charges. During the six-month period ended April 30, 2017, the Fund was advised by the Distributor that the amount of initial sales charges retained on sales of Class A and Investor Class shares were $81,133 and $24,413, respectively.
During the six-month period ended April 30, 2017, the Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Class B and Class C shares of $3,505, $35,590 and $23,118, respectively.
(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. During the six-month period ended April 30, 2017, transfer agent expenses incurred by the Fund were as follows:
Class A | $ | 276,896 | ||
Investor Class | 176,523 | |||
Class B | 48,344 | |||
Class C | 291,584 | |||
Class I | 289,839 | |||
Class R2 | 954 | |||
Class R3 | 43 |
(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, 2017, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class I | $ | 104,713,336 | 15.7 | % | ||||
Class R2 | 26,607 | 0.7 | ||||||
Class R3 | 29,096 | 19.9 |
Note 4–Federal Income Tax
During the year ended October 31, 2016, the tax character of distributions paid as reflected in the Statements of Changes in Net Assets was as follows:
2016 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 49,199,426 | ||
Long-Term Capital Gain | 48,169,328 | |||
Total | $ | 97,368,754 |
43 |
Notes to Financial Statements (Unaudited) (continued)
Note 5–Restricted Securities
As of April 30, 2017, the Fund held the following restricted security:
Security | Date of Acquisition | Shares | Cost | 4/30/17 Value | Percent of Net Assets | |||||||||||||||
ION Media Networks, Inc. | ||||||||||||||||||||
Common Stock | 3/11/14 | 12 | $ | 21 | $ | 8,143 | 0.0 | %‡ |
‡ | 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 transactions incurred by the Fund.
Note 7–Line of Credit
The Fund and certain other funds managed by New York Life Investments, 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 2, 2016, under an amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $600,000,000 with an additional uncommitted amount of $100,000,000. The commitment fee is an annual rate of 0.15% 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 their respective 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 1, 2017, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 2, 2016, the aggregate commitment amount was $600,000,000 with an additional uncommitted amount of $100,000,000, and the commitment fee was at an annual rate of 0.10% of the average commitment amount. During the six-month period ended April 30, 2017, there were no borrowings made or outstanding with respect to the Fund under the Credit Agreement.
Note 8–Interfund Lending Program
Pursuant to an exemptive order issued by the SEC, the Fund, along with certain other funds managed by New York Life Investments, may participate in an interfund lending program. The interfund lending program provides an alternative credit facility that permits the Fund and certain
other funds managed by New York Life Investments to lend or borrow money for temporary purposes directly to or from one another, subject to the conditions of the exemptive order. During the six-month period ended April 30, 2017, there were no interfund loans made or outstanding with respect to the Fund.
Note 9–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2017, purchases and sales of U.S. government securities were $37,343 and $20, respectively. Purchases and sales of securities, other than U.S. government securities and short-term securities, were $266,322 and $253,314, respectively.
Note 10–Capital Share Transactions
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 3,105,145 | $ | 57,891,971 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 435,551 | 8,149,507 | ||||||
Shares redeemed | (3,425,837 | ) | (63,925,215 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 114,859 | 2,116,263 | ||||||
Shares converted into Class A (See Note 1) | 415,169 | 7,834,633 | ||||||
Shares converted from Class A (See Note 1) | (2,331,932 | ) | (43,696,320 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (1,801,904 | ) | $ | (33,745,424 | ) | |||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 7,841,617 | $ | 142,036,049 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,961,889 | 34,764,982 | ||||||
Shares redeemed | (9,816,306 | ) | (174,240,150 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (12,800 | ) | 2,560,881 | |||||
Shares converted into Class A (See Note 1) | 770,848 | 13,985,721 | ||||||
Shares converted from Class A (See Note 1) | (334,784 | ) | (6,143,586 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 423,264 | $ | 10,403,016 | |||||
|
|
|
| |||||
44 | MainStay Income Builder Fund |
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 308,966 | $ | 5,778,685 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 121,676 | 2,278,018 | ||||||
Shares redeemed | (472,559 | ) | (8,818,435 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (41,917 | ) | (761,732 | ) | ||||
Shares converted into Investor Class (See Note 1) | 152,940 | 2,873,177 | ||||||
Shares converted from Investor Class (See Note 1) | (366,739 | ) | (6,935,622 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (255,716 | ) | $ | (4,824,177 | ) | |||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 494,203 | $ | 8,903,534 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 556,615 | 9,868,926 | ||||||
Shares redeemed | (859,909 | ) | (15,490,433 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 190,909 | 3,282,027 | ||||||
Shares converted into Investor Class (See Note 1) | 342,484 | 6,227,403 | ||||||
Shares converted from Investor Class (See Note 1) | (668,460 | ) | (12,156,033 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (135,067 | ) | $ | (2,646,603 | ) | |||
|
|
|
| |||||
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 152,559 | $ | 2,832,828 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 20,455 | 385,205 | ||||||
Shares redeemed | (156,858 | ) | (2,945,549 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 16,156 | 272,484 | ||||||
Shares converted from Class B (See Note 1) | (143,204 | ) | (2,683,760 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (127,048 | ) | $ | (2,411,276 | ) | |||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 458,845 | $ | 8,357,411 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 120,201 | 2,138,960 | ||||||
Shares redeemed | (331,239 | ) | (5,985,764 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 247,807 | 4,510,607 | ||||||
Shares converted from Class B (See Note 1) | (304,298 | ) | (5,518,950 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (56,491 | ) | $ | (1,008,343 | ) | |||
|
|
|
| |||||
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 1,856,362 | $ | 34,807,138 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 115,359 | 2,168,915 | ||||||
Shares redeemed | (2,306,593 | ) | (43,160,851 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (334,872 | ) | $ | (6,184,798 | ) | |||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 5,044,698 | $ | 91,363,749 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 608,097 | 10,807,452 | ||||||
Shares redeemed | (4,294,052 | ) | (77,182,470 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 1,358,743 | 24,988,731 | ||||||
Shares converted from Class C (See Note 1) | (17,464 | ) | (313,665 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 1,341,279 | $ | 24,675,066 | |||||
|
|
|
| |||||
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 7,395,887 | $ | 139,251,459 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 448,697 | 8,477,777 | ||||||
Shares redeemed | (4,944,409 | ) | (93,022,344 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 2,900,175 | 54,706,892 | ||||||
Shares converted into Class I (See Note 1) | 2,255,457 | 42,607,892 | ||||||
|
|
|
| |||||
Net increase (decrease) | 5,155,632 | $ | 97,314,784 | |||||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 12,617,583 | $ | 231,090,238 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,712,441 | 30,646,033 | ||||||
Shares redeemed | (12,272,978 | ) | (222,155,199 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 2,057,046 | 39,581,072 | ||||||
Shares converted into Class I (See Note 1) | 211,252 | 3,919,110 | ||||||
|
|
|
| |||||
Net increase (decrease) | 2,268,298 | $ | 43,500,182 | |||||
|
|
|
| |||||
Class R2 | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 165,062 | $ | 3,098,823 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,201 | 22,428 | ||||||
Shares redeemed | (26,765 | ) | (503,501 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 139,498 | $ | 2,617,750 | |||||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 36,303 | $ | 664,922 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 273 | 4,910 | ||||||
Shares redeemed | (851 | ) | (15,593 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 35,725 | $ | 654,239 | |||||
|
|
|
| |||||
45 |
Notes to Financial Statements (Unaudited) (continued)
Class R3 | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 5,602 | $ | 103,944 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 30 | 559 | ||||||
Shares redeemed | (161 | ) | (3,001 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 5,471 | $ | 101,502 | |||||
|
|
|
| |||||
Period ended October 31, 2016 (a): | ||||||||
Shares sold | 2,112 | $ | 36,690 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 42 | 767 | ||||||
|
|
|
| |||||
Net increase (decrease) | 2,154 | $ | 37,457 | |||||
|
|
|
|
(a) | Inception date was February 29, 2016. |
Note 11–Recent Accounting Pronouncement
In October 2016, the SEC adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the Fund’s financial statements and related disclosures.
Note 12–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, 2017, events and transactions subsequent to April 30, 2017, 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, other than the following:
46 | MainStay Income Builder Fund |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreements (Unaudited)
Section 15 of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of trustees initially approve and, following an initial term of up to two years, annually review and approve the fund’s investment advisory agreement(s). At its December 12-14, 2016 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 2016 and December 2016, as well as other relevant information furnished to the Board throughout the year. 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 fee and total expenses. The Board also considered information on the fees charged to any other investment advisory clients of New York Life Investments, Epoch and MacKay Shields (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 Epoch 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 Trustees who are not “interested persons” (as such term is defined under the 1940 Act) of the Fund (the “Independent Trustees”). Information provided to the Board in advance of and during meetings throughout the year included, among other items, information regarding the legal standards applicable to their consideration of the Agreements and 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, risk management, portfolio turnover, and sales and marketing activity. At various meetings, the Independent Trustees also met in executive session with their independent legal counsel, and met with senior management of New York Life Investments without other representatives of New York Life Investments present.
Throughout the year and specifically in connection with its June meeting each year, the Board also received an overview of the Funds’ distribution arrangements. In addition, the Board received information regarding the Fund’s asset levels, share purchase and redemption activity and the payment of Rule 12b-1 distribution and service fees by
the Fund. New York Life Investments also provided the Board with information regarding the revenue sharing payments made to intermediaries that promote the sale, distribution, and/or servicing of Fund shares.
In considering the Agreements, the Trustees comprehensively 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 described in greater detail below and included, among other items: (i) the nature, extent 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 have been realized or may be realized if the Fund grows and the extent to which economies of scale have benefited or may benefit Fund shareholders; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to any similar funds and accounts managed by New York Life Investments, Epoch and MacKay Shields. Although the Board recognized that the comparisons between the Fund’s fees and expenses and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Board also considered the reasonableness of the Fund’s management fee and overall total ordinary operating expenses as compared to the peer funds identified by Strategic Insight.
While individual Trustees may have weighed certain factors or information differently, the Board’s decision to approve the Agreements was based on a consideration of the information provided to the Trustees throughout the year, as well as information furnished specifically in connection with the contract review process. Throughout the year, the Trustees are also afforded an opportunity to ask questions of and request additional information or materials from New York Life Investments, Epoch and MacKay Shields. The Board’s conclusions with respect to the Agreements may have been based, in part, on the Board’s knowledge of New York Life Investments, Epoch and MacKay Shields resulting from, among other things, the Board’s consideration of the MainStay Group of Funds’ advisory 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. The factors that figured prominently in the Board’s decision to approve the Agreements are summarized in more detail below.
Nature, Extent and Quality of Services to Be Provided by New York Life Investments, Epoch and MacKay Shields
The Board examined the nature, extent and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience and capabilities 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,
47 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreements (Unaudited) (continued)
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 observed that New York Life Investments devotes significant resources and time to providing advisory and non-advisory services to the Fund, including its extensive oversight of Epoch and MacKay Shields. The Board also considered the full range of services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and on-going oversight services provided by New York Life Investments’ Fund Administration and Accounting 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; (iv) legal services provided by New York Life Investments’ Office of the General Counsel; and (v) risk management and portfolio trading oversight and analysis by compliance and investment personnel. 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, infrastructure, technology, operational enhancements, cyber security, information security and shareholder privacy resources 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, extent and quality of the investment 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 further considered New York Life Investments’ policies, procedures and systems to reasonably assure compliance with applicable laws and regulations. In addition, the Board considered the policies and procedures in place with respect to matters that may involve conflicts of interest between the Fund’s investments and those of other accounts managed by Epoch and MacKay Shields. 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 methods 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, extent 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, and in light of market conditions. 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’s Investment Committee that occur regularly, generally 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 primarily considered the profits realized by New York Life Investments and its affiliates with respect to the Fund.
In evaluating the costs of the services provided by New York Life Investments, Epoch and MacKay Shields and profits realized by 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
48 | MainStay Income Builder Fund |
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 recognized that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds, among other benefits resulting from its relationships with New York Life Investments.
In addition, the Board acknowledged 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. In connection with the annual fund profitability analysis that New York Life Investments presents to the Board, the Board in 2014 engaged Bobroff Consulting, Inc., an independent third-party consultant, to review the methods used to allocate costs to the MainStay Funds, and among individual Funds. As part of this engagement, the consultant analyzed: (i) the various New York Life Investments’ business units and affiliated Subadvisers that provide services to the MainStay Funds; (ii) how costs are allocated to the Fund and other funds managed by New York Life Investments, and to other lines of businesses; and (iii) how New York Life Investments’ cost allocation methods and profitability reports compare to industry practices. The Board noted that the independent consultant had concluded that New York Life Investments’ methods for allocating costs and procedures for estimating overall profitability of the funds in the MainStay Group of Funds, including the Fund, are reasonable, consistent with industry practice and likely to produce reasonable profitability estimates. Although the Board recognized 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 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 from legally permitted “soft-dollar” arrangements by which brokers provide research and other services to Epoch in exchange for commissions paid by the Fund with respect to trades on the Fund’s portfolio securities. In this regard, 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 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’ relationships with the Fund on a pre-tax basis and without regard to distribution expenses incurred by New York Life Investments from its own resources.
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 relationships 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 Fund and other funds in the MainStay Group of Funds. 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, initially setting relatively low management fees or making additional investments to enhance shareholder services. 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. Additionally, the Board considered New York Life Investments’ assessment of the extent economies of scale existed for Funds that had experienced significant increases of assets during the year.
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
49 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreements (Unaudited) (continued)
management fee paid by the Fund to New York Life Investments, because 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 that follow similar investment strategies 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 registered investment companies 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 demonstrating 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 also noted information received from NYLIM Service Company LLC regarding the sub-transfer agency payments it made to intermediaries in connection with the 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 a number of 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 recognized 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) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iii) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (iv) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (v) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vi) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. The Board also considered that NYLIM Service Company LLC had waived its cost of living adjustments in 2015, 2016 and 2017. In addition, the Board acknowledged New York Life Investments’ continued 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 and factors summarized above and the evaluation thereof, the Board as a whole, including the Independent Trustees who are not parties to the Agreements or “interested persons” of any such party voting separately, unanimously voted to approve the Agreements.
50 | 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; and (ii) on the Securities and Exchange Commission’s (“SEC”) 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 or proxy voting record is available free of charge upon request by calling 800-MAINSTAY (624-6782); visiting the Fund’s website at mainstayinvestments.com; or 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).
51 |
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MainStay Funds
Equity
U.S. Equity
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay Epoch U.S. Small Cap Fund
MainStay ICAP Equity Fund1
MainStay ICAP Select Equity Fund1
MainStay Large Cap Growth Fund
MainStay MAP Equity Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
International/Global Equity
MainStay Emerging Markets Equity Fund
MainStay Epoch Capital Growth Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Choice Fund
MainStay Epoch International Small Cap Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond
MainStay Emerging Markets Debt Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay Indexed Bond Fund
MainStay Short Duration High Yield Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal/Tax Advantaged Bond
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Advantaged Short Term Bond Fund
MainStay Tax Free Bond Fund
Money Market
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
Alternative
MainStay Absolute Return Multi-Strategy Fund
MainStay Cushing Energy Income Fund
MainStay Cushing MLP Premier Fund
MainStay Cushing Renaissance Advantage 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
MainStay Retirement 2060 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Candriam France S.A.S.4
Paris, France
Cornerstone Capital Management Holdings LLC4
New York, New York
Cushing Asset Management, LP
Dallas, Texas
Epoch Investment Partners, Inc.
New York, New York
MacKay Shields LLC4
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC4
New York, New York
Winslow Capital Management, LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Washington, District of Columbia
Independent Registered Public Accounting Firm
KPMG LLP
Philadelphia, Pennsylvania
1. On May 8, 2017, the Fund merged into MainStay Epoch U.S. Equity Yield Fund. Former shareholders of this Fund can request the Fund’s Semiannual Report by calling 800-MAINSTAY (624-6782).
2. Class A and Class I shares of this Fund are registered for sale in AZ, CA, MI, NV, OR, TX, UT and WA. Class I shares are registered for sale in CO, FL, GA, HI, ID, MA, MD, NH, NJ and NY.
3. This Fund is registered for sale in CA, CT, DE, FL, MA, NJ, NY and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Semiannual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
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. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
©2017 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 |
1738551 MS144-17 | MSIB10-06/17 (NYLIM) NL014 |
MainStay Emerging Markets Debt Fund (Formerly known as MainStay Global High Income Fund)
Message from the President and Semiannual Report
Unaudited | April 30, 2017
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Message from the President
The six months ended April 30, 2017, proved to be a strong period for many equity investors but presented challenges for some bond investors.
The reporting period began with considerable uncertainty about the outcome of the U.S. election. Once the Republicans gained control of the White House, the Senate and the House of Representatives, however, many investors hoped to see an end to political gridlock; and although debate has continued on a number of issues, the U.S. stock market steadily climbed through the end of the reporting period.
According to FTSE-Russell U.S. market data, stocks at all capitalization levels earned double-digit overall returns during the reporting period. Although growth stocks outperformed value stocks at most capitalization levels, value stocks outperformed growth stocks among micro-cap stocks.
In December 2016 and March 2017, the Federal Reserve announced increases in the target range for the federal funds rate. These moves, which brought the federal funds target range to 0.75% to 1.00%, were felt across the bond market. During the reporting period, yields rose on U.S. Treasury securities of all maturities, with the largest absolute increase on the 5-year U.S. Treasury note. On a percentage basis, however, the largest increases were at the short end of the maturity spectrum, with yields on the 1- and 3-month U.S. Treasury bills more than doubling during the reporting period.
When interest rates rise, bond prices tend to decline (and vice versa). As a result, several broad fixed-income asset classes—including U.S. government and agency bonds, mortgage-backed securities, investment-grade debt and municipal bonds—recorded negative total returns for the reporting period. Convertible securities, high-yield bonds and floating-rate loans, which tend to be less sensitive to interest-rate changes, provided positive total returns.
International stock markets generally advanced during the reporting period, with European stocks providing strong
double-digit returns. The Pacific region and Japan were weaker but provided positive returns in the single digits. Emerging markets also provided solid performance for the reporting period, despite modest commodity prices.
Many short-term political, economic and world events affected the markets during the reporting period. Nevertheless, at MainStay, we believe that the primary concern of our portfolio managers should be the long-term welfare of our shareholders, and we appreciate the discipline our portfolio managers seek to apply in their long-term investment decisions.
Our portfolio managers seek to pursue the investment objectives of their respective MainStay Funds using the various investment strategies outlined in the Fund’s Prospectus. Utilizing their years of professional market experience, they seek to enhance returns when possible, manage risk as necessary and view short-term events in light of long-term investment goals. At MainStay, we believe that shareholders who maintain a long-term perspective may be better able to weather turbulent markets, avoid selling when prices are low and stay focused on their reasons for choosing MainStay Funds.
The report that follows provides more detailed information about the markets, securities and decisions that affected your MainStay Fund during the six months ended April 30, 2017. We invite you to read it carefully and use the information as part of your ongoing portfolio evaluation and review.
Sincerely,
Stephen P. Fisher
President
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, 30 Hudson Street, Jersey City, NJ 07302 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 and other factors, 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, 2017
Class | Sales Charge | Inception Date | Six Months | One Year | Five Years or Since Inception | Ten Years or Since Inception | Gross Expense Ratio2 | |||||||||||||||||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges | | 6/1/1998 | | | –1.32 3.33 | %
| | 7.12 12.16 | %
| | 3.37 4.32 | %
| | 5.46 5.95 | %
| | 1.23 1.23 | %
| ||||||||
Investor Class Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges | 2/28/2008 | | –1.34 3.30 |
| | 6.92 11.95 | | | 3.20 4.15 | | | 5.73 6.27 | | | 1.43 1.43 |
| ||||||||||
Class B Shares3 | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges | 6/1/1998 | | –2.19 2.81 |
| | 6.01 11.01 | | | 3.06 3.38 | | | 5.00 5.00 | | | 2.18 2.18 |
| ||||||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges | 9/1/1998 | | 1.81 2.81 |
| | 10.00 11.00 | | | 3.35 3.35 | | | 5.01 5.01 | | | 2.18 2.18 |
| ||||||||||
Class I Shares | No Sales Charge | 8/31/2007 | 3.46 | 12.32 | 4.58 | 6.86 | 0.98 |
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, if any, 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 may 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 (if any), 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. | Class B shares are closed to all new purchases as well as additional investments by existing Class B shareholders. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
5 |
Benchmark Performance | Six Months | One Year | Five Years or Since Inception | Ten Years or Since Inception | ||||||||||||
JPMorgan EMBI Global Diversified Index4 | 2.45 | % | 8.62 | % | 5.80 | % | 7.11 | % | ||||||||
Average Lipper Emerging Markets Hard Currency Debt Fund5 | 3.50 | 9.64 | 3.66 | 5.89 |
4. | The JPMorgan EMBI Global Diversified Index is the Fund’s primary broad-based securities market index for comparison purposes. 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. Results assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
5. | 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 Emerging Markets Debt Fund |
Cost in Dollars of a $1,000 Investment in MainStay Emerging Markets Debt Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from November 1, 2016, to April 30, 2017, 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, 2016, to April 30, 2017.
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, 2017. 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 11/1/16 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/17 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/17 | Expenses Paid During Period1 | Net Expense Ratio During Period2 | ||||||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,033.30 | $ | 6.25 | $ | 1,018.60 | $ | 6.21 | 1.24% | |||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,033.00 | $ | 7.21 | $ | 1,017.70 | $ | 7.15 | 1.43% | |||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,028.10 | $ | 10.96 | $ | 1,014.00 | $ | 10.89 | 2.18% | |||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,028.10 | $ | 10.96 | $ | 1,014.00 | $ | 10.89 | 2.18% | |||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,034.60 | $ | 4.99 | $ | 1,019.90 | $ | 4.96 | 0.99% |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class 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. |
2. | Expenses are equal to the Fund’s annualized expense ratio to reflect the six-month period. |
7 |
Country Composition as of April 30, 2017 (Unaudited)
Mexico | 8.8 | % | ||
Brazil | 6.8 | |||
Russia | 5.4 | |||
Indonesia | 4.8 | |||
Kazakhstan | 4.5 | |||
United States | 4.2 | |||
Peru | 3.9 | |||
China | 3.8 | |||
Venezuela | 3.6 | |||
Turkey | 3.5 | |||
Croatia | 3.3 | |||
India | 3.3 | |||
Dominican Republic | 3.1 | |||
Sri Lanka | 3.0 | |||
Argentina | 2.8 | |||
Costa Rica | 2.7 | |||
Hungary | 2.5 | |||
Uruguay | 2.5 | |||
Paraguay | 2.4 | |||
El Salvador | 2.3 | |||
Ukraine | 2.1 |
Guatemala | 1.7 | % | ||
Ivory Coast | 1.6 | |||
Pakistan | 1.6 | |||
United Arab Emirates | 1.6 | |||
Netherlands | 1.5 | |||
Ghana | 1.4 | |||
Georgia | 1.3 | |||
Nigeria | 1.2 | |||
Saudi Arabia | 1.2 | |||
South Africa | 1.2 | |||
Vietnam | 1.2 | |||
Hong Kong | 0.9 | |||
Luxembourg | 0.8 | |||
Senegal | 0.8 | |||
Gabon | 0.7 | |||
Cameroon | 0.6 | |||
Israel | 0.6 | |||
Kenya | 0.6 | |||
Other Assets, Less Liabilities | 0.2 | |||
|
| |||
100.0 | % | |||
|
|
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
Top Ten Issuers Held as of April 30, 2017 (excluding short-term investment) (Unaudited)
1. | KazMunayGas National Co. JSC, 4.40%–5.75%, due 4/30/23–4/30/43 |
2. | Pertamina Persero PT, 5.625%, due 5/20/43 |
3. | Petrobras Global Finance B.V., 6.85%–8.75%, due 6/5/15–5/23/26 |
4. | Croatia Government International Bond, 6.00%–6.38%, due 3/24/21–1/26/24 |
5. | Dominican Republic International Bond, 5.95%–7.50%, due 5/6/21–1/25/27 |
6. | Sri Lanka Government International Bond, 6.83%, due 7/18/26 |
7. | Turkey Government International Bond, 6.63%–7.38%, due 2/5/25–2/17/45 |
8. | Uruguay Government International Bond, 4.38%, due 12/15/28 |
9. | Petroleos Mexicanos, 5.63%, due 1/23/46 |
10. | Hungary Government International Bond, 7.63%, due 3/29/41 |
8 | MainStay Emerging Markets Debt 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 Emerging Markets Debt Fund perform relative to its primary benchmark and peers during the six months ended April 30, 2017?
Excluding all sales charges, MainStay Emerging Markets Debt Fund returned 3.33% for Class A shares, 3.30% for Investor Class shares and 2.81% for Class B and Class C shares for the six months ended April 30, 2017. Over the same period, the Fund’s Class I shares returned 3.46%. For the six months ended April 30, 2017, all share classes outperformed the 2.45% return of the JPMorgan EMBI Global Diversified Index,1 which is the Fund’s broad-based securities-market index. Over the same period, all share classes underperformed the 3.50% return of the Average Lipper2 Emerging Markets Hard Currency Debt 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, 2017, MainStay Global High Income Fund was renamed MainStay Emerging Markets Debt Fund. Effective the same date, the Fund’s investment strategies and principal investment risks were changed. For more information on these changes, please refer to the prospectus supplement dated December 16, 2016.
What factors affected the Fund’s relative performance during the reporting period?
The Fund’s relative outperformance of the JPMorgan EMBI Global Diversified Index resulted primarily from the Fund’s overweight position in credit, as credit spreads3 tightened during the reporting period. Negative (or very low) yields in developed markets provided a bid for emerging-market debt, which rallied significantly during the reporting period. Idiosyncratic risk in emerging markets remained high, despite the rebound in commodity prices. During the reporting period, Chinese authorities successfully reduced yuan outflows through administrative and legal measures. Although emerging-market
countries witnessed a number of positive headlines, the judicial “coup” in Venezuela, the upcoming constitutional referendum in Turkey, a cabinet shake-up in South Africa and challenges facing economic reform in Brazil hung over specific markets. Nevertheless, ratings trends were positive for emerging-market debt, as was a decline in default rates.
Because of these factors, we remained highly selective in the Fund’s emerging-market debt holdings. The low spreads of Chinese issuers and the opaque nature of the macroeconomic scene remained a concern. In positioning the portfolio, we continued to put the Fund’s cash balance to use through selective purchases. Although we generally avoided securities rated CCC4 and non-rated credits, we did have a position in Venezuela’s PDVSA, which continued to show strong willingness to pay its debt obligations. The Fund was overweight in securities rated BB,5 with a focus on bonds of larger corporations with better liquidity positions and better opportunities to access the bond market when open for issuance. All of these factors contributed positively to performance.
What was the Fund’s duration6 strategy during the reporting period?
The Fund ended the reporting period with a slightly longer duration than that of its benchmark. As of April 30, 2017, the Fund’s duration was 7.0 years, compared to the 6.6-year duration of the JPMorgan EMBI Global Diversified Index.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
Throughout the reporting period, we promoted credit risk as an anticipated primary driver of performance. We expected corporate bonds to perform well because we believed that the low interest-rate environment was likely to spark healthy demand for higher-yielding products. For this reason, we maintained a high beta7 in the Fund. We also added slightly to the Fund’s duration during the reporting period, as we believed that yields were unlikely to increase significantly in the immediate future.
1. | See footnote on page 6 for more information on the JPMorgan EMBI Global Diversified Index. |
2. | See footnote on page 6 for more information on Lipper Inc. |
3. | The terms “spread” and “yield spread” may refer to the difference in yield between a security or type of security and comparable U.S. Treasury issues. The term 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 or municipal bonds (or a specific category of these bonds) and comparable U.S. Treasury issues. |
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. | An obligation rated ‘BB’ by Standard & Poor’s (“S&P”) is deemed by S&P to be less vulnerable to nonpayment than other speculative issues. In the opinion of S&P, however, the obligor faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to the obligor’s inadequate 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. |
6. | 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. |
7. | Beta is a measure of volatility in relation to the market as a whole. A beta higher than 1 indicates that a security or portfolio will tend to exhibit higher volatility than the market. A beta lower than 1 indicates that a security or portfolio will tend to exhibit lower volatility than the market. |
9 |
During the reporting period, which market segments were the strongest positive contributors to the Fund’s performance and which market segments were particularly weak?
Long exposure to corporate credit was the strongest positive contributor to the Fund’s absolute performance during the reporting period. (Contributions take weightings and total returns into account.) The strength was widespread, with significant excess returns in Brazil, Russia and even Mexico (despite an initial sell-off following President Trump’s election). Foreign currency exposure also added to the Fund’s performance, with large moves in the Uruguayan peso, the Russian ruble and the Turkish lira. The Fund’s Venezuelan bonds added significantly to performance because of their substantial yield.
During the reporting period, the weakest contribution to the Fund’s absolute performance came from high-duration bonds with low-beta exposure.
Did the Fund make any significant purchases or sales during the reporting period?
Most of the Fund’s trades were made to adjust the Fund’s risk and duration profiles. Both beta risk and duration were increased a bit by swapping shorter-maturity bonds of
Petrobras, Sri Lanka, Peru and Russian financial firm Mettaloinvest. A long Saudi Arabian bond was added to the Fund when it initially came to market.
How did the Fund’s sector and country weightings change during the reporting period?
During the reporting period, we kept the sovereign weighting fairly constant at about 51% of the Fund’s assets and put some of the Fund’s cash holdings to work to increase the Fund’s weighting in corporate bonds. From a country perspective, we increased the Fund’s weightings in Mexico, Brazil and China, while decreasing its weightings in Russia, Venezuela and Indonesia.
How was the Fund positioned at the end of the reporting period?
As of April 30, 2017, the Fund held an overweight position relative to the JPMorgan EMBI Global Diversified Index in credit. As of the same date, the Fund held overweight allocations in Brazil, Russia and Mexico. At the end of the reporting period, the Fund generally held underweight positions in Middle Eastern countries.
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 forecasts will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
10 | MainStay Emerging Markets Debt Fund |
Portfolio of Investments April 30, 2017 (Unaudited)
Principal Amount | Value | |||||||
Long-Term Bonds 95.6%† Corporate Bonds 46.2% | ||||||||
Argentina 0.6% |
| |||||||
Cablevision S.A. | $ | 1,000,000 | $ | 1,065,000 | ||||
|
| |||||||
Brazil 6.8% |
| |||||||
Banco Bradesco S.A. | 1,500,000 | 1,598,700 | ||||||
Braskem America Finance Co. | 2,000,000 | 2,117,500 | ||||||
¨Petrobras Global Finance B.V. | ||||||||
6.85%, due 6/5/2115 | 1,000,000 | 890,500 | ||||||
7.38%, due 1/17/27 | 3,000,000 | 3,225,900 | ||||||
8.75%, due 5/23/26 | 2,000,000 | 2,332,000 | ||||||
Vale Overseas, Ltd. | 1,800,000 | 1,950,750 | ||||||
|
| |||||||
12,115,350 | ||||||||
|
| |||||||
China 3.8% |
| |||||||
Alibaba Group Holding, Ltd. | 2,000,000 | 2,095,136 | ||||||
JD.com, Inc. | 1,500,000 | 1,481,747 | ||||||
Proven Honour Capital, Ltd. | 1,500,000 | 1,522,557 | ||||||
Tencent Holdings, Ltd. | 1,500,000 | 1,547,242 | ||||||
|
| |||||||
6,646,682 | ||||||||
|
| |||||||
Hong Kong 0.9% |
| |||||||
MCE Finance, Ltd. | 1,500,000 | 1,532,850 | ||||||
|
| |||||||
India 3.3% |
| |||||||
Bharti Airtel International Netherlands B.V. | 2,000,000 | 2,106,916 | ||||||
Glenmark Pharmaceuticals, Ltd. | 1,000,000 | 1,006,381 | ||||||
Reliance Holding USA, Inc. | 1,000,000 | 1,094,601 | ||||||
Tata Motors, Ltd. | 1,500,000 | 1,605,000 | ||||||
|
| |||||||
5,812,898 | ||||||||
|
|
Principal Amount | Value | |||||||
Indonesia 3.9% |
| |||||||
¨Pertamina Persero PT | $ | 6,700,000 | $ | 6,897,503 | ||||
|
| |||||||
Israel 0.6% |
| |||||||
Delek & Avner Tamar Bond, Ltd. | 1,000,000 | 1,025,000 | ||||||
|
| |||||||
Kazakhstan 4.5% |
| |||||||
¨KazMunayGas National Co. JSC (a) | ||||||||
4.40%, due 4/30/23 | 6,000,000 | 6,060,000 | ||||||
5.75%, due 4/30/43 | 2,000,000 | 1,980,080 | ||||||
|
| |||||||
8,040,080 | ||||||||
|
| |||||||
Luxembourg 0.8% |
| |||||||
Minerva Luxembourg S.A. | 1,375,000 | 1,364,674 | ||||||
|
| |||||||
Mexico 8.0% |
| |||||||
Banco Nacional de Comercio Exterior SNC | 4,000,000 | 3,930,000 | ||||||
Cemex Finance LLC | 2,000,000 | 2,115,000 | ||||||
Comision Federal de Electricidad | 2,000,000 | 2,072,500 | ||||||
Grupo Televisa S.A.B. | 1,500,000 | 1,563,250 | ||||||
¨Petroleos Mexicanos | 5,000,000 | 4,451,250 | ||||||
|
| |||||||
14,132,000 | ||||||||
|
| |||||||
Netherlands 1.5% |
| |||||||
GTH Finance B.V. | 1,500,000 | 1,642,650 | ||||||
Samvardhana Motherson Automotive Systems Group B.V. | 1,000,000 | 1,028,800 | ||||||
|
| |||||||
2,671,450 | ||||||||
|
| |||||||
Peru 1.8% |
| |||||||
Banco de Credito del | 1,000,000 | 1,057,200 | ||||||
Southern Copper Corp. | 2,000,000 | 2,106,741 | ||||||
|
| |||||||
3,163,941 | ||||||||
|
|
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest issuers held, as of April 30, 2017, 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. | 11 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Russia 3.2% |
| |||||||
Gazprom OAO Via Gaz Capital S.A. | $ | 1,500,000 | $ | 1,983,000 | ||||
Metalloinvest Finance DAC | 2,000,000 | 1,997,500 | ||||||
MMC Norilsk Nickel OJSC via MMC Finance DAC | 1,500,000 | 1,689,600 | ||||||
|
| |||||||
5,670,100 | ||||||||
|
| |||||||
Saudi Arabia 1.2% |
| |||||||
Saudi Electricity Global Sukuk Co. 3 | 2,000,000 | 2,079,724 | ||||||
|
| |||||||
South Africa 1.2% |
| |||||||
Eskom Holdings SOC, Ltd. | 2,000,000 | 2,056,968 | ||||||
|
| |||||||
Turkey 0.8% |
| |||||||
Arcelik A.S. | 1,500,000 | 1,493,655 | ||||||
|
| |||||||
United Arab Emirates 1.6% |
| |||||||
Abu Dhabi National Energy Co. PJSC | 2,750,000 | 2,777,351 | ||||||
|
| |||||||
Venezuela 1.7% |
| |||||||
Petroleos de Venezuela S.A. | 5,000,000 | 3,112,000 | ||||||
|
| |||||||
Total Corporate Bonds | 81,657,226 | |||||||
|
| |||||||
Foreign Government Bonds 49.4% | ||||||||
Argentina 2.2% |
| |||||||
City of Buenos Aires Argentina | 2,000,000 | 2,142,400 | ||||||
Provincia de Buenos Aires | 1,500,000 | 1,703,250 | ||||||
|
| |||||||
3,845,650 | ||||||||
|
| |||||||
Cameroon, United Republic Of 0.6% |
| |||||||
Republic of Cameroon International Bond | 1,000,000 | 1,137,660 | ||||||
|
|
Principal Amount | Value | |||||||
Costa Rica 2.7% |
| |||||||
Costa Rica Government International Bond | $ | 2,000,000 | $ | 2,080,000 | ||||
Instituto Costarricense de Electricidad | 3,000,000 | 2,610,000 | ||||||
|
| |||||||
4,690,000 | ||||||||
|
| |||||||
Croatia 3.3% |
| |||||||
¨Croatia Government International Bond | 3,250,000 | 3,617,900 | ||||||
6.38%, due 3/24/21 (a) | 2,000,000 | 2,212,140 | ||||||
|
| |||||||
5,830,040 | ||||||||
|
| |||||||
Dominican Republic 3.1% |
| |||||||
¨Dominican Republic International Bond | 1,500,000 | 1,570,110 | ||||||
Series Reg S | ||||||||
7.50%, due 5/6/21 | 3,500,000 | 3,885,000 | ||||||
|
| |||||||
5,455,110 | ||||||||
|
| |||||||
El Salvador 2.3% |
| |||||||
El Salvador Government International Bond | 4,000,000 | 4,030,000 | ||||||
|
| |||||||
Gabon 0.7% |
| |||||||
Gabon Government International Bond | 1,296,000 | 1,269,108 | ||||||
|
| |||||||
Georgia 1.3% |
| |||||||
Georgia Government International Bond | 2,000,000 | 2,210,000 | ||||||
|
| |||||||
Ghana 1.4% |
| |||||||
Ghana Government International Bond | 2,000,000 | 2,413,000 | ||||||
|
| |||||||
Guatemala 1.7% |
| |||||||
Guatemala Government Bond | 3,000,000 | 3,039,300 | ||||||
|
| |||||||
Hungary 2.5% |
| |||||||
¨Hungary Government International Bond | 3,000,000 | 4,433,220 | ||||||
|
|
12 | MainStay Emerging Markets Debt Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Foreign Government Bonds (continued) | ||||||||
Indonesia 0.9% |
| |||||||
Indonesia Government International Bond | $ | 1,500,000 | $ | 1,591,660 | ||||
|
| |||||||
Ivory Coast 1.6% |
| |||||||
Ivory Coast Government International Bond | 2,940,000 | 2,819,460 | ||||||
|
| |||||||
Kenya 0.6% |
| |||||||
Kenya Government International Bond | 1,000,000 | 1,012,700 | ||||||
|
| |||||||
Mexico 0.8% |
| |||||||
Mexican Bonos | MXN 27,500,000 | 1,483,666 | ||||||
|
| |||||||
Nigeria 1.2% |
| |||||||
Nigeria Government International Bond | $ | 2,000,000 | 2,121,888 | |||||
|
| |||||||
Pakistan 1.6% |
| |||||||
Pakistan Government International Bond | 2,500,000 | 2,806,802 | ||||||
|
| |||||||
Paraguay 2.4% |
| |||||||
Paraguay Government International Bond | 4,000,000 | 4,310,000 | ||||||
|
| |||||||
Peru 2.1% |
| |||||||
Peruvian Government International Bond | 2,800,000 | 3,668,000 | ||||||
|
| |||||||
Russia 2.2% |
| |||||||
Russian Federal Bond-OFZ | RUB 115,000,000 | 1,967,347 | ||||||
Russian Federation | $ | 1,800,000 | 1,899,558 | |||||
|
| |||||||
3,866,905 | ||||||||
|
|
Principal Amount | Value | |||||||
Senegal 0.8% |
| |||||||
Senegal Government International Bond | $ | 1,250,000 | $ | 1,429,938 | ||||
|
| |||||||
Sri Lanka 3.0% |
| |||||||
¨Sri Lanka Government International Bond | 5,000,000 | 5,250,470 | ||||||
|
| |||||||
Turkey 2.7% |
| |||||||
¨Turkey Government International Bond | ||||||||
6.63%, due 2/17/45 | 2,000,000 | 2,241,392 | ||||||
7.38%, due 2/5/25 | 2,225,000 | 2,581,245 | ||||||
|
| |||||||
4,822,637 | ||||||||
|
| |||||||
Ukraine 2.1% |
| |||||||
Ukraine Government International Bond | 4,000,000 | 3,744,800 | ||||||
|
| |||||||
Uruguay 2.5% |
| |||||||
¨Uruguay Government International Bond | UYU 132,946,456 | 4,487,909 | ||||||
|
| |||||||
Venezuela 1.9% |
| |||||||
Venezuela Government International Bond | $ | 7,095,000 | 3,382,186 | |||||
|
| |||||||
Vietnam 1.2% |
| |||||||
Vietnam Government International Bond | 2,000,000 | 2,053,160 | ||||||
|
| |||||||
Total Foreign Government Bonds | 87,205,269 | |||||||
|
| |||||||
Total Long-Term Bonds | 168,862,495 | |||||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 13 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Principal Amount | Value | |||||||
Short-Term Investment 4.2% | ||||||||
Repurchase Agreement 4.2% |
| |||||||
Fixed Income Clearing Corp. | $ | 7,315,788 | $ | 7,315,788 | ||||
|
| |||||||
Total Short-Term Investment | 7,315,788 | |||||||
|
| |||||||
Total Investments | 99.8 | % | 176,178,283 | |||||
Other Assets, Less Liabilities | 0.2 | 433,427 | ||||||
Net Assets | 100.0 | % | $ | 176,611,710 |
(a) | May be sold to institutional investors only under Rule 144A or securities offered pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. |
(b) | Floating rate—Rate shown was the rate in effect as of April 30, 2017. |
(c) | Step coupon—Rate shown was the rate in effect as of April 30, 2017. |
(d) | As of April 30, 2017, cost was $175,038,524 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 8,000,085 | ||
Gross unrealized depreciation | (6,860,326 | ) | ||
|
| |||
Net unrealized appreciation | $ | 1,139,759 | ||
|
|
Foreign Currency Buy Contracts | Expiration Date | Counterparty | Contract Amount Purchased | Contract Amount Sold | Unrealized Appreciation (Depreciation) | |||||||||||||||||||||
Mexican Peso vs. U.S. Dollar | 8/1/17 | JPMorgan Chase Bank N.A. | MXN | 21,000,000 | $ | 1,006,422 | $ | 92,843 | ||||||||||||||||||
Turkish Lira vs. U.S. Dollar | 8/1/17 | JPMorgan Chase Bank N.A. | TRY | 3,800,000 | 960,323 | 82,190 | ||||||||||||||||||||
Foreign Currency Sales Contracts | Contract Sold | Contract Amount Purchased | ||||||||||||||||||||||||
Mexican Peso vs. U.S. Dollar | 8/1/17 | JPMorgan Chase Bank N.A. | MXN | 21,000,000 | 1,046,098 | (53,167 | ) | |||||||||||||||||||
Net unrealized appreciation (depreciation) on foreign currency forward contracts |
| $ | 121,866 |
The following abbreviations are used in the preceding pages:
MXN—Mexican Peso
RUB—New Russian Ruble
TRY—Turkish Lira
UYU—Uruguayan Peso
14 | MainStay Emerging Markets Debt 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, 2017, 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 | $ | — | $ | 81,657,226 | $ | — | $ | 81,657,226 | ||||||||
Foreign Government Bonds | — | 87,205,269 | — | 87,205,269 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Long-Term Bonds | — | 168,862,495 | — | 168,862,495 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 7,315,788 | — | 7,315,788 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | — | 176,178,283 | — | 176,178,283 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other Financial Instruments | ||||||||||||||||
Foreign Currency Forward Contract (b) | — | 175,033 | — | 175,033 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities and Other Financial Instruments | $ | — | $ | 176,353,316 | $ | — | $ | 176,353,316 | ||||||||
|
|
|
|
|
|
|
|
Liability Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Foreign Currency Forward Contracts (b) | $ | — | $ | (53,167 | ) | $ | — | $ | (53,167 | ) | ||||||
|
|
|
|
|
|
|
|
(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, 2017, the Fund did not have any transfers among levels. (See Note 2)
As of April 30, 2017, 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. | 15 |
Statement of Assets and Liabilities as of April 30, 2017 (Unaudited)
Assets | ||||
Investment in securities, at value | $ | 176,178,283 | ||
Cash denominated in foreign currencies | 53 | |||
Receivables: | ||||
Interest | 3,026,630 | |||
Fund shares sold | 242,282 | |||
Other assets | 56,379 | |||
Unrealized appreciation on foreign currency forward contracts | 175,033 | |||
|
| |||
Total assets | 179,678,660 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 2,000,225 | |||
Fund shares redeemed | 642,979 | |||
Manager (See Note 3) | 104,839 | |||
Transfer agent (See Note 3) | 60,988 | |||
NYLIFE Distributors (See Note 3) | 57,310 | |||
Professional fees | 43,214 | |||
Shareholder communication | 24,348 | |||
Custodian | 6,495 | |||
Trustees | 476 | |||
Accrued expenses | 1,491 | |||
Dividend payable | 71,418 | |||
Unrealized depreciation on foreign currency forward contracts | 53,167 | |||
|
| |||
Total liabilities | 3,066,950 | |||
|
| |||
Net assets | $ | 176,611,710 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 166,978 | ||
Additional paid-in capital | 186,918,990 | |||
|
| |||
187,085,968 | ||||
Undistributed net investment income | 157,168 | |||
Accumulated net realized gain (loss) on investments and foreign currency transactions | (11,896,917 | ) | ||
Net unrealized appreciation (depreciation) on investments | 1,139,759 | |||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | 125,732 | |||
|
| |||
Net assets | $ | 176,611,710 | ||
|
|
Class A | ||||
Net assets applicable to outstanding shares | $ | 101,616,635 | ||
|
| |||
Shares of beneficial interest outstanding | 9,585,378 | |||
|
| |||
Net asset value per share outstanding | $ | 10.60 | ||
Maximum sales charge (4.50% of offering price) | 0.50 | |||
|
| |||
Maximum offering price per share outstanding | $ | 11.10 | ||
|
| |||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 25,848,224 | ||
|
| |||
Shares of beneficial interest outstanding | 2,416,345 | |||
|
| |||
Net asset value per share outstanding | $ | 10.70 | ||
Maximum sales charge (4.50% of offering price) | 0.50 | |||
|
| |||
Maximum offering price per share outstanding | $ | 11.20 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 6,926,128 | ||
|
| |||
Shares of beneficial interest outstanding | 665,185 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 10.41 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 31,085,799 | ||
|
| |||
Shares of beneficial interest outstanding | 2,981,601 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 10.43 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 11,134,924 | ||
|
| |||
Shares of beneficial interest outstanding | 1,049,253 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 10.61 | ||
|
|
16 | MainStay Emerging Markets Debt 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, 2017 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 5,775,273 | ||
Other income | 113 | |||
|
| |||
Total income | 5,775,386 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 638,070 | |||
Distribution/Service—Class A (See Note 3) | 124,775 | |||
Distribution/Service—Investor Class (See Note 3) | 32,345 | |||
Distribution/Service—Class B (See Note 3) | 34,324 | |||
Distribution/Service—Class C (See Note 3) | 160,552 | |||
Transfer agent (See Note 3) | 177,597 | |||
Registration | 41,783 | |||
Professional fees | 36,183 | |||
Shareholder communication | 24,342 | |||
Custodian | 7,358 | |||
Trustees | 2,332 | |||
Miscellaneous | 6,887 | |||
|
| |||
Total expenses | 1,286,548 | |||
|
| |||
Net investment income (loss) | 4,488,838 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Investment transactions | (973,762 | ) | ||
Foreign currency transactions | (494 | ) | ||
|
| |||
Net realized gain (loss) on investments and foreign currency transactions | (974,256 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 1,391,224 | |||
Translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | 24,479 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions | 1,415,703 | |||
|
| |||
Net realized and unrealized gain (loss) on investments and foreign currency transactions | 441,447 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 4,930,285 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 17 |
Statements of Changes in Net Assets
for the six months ended April 30, 2017 (Unaudited) and the year ended October 31, 2016
2017 | 2016 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 4,488,838 | $ | 10,169,036 | ||||
Net realized gain (loss) on investments and foreign currency transactions | (974,256 | ) | (4,852,435 | ) | ||||
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions | 1,415,703 | 20,862,473 | ||||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 4,930,285 | 26,179,074 | ||||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Class A | (2,521,867 | ) | (3,052,218 | ) | ||||
Investor Class | (610,117 | ) | (720,130 | ) | ||||
Class B | (144,242 | ) | (159,726 | ) | ||||
Class C | (671,758 | ) | (761,686 | ) | ||||
Class I | (296,660 | ) | (461,915 | ) | ||||
|
| |||||||
(4,244,644 | ) | (5,155,675 | ) | |||||
|
| |||||||
Return of capital: | ||||||||
Class A | — | (2,444,690 | ) | |||||
Investor Class | — | (614,458 | ) | |||||
Class B | — | (178,909 | ) | |||||
Class C | — | (856,147 | ) | |||||
Class I | — | (323,340 | ) | |||||
|
| |||||||
— | (4,417,544 | ) | ||||||
|
| |||||||
Total dividends to shareholders | (4,244,644 | ) | (9,573,219 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 15,448,988 | 57,677,054 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 3,759,202 | 8,162,955 | ||||||
Cost of shares redeemed | (42,310,723 | ) | (69,864,186 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital | (23,102,533 | ) | (4,024,177 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets | (22,416,892 | ) | 12,581,678 | |||||
Net Assets | ||||||||
Beginning of period | 199,028,602 | 186,446,924 | ||||||
|
| |||||||
End of period | $ | 176,611,710 | $ | 199,028,602 | ||||
|
| |||||||
Undistributed (distributions in excess of) net investment income at end of period | $ | 157,168 | $ | (87,026 | ) | |||
|
|
18 | MainStay Emerging Markets Debt 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 | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||
Net asset value at beginning of period | $ | 10.52 | $ | 9.60 | $ | 11.38 | $ | 11.52 | $ | 12.62 | $ | 11.83 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Net investment income (loss) (a) | 0.27 | 0.57 | 0.62 | 0.68 | 0.68 | 0.62 | |||||||||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.07 | 0.87 | (1.51 | ) | (0.14 | ) | (0.93 | ) | 1.11 | ||||||||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.00 | ‡ | 0.01 | 0.02 | (0.00 | )‡ | 0.01 | 0.02 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Total from investment operations | 0.34 | 1.45 | (0.87 | ) | 0.54 | (0.24 | ) | 1.75 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Less dividends and distributions: | |||||||||||||||||||||||||||||||||||
From net investment income | (0.26 | ) | (0.29 | ) | (0.63 | ) | (0.65 | ) | (0.86 | ) | (0.64 | ) | |||||||||||||||||||||||
From net realized gain on investments | — | — | (0.22 | ) | (0.03 | ) | — | (0.32 | ) | ||||||||||||||||||||||||||
Return of capital | — | (0.24 | ) | (0.06 | ) | — | — | — | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Total dividends and distributions | (0.26 | ) | (0.53 | ) | (0.91 | ) | (0.68 | ) | (0.86 | ) | (0.96 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Net asset value at end of period | $ | 10.60 | $ | 10.52 | $ | 9.60 | $ | 11.38 | $ | 11.52 | $ | 12.62 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Total investment return (b) | 3.33 | % | 15.63 | % | (7.54 | %) | 4.85 | % | (1.98 | %) | 15.68 | % | |||||||||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | |||||||||||||||||||||||||||||||||||
Net investment income (loss) | 5.32 | %†† | 5.70 | %(c) | 6.18 | % | 5.88 | % | 5.58 | % | 5.22 | % | |||||||||||||||||||||||
Net expenses | 1.24 | %†† | 1.22 | %(d) | 1.23 | % | 1.17 | % | 1.16 | % | 1.17 | % | |||||||||||||||||||||||
Portfolio turnover rate | 15 | % | 38 | % | 19 | % | 20 | % | 36 | % | 31 | % | |||||||||||||||||||||||
Net assets at end of period (in 000’s) | $ | 101,617 | $ | 109,657 | $ | 98,573 | $ | 132,654 | $ | 152,832 | $ | 179,430 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been 5.69%. |
(d) | Without the custody fee reimbursement, net expenses would have been 1.23%. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 19 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | ||||||||||||||||||||||||||||||||||
Investor Class | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||
Net asset value at beginning of period | $ | 10.61 | $ | 9.68 | $ | 11.46 | $ | 11.60 | $ | 12.71 | $ | 11.90 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Net investment income (loss) (a) | 0.27 | 0.55 | 0.61 | 0.66 | 0.67 | 0.61 | |||||||||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.07 | 0.88 | (1.52 | ) | (0.14 | ) | (0.94 | ) | 1.12 | ||||||||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.00 | ‡ | 0.01 | 0.02 | (0.00 | )‡ | 0.01 | 0.02 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Total from investment operations | 0.34 | 1.44 | (0.89 | ) | 0.52 | (0.26 | ) | 1.75 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Less dividends and distributions: | |||||||||||||||||||||||||||||||||||
From net investment income | (0.25 | ) | (0.27 | ) | (0.61 | ) | (0.63 | ) | (0.85 | ) | (0.62 | ) | |||||||||||||||||||||||
From net realized gain on investments | — | — | (0.22 | ) | (0.03 | ) | — | (0.32 | ) | ||||||||||||||||||||||||||
Return of capital | — | (0.24 | ) | (0.06 | ) | — | — | — | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Total dividends and distributions | (0.25 | ) | (0.51 | ) | (0.89 | ) | (0.66 | ) | (0.85 | ) | (0.94 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Net asset value at end of period | $ | 10.70 | $ | 10.61 | $ | 9.68 | $ | 11.46 | $ | 11.60 | $ | 12.71 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Total investment return (b) | 3.30 | % | 15.38 | % | (7.66 | %) | 4.64 | % | (2.18 | %) | 15.52 | % | |||||||||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | |||||||||||||||||||||||||||||||||||
Net investment income (loss) | 5.13 | %†† | 5.50 | %(c) | 6.01 | % | 5.71 | % | 5.49 | % | 5.10 | % | |||||||||||||||||||||||
Net expenses | 1.43 | %†† | 1.42 | %(d) | 1.41 | % | 1.34 | % | 1.30 | % | 1.29 | % | |||||||||||||||||||||||
Portfolio turnover rate | 15 | % | 38 | % | 19 | % | 20 | % | 36 | % | 31 | % | |||||||||||||||||||||||
Net assets at end of period (in 000’s) | $ | 25,848 | $ | 32,318 | $ | 25,130 | $ | 27,033 | $ | 27,918 | $ | 27,165 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been 5.49%. |
(d) | Without the custody fee reimbursement, net expenses would have been 1.43%. |
20 | MainStay Emerging Markets Debt 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 | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||
Net asset value at beginning of period | $ | 10.34 | $ | 9.44 | $ | 11.20 | $ | 11.35 | $ | 12.45 | $ | 11.68 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Net investment income (loss) (a) | 0.22 | 0.47 | 0.52 | 0.56 | 0.56 | 0.51 | |||||||||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.06 | 0.86 | (1.48 | ) | (0.13 | ) | (0.91 | ) | 1.09 | ||||||||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.00 | ‡ | 0.01 | 0.02 | (0.00 | )‡ | 0.01 | 0.02 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Total from investment operations | 0.28 | 1.34 | (0.94 | ) | 0.43 | (0.34 | ) | 1.62 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Less dividends and distributions: | |||||||||||||||||||||||||||||||||||
From net investment income | (0.21 | ) | (0.20 | ) | (0.54 | ) | (0.55 | ) | (0.76 | ) | (0.53 | ) | |||||||||||||||||||||||
From net realized gain on investments | — | — | (0.22 | ) | (0.03 | ) | — | (0.32 | ) | ||||||||||||||||||||||||||
Return of capital | — | (0.24 | ) | (0.06 | ) | — | — | — | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Total dividends and distributions | (0.21 | ) | (0.44 | ) | (0.82 | ) | (0.58 | ) | (0.76 | ) | (0.85 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Net asset value at end of period | $ | 10.41 | $ | 10.34 | $ | 9.44 | $ | 11.20 | $ | 11.35 | $ | 12.45 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Total investment return (b) | 2.81 | % | 14.60 | % | (8.36 | %) | 3.87 | % | (2.89 | %) | 14.60 | % | |||||||||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | |||||||||||||||||||||||||||||||||||
Net investment income (loss) | 4.38 | %†† | 4.78 | %(c) | 5.24 | % | 4.97 | % | 4.70 | % | 4.35 | % | |||||||||||||||||||||||
Net expenses | 2.18 | %†† | 2.17 | %(d) | 2.16 | % | 2.09 | % | 2.05 | % | 2.04 | % | |||||||||||||||||||||||
Portfolio turnover rate | 15 | % | 38 | % | 19 | % | 20 | % | 36 | % | 31 | % | |||||||||||||||||||||||
Net assets at end of period (in 000’s) | $ | 6,926 | $ | 7,506 | $ | 8,111 | $ | 12,109 | $ | 15,290 | $ | 20,101 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been 4.77%. |
(d) | Without the custody fee reimbursement, net expenses would have been 2.18%. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 21 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | ||||||||||||||||||||||||||||||||||
Class C | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||
Net asset value at beginning of period | $ | 10.35 | $ | 9.45 | $ | 11.22 | $ | 11.37 | $ | 12.46 | $ | 11.69 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Net investment income (loss) (a) | 0.22 | 0.47 | 0.52 | 0.56 | 0.56 | 0.51 | |||||||||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.07 | 0.86 | (1.49 | ) | (0.13 | ) | (0.90 | ) | 1.09 | ||||||||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.00 | ‡ | 0.01 | 0.02 | (0.00 | )‡ | 0.01 | 0.02 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Total from investment operations | 0.29 | 1.34 | (0.95 | ) | 0.43 | (0.33 | ) | 1.62 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Less dividends and distributions: | |||||||||||||||||||||||||||||||||||
From net investment income | (0.21 | ) | (0.20 | ) | (0.54 | ) | (0.55 | ) | (0.76 | ) | (0.53 | ) | |||||||||||||||||||||||
From net realized gain on investments | — | — | (0.22 | ) | (0.03 | ) | — | (0.32 | ) | ||||||||||||||||||||||||||
Return of capital | — | (0.24 | ) | (0.06 | ) | — | — | — | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Total dividends and distributions | (0.21 | ) | (0.44 | ) | (0.82 | ) | (0.58 | ) | (0.76 | ) | (0.85 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Net asset value at end of period | $ | 10.43 | $ | 10.35 | $ | 9.45 | $ | 11.22 | $ | 11.37 | $ | 12.46 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Total investment return (b) | 2.81 | % | 14.58 | % | (8.43 | %) | 3.87 | % | (2.80 | %) | 14.59 | % | |||||||||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | |||||||||||||||||||||||||||||||||||
Net investment income (loss) | 4.38 | %†† | 4.77 | %(c) | 5.24 | % | 4.97 | % | 4.69 | % | 4.35 | % | |||||||||||||||||||||||
Net expenses | 2.18 | %†† | 2.17 | %(d) | 2.16 | % | 2.09 | % | 2.05 | % | 2.04 | % | |||||||||||||||||||||||
Portfolio turnover rate | 15 | % | 38 | % | 19 | % | 20 | % | 36 | % | 31 | % | |||||||||||||||||||||||
Net assets at end of period (in 000’s) | $ | 31,086 | $ | 35,789 | $ | 37,808 | $ | 56,199 | $ | 68,629 | $ | 91,002 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been 4.76%. |
(d) | Without the custody fee reimbursement, net expenses would have been 2.18%. |
22 | MainStay Emerging Markets Debt 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 | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||
Net asset value at beginning of period | $ | 10.53 | $ | 9.61 | $ | 11.39 | $ | 11.53 | $ | 12.63 | $ | 11.84 | |||||||||||||||||||||||
|
|
|
|
|
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Net investment income (loss) (a) | 0.29 | 0.59 | 0.65 | 0.71 | 0.71 | 0.66 | |||||||||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.06 | 0.88 | (1.52 | ) | (0.14 | ) | (0.93 | ) | 1.10 | ||||||||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.00 | ‡ | 0.01 | 0.02 | (0.00 | )‡ | 0.01 | 0.02 | |||||||||||||||||||||||||||
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Total from investment operations | 0.35 | 1.48 | (0.85 | ) | 0.57 | (0.21 | ) | 1.78 | |||||||||||||||||||||||||||
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Less dividends and distributions: | |||||||||||||||||||||||||||||||||||
From net investment income | (0.27 | ) | (0.32 | ) | (0.65 | ) | (0.68 | ) | (0.89 | ) | (0.67 | ) | |||||||||||||||||||||||
From net realized gain on investments | — | — | (0.22 | ) | (0.03 | ) | — | (0.32 | ) | ||||||||||||||||||||||||||
Return of capital | — | (0.24 | ) | (0.06 | ) | — | — | — | |||||||||||||||||||||||||||
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Total dividends and distributions | (0.27 | ) | (0.56 | ) | (0.93 | ) | (0.71 | ) | (0.89 | ) | (0.99 | ) | |||||||||||||||||||||||
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Net asset value at end of period | $ | 10.61 | $ | 10.53 | $ | 9.61 | $ | 11.39 | $ | 11.53 | $ | 12.63 | |||||||||||||||||||||||
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Total investment return (b) | 3.46 | % | 15.90 | % | (7.30 | %) | 5.11 | % | (1.73 | %) | 15.95 | % | |||||||||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | |||||||||||||||||||||||||||||||||||
Net investment income (loss) | 5.58 | %†† | 5.96 | %(c) | 6.38 | % | 6.13 | % | 5.86 | % | 5.47 | % | |||||||||||||||||||||||
Net expenses | 0.99 | %†† | 0.97 | %(d) | 0.98 | % | 0.92 | % | 0.91 | % | 0.92 | % | |||||||||||||||||||||||
Portfolio turnover rate | 15 | % | 38 | % | 19 | % | 20 | % | 36 | % | 31 | % | |||||||||||||||||||||||
Net assets at end of period (in 000’s) | $ | 11,135 | $ | 13,759 | $ | 16,825 | $ | 41,174 | $ | 43,678 | $ | 48,852 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been 5.95%. |
(d) | Without the custody fee reimbursement, net expenses would have been 0.98%. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 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 Emerging Markets Debt Fund (formerly known as MainStay Global High Income Fund) (the “Fund”), a “diversified” fund as that term is defined in the 1940 Act as Interpreted or modified by regulatory authorities having jurisdiction from time to time.
The Fund currently offers seven 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. Class R6 and Class T shares of the Fund were registered for sale effective as of February 28, 2017. As of the period ended April 30, 2017, Class R6 and Class T shares had no investment operations. Effective February 28, 2017, Class B shares of the MainStay Group of Funds were closed to all new purchases as well as additional investments by existing Class B shareholders. Existing Class B shareholders may continue to reinvest dividends and capital gains distributions, as well as exchange their Class B shares for Class B shares of other Funds as permitted by the current exchange privileges. Class B shareholders continue to be subject to any applicable contingent deferred sales charge at the time of redemption. All other features of the Class B shares, including but not limited to the fees and expenses applicable to Class B shares, remain unchanged. Unless redeemed, Class B shareholders will remain in Class B shares of their respective Fund until the Class B shares are converted to Class A or Investor Class shares pursuant to the applicable conversion schedule.
Class A and Investor Class shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No initial sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Class A and Investor Class shares. Effective August 1, 2017, a contingent deferred sales charge (“CDSC”) of 1.00% may be imposed on certain redemptions of Class A and Investor Class shares made within 18 months of the date of purchase on shares that were purchased without an initial sales charge. For purchases of Class A and Investor Class shares made from January 1, 2017 through July 31, 2017, a CDSC of 1.00% may be imposed on certain redemptions of such shares made within 24 months of the date of purchase on shares that were purchased without an initial sales charge. For purchases of Class A and Investor Class shares made prior to January 1, 2017, a CDSC of 1.00% may be imposed on certain redemptions made within one year of the date of purchase on shares that were purchased without an initial sales charge. Class C shares are offered at NAV without an initial sales charge, although a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. When Class B shares were offered, they were offered at NAV without an initial sales charge, although a CDSC that declines depending on the number of years a shareholder has held its Class B shares may be imposed on redemptions made within six years of the date of purchase of such shares. Class T shares are offered at NAV per share plus an initial sales charge. Class I shares are offered at NAV and
are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Class A or Investor Class shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Class A shares may convert to Investor Class shares and Investor Class shares may convert to Class A shares. Under certain circumstances and as may be permitted by the Trust’s multiple class plan under Rule 18f-3 of the 1940 Act, an exchange/conversion may be made from specified share classes of the Fund to one or more other share classes of the Fund as disclosed in the capital share transactions within these Notes. The seven 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 under distribution plans pursuant to Rule 12b-1 under the 1940 Act, Class B and Class C shares are subject to higher distribution and/or service fee rates than Class A, Investor Class and Class T shares. Class I and Class R6 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.
Note 2–Significant Accounting Policies
The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services—Investment Companies. 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 usually valued as of the close of regular trading on the New York Stock Exchange (the “Exchange”) (usually 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 establishing methodologies for the valuation of the Fund’s securities and other assets and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Trust (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 establishing the prices of securities for which market quotations are not readily available or the prices of which are not otherwise readily determinable under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. Subsequently, the Valuation Committee meets 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 the day-to-day valuation of portfolio assets (including fair value measurements for the Fund’s assets and liabilities) 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, Subadvisor 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
24 | MainStay Emerging Markets Debt Fund |
day prices and challenges prices with changes 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, if appropriate, 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 or other asset is submitted by the Valuation Committee to the Board for its review and ratification, if appropriate, at its next regularly scheduled meeting.
“Fair value” is defined as the price the Fund would reasonably expect to 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 establishes 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 assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities. 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) |
The level of an asset or liability within the fair value hierarchy is based on the lowest level of an input, both individually and in the aggregate, that is significant to the fair value measurement. As of April 30, 2017, the aggregate value by input level of the Fund’s assets and 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 is valued by methods deemed reasonable 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. Fair value represents a good faith approximation of the value of a security. Fair value determinations involve the consideration of a number of subjective factors, an analysis of applicable facts and circumstances and the exercise of judgment. As a result, it is possible that the fair value for a security determined in good faith in accordance with the Fund’s valuation procedures may differ from valuations for the same security determined by other funds using their own valuation procedures. Although the Fund’s valuation procedures are designed to value a security at the price the Fund may reasonably expect to receive upon its sale in an orderly transaction, there can be no assurance that any fair value determination thereunder would, in fact, approximate the amount that the Fund would actually realize upon the sale of the security or the price at which the security would trade if a reliable market price were readily available. During the six-month period ended April 30, 2017, there were 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, 2017, there were no securities held by the Fund that were fair valued in such a manner.
Options contracts are valued at the last posted settlement price on the market where such options are primarily traded. Futures contracts are
25 |
Notes to Financial Statements (Unaudited) (continued)
valued at the last posted settlement price on the market where such futures are primarily traded. Investments in mutual funds, including money market 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 brokers selected by the Manager, in consultation with the Subadvisor. Those values reflect broker/dealer supplied prices and electronic data processing techniques, if the evaluated bid or mean 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, 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 at the time of purchase 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 using the amortized cost method of valuation, unless the use of such method would be inappropriate. 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 using the amortized cost method are not valued using quoted prices in an active market and 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.
The information above is not intended to reflect an exhaustive list of the methodologies that may be used to value portfolio investments. The valuation procedures permit the use of a variety of valuation methodologies in connection with valuing portfolio investments. The methodology used for a specific type of investment may vary based on the market data available or other considerations. The methodologies summarized above may not represent the specific means by which portfolio investments are valued on any particular business day.
A Fund security or other asset may be determined to be illiquid under procedures approved by the Board. Illiquidity of a security 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 the 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 materially
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 determines 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 are often valued in accordance with methods deemed by the Board in good faith to be reasonable and appropriate to accurately reflect their fair value. The liquidity of the Fund’s investments, as shown in the Portfolio of Investments, was determined as of April 30, 2017 and can change at any time in response to, among other relevant factors, market conditions or events or developments with respect to an individual issuer or instrument. As of April 30, 2017, the Fund did not hold any securities deemed to be illiquid under procedures approved by the Board.
(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 its 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 permitted only to the extent 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 it invests. A portion of the taxes on gains on investments or currency purchases/repatriation may be reclaimable. The Fund will accrue such taxes and reclaims 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.
26 | MainStay Emerging Markets Debt Fund |
(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. 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 accreted daily based on the effective interest method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated pro rata to separate classes of shares 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 security on non-accrual status and reduce related interest income by ceasing current accruals and writing off all or a portion of any interest receivables when the collection of all or a portion of such interest has become doubtful. A debt security 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/or 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 (i.e., buy a security from another party with the agreement that it be sold back in the future) to earn income. The Fund may enter into repurchase agreements only with counterparties, usually 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 the Fund to the counterparty secured by the securities transferred to the Fund.
Repurchase agreements are subject to counterparty risk, meaning the Fund could lose money by the counterparty’s failure to perform under the terms of the agreement. The Fund mitigates this risk by ensuring the repurchase agreement is collateralized by cash, U.S. government securities, fixed income securities and/or other securities. The collateral is held by the Fund’s custodian 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 counterparty’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, realization and/or retention of the collateral may be limited or subject to delay, 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 risks such as market price risk and/or interest rate risk in the normal course of investing in these transactions. Upon entering into a futures contract, the Fund is required to pledge to the broker or futures commission merchant an amount of cash and/or U.S. Government securities equal to a certain percentage of the collateral amount, known as the “initial margin.” 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 or futures commission merchant 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. There are several risks associated with the use of futures contracts as hedging techniques. There can be no assurance that a liquid market will exist at the time when the Fund seeks to close out a futures contract. If no liquid market exists, the Fund would remain obligated to meet margin requirements until the position is closed. Futures may involve a small initial investment relative to the risk assumed, which could result in losses greater than if they had not been used. Futures may be more volatile than direct investments in the instrument underlying the futures, and may not correlate to the underlying instrument, causing a given hedge not to achieve its objectives. 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 the entire 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 NAVs 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 foreign currencies 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
27 |
Notes to Financial Statements (Unaudited) (continued)
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 risk in excess of the amount recognized in the Statement of Assets and Liabilities, including counterparty risk, market risk, and illiquidity risk. Counterparty risk is heightened for these instruments because foreign currency forward contracts are not exchange-traded and therefore no clearinghouse or exchange stands ready to meet the obligations under such contracts. Thus, the Fund faces the risk that its counterparties under such contracts may not perform their obligations. Market risk is the risk that the value of a foreign currency forward contract will depreciate due to unfavorable changes in exchange rates. Illiquidity risk arises because the secondary market for foreign currency forward contracts may have less liquidity relative to markets for other securities and financial instruments. Risks also 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 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 also reflects the Fund’s exposure at the valuation date to credit loss in the event of a counterparty’s failure to perform its obligations.
(K) Foreign Currency Transactions. The Fund’s books and records are maintained 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 (“SEC”). 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 collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund against counterparty risk. The loans will be collateralized by U.S. Treasury securities at least equal at all times to the market value of the securities loaned. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record a realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund bears the risk of any loss on investment of the collateral. The Fund will receive compensation for lending its securities in the form of fees or it will retain a portion of interest on the investment of any cash received as collateral. The Fund will also 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. During the six-month period ended April 30, 2017, the Fund did not have any portfolio securities on loan.
(M) High Yield and General Debt Securities Risk. The Fund’s principal investments include high yield debt securities (commonly referred to as “junk bonds”), which are considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities pay investors a premium—a higher interest rate or yield than investment grade debt securities—because of the increased risk of loss. These securities can also be subject to greater price volatility. In times of unusual or adverse market economic or political conditions, these securities may experience higher than normal default rates.
The Fund may invest in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic securities. 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.
28 | MainStay Emerging Markets Debt Fund |
(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 related to 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. The Fund entered into futures contracts to help manage the duration and yield curve positioning of the portfolio while minimizing the exposure to wider bid/ask spreads in traditional bonds. The Fund also entered into foreign currency forward contracts to hedge against the risk of loss due to changing currency exchange rates. These derivatives are not accounted for as hedging instruments.
Fair value of derivatives instruments as of April 30, 2017:
Asset Derivatives
Statement of Assets and Liabilities Location | Foreign Exchange Contracts Risk | Total | ||||||
Forward Contracts | Unrealized appreciation on foreign currency forward contracts | $175,033 | $ | 175,033 | ||||
| ||||||||
Total Fair Value | $175,033 | $ | 175,033 | |||||
|
Liability Derivatives
Statement of Assets and Liabilities Location | Foreign Exchange Contracts Risk | Total | ||||||
Forward Contracts | Unrealized depreciation on foreign currency forward contracts | $(53,167) | $ | (53,167 | ) | |||
| ||||||||
Total Fair Value | $(53,167) | $ | (53,167 | ) | ||||
|
The effect of derivative instruments on the Statement of Operations for the period ended April 30, 2017:
Realized Gain (Loss)
Statement of Operations Location | Foreign Exchange Contracts Risk | Total | ||||||||
Forward Contracts | Net realized gain (loss) on foreign currency transactions | $ | 86,025 | $ | 86,025 | |||||
|
| |||||||||
Total Realized Gain (Loss) | $ | 86,025 | $ | 86,025 | ||||||
|
|
Change in Unrealized Appreciation (Depreciation)
Statement of Operations Location | Foreign Exchange Contracts Risk | Total | ||||||||
Forward Contracts | Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | $ | 27,261 | $ | 27,261 | |||||
|
| |||||||||
Total Change in Unrealized Appreciation (Depreciation) | $ | 27,261 | $ | 27,261 | ||||||
|
|
Average Notional Amount
Foreign Exchange Contracts Risk | Total | |||||||
Forward Contracts Long | $ | 1,980,047 | $ | 1,980,047 | ||||
Forward Contracts Short | $ | (1,046,098 | ) | $ | (1,046,098 | ) | ||
|
|
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 attributable to 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 Amended and Restated Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and MacKay Shields, New York Life Investments pays for the services of the Subadvisor.
Under the Management Agreement, 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. During the six-month period ended April 30, 2017, the effective management fee rate was 0.72% inclusive of a fee
29 |
Notes to Financial Statements (Unaudited) (continued)
for fund accounting services of 0.03% of the Fund’s average daily net assets.
During the six-month period ended April 30, 2017, New York Life Investments earned fees from the Fund in the amount of $638,070.
State Street 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 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 Class A, Investor Class and Class T Plans, the Distributor receives a monthly distribution fee from the Class A, Investor Class and Class T shares at an annual rate of 0.25% of the average daily net assets of the Class A, Investor Class and Class T 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 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.
(C) Sales Charges. During the six-month period ended April 30, 2017, the Fund was advised by the Distributor that the amount of initial sales charges retained on sales of Class A and Investor Class shares were $8,669 and $4,049, respectively.
During the six-month period ended April 30, 2017, the Fund was also advised that the Distributor retained CDSCs on redemptions of Class B and Class C shares of $5,128 and $1,509, respectively.
(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. During the
six-month period ended April 30, 2017, transfer agent expenses incurred by the Fund were as follows:
Class A | $ | 66,192 | ||
Investor Class | 41,407 | |||
Class B | 10,993 | |||
Class C | 51,464 | |||
Class I | 7,541 |
(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, 2017, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class A | $ | 3,556,879 | 3.5 | % |
Note 4–Federal Income Tax
During the year ended October 31, 2016, the tax character of distributions paid as reflected in the Statements of Changes in Net Assets was as follows:
2016 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 5,155,675 | ||
Return of Capital | 4,417,544 | |||
Total | $ | 9,573,219 |
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 transactions incurred by the Fund.
Note 6–Line of Credit
The Fund and certain other funds managed by New York Life Investments, 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 2, 2016, under an amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $600,000,000 with an additional uncommitted amount of $100,000,000. The commitment fee is an annual rate of 0.15% 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 their respective net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances
30 | MainStay Emerging Markets Debt Fund |
Rate or the one month London InterBank Offered Rate, whichever is higher. The Credit Agreement expires on August 1, 2017, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 2, 2016, the aggregate commitment amount was $600,000,000 with an additional uncommitted amount of $100,000,000, and the commitment fee was at an annual rate of 0.10% of the average commitment amount. During the six-month period ended April 30, 2017, there were no borrowings made or outstanding with respect to the Fund under the Credit Agreement.
Note 7–Interfund Lending Program
Pursuant to an exemptive order issued by the SEC, the Fund, along with certain other funds managed by New York Life Investments, may participate in an interfund lending program. The interfund lending program provides an alternative credit facility that permits the Fund and certain other funds managed by New York Life Investments to lend or borrow money for temporary purposes directly to or from one another subject to the conditions of the exemptive order. During the six-month period ended April 30, 2017, there were no interfund loans made or outstanding with respect to the Fund.
Note 8–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2017, purchases and sales of securities, other than short-term securities, were $26,002 and $48,457, respectively.
Note 9–Capital Share Transactions
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 868,012 | $ | 9,050,956 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 216,827 | 2,233,571 | ||||||
Shares redeemed | (1,935,144 | ) | (20,029,536 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (850,305 | ) | (8,745,009 | ) | ||||
Shares converted into Class A (See Note 1) | 62,913 | 651,241 | ||||||
Shares converted from Class A (See Note 1) | (52,549 | ) | (546,010 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (839,941 | ) | $ | (8,639,778 | ) | |||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 3,503,620 | $ | 35,621,956 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 481,703 | 4,776,515 | ||||||
Shares redeemed | (4,050,073 | ) | (40,976,204 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (64,750 | ) | (577,733 | ) | ||||
Shares converted into Class A (See Note 1) | 279,282 | 2,834,047 | ||||||
Shares converted from Class A (See Note 1) | (57,052 | ) | (572,828 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 157,480 | $ | 1,683,486 | |||||
|
|
|
| |||||
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 121,194 | $ | 1,263,569 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 57,616 | 598,779 | ||||||
Shares redeemed | (803,935 | ) | (8,266,919 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (625,125 | ) | (6,404,571 | ) | ||||
Shares converted into Investor Class (See Note 1) | 56,142 | 587,217 | ||||||
Shares converted from Investor Class (See Note 1) | (60,028 | ) | (627,123 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (629,011 | ) | $ | (6,444,477 | ) | |||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 855,021 | $ | 9,110,002 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 130,823 | 1,308,977 | ||||||
Shares redeemed | (389,117 | ) | (3,894,045 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 596,727 | 6,524,934 | ||||||
Shares converted into Investor Class (See Note 1) | 123,330 | 1,238,250 | ||||||
Shares converted from Investor Class (See Note 1) | (270,240 | ) | (2,767,491 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 449,817 | $ | 4,995,693 | |||||
|
|
|
| |||||
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 31,858 | $ | 323,549 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 12,879 | 130,303 | ||||||
Shares redeemed | (73,843 | ) | (742,559 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (29,106 | ) | (288,707 | ) | ||||
Shares converted from Class B (See Note 1) | (31,969 | ) | (322,012 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (61,075 | ) | $ | (610,719 | ) | |||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 98,628 | $ | 964,043 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 31,332 | 304,370 | ||||||
Shares redeemed | (186,521 | ) | (1,794,524 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (56,561 | ) | (526,111 | ) | ||||
Shares converted from Class B (See Note 1) | (76,204 | ) | (739,652 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (132,765 | ) | $ | (1,265,763 | ) | |||
|
|
|
| |||||
31 |
Notes to Financial Statements (Unaudited) (continued)
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 140,492 | $ | 1,429,069 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 57,005 | 577,308 | ||||||
Shares redeemed | (674,280 | ) | (6,834,263 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (476,783 | ) | $ | (4,827,886 | ) | |||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 519,985 | $ | 5,052,581 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 137,661 | 1,340,368 | ||||||
Shares redeemed | (1,198,526 | ) | (11,609,014 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (540,880 | ) | $ | (5,216,065 | ) | |||
|
|
|
| |||||
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 325,106 | $ | 3,381,845 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 21,257 | 219,241 | ||||||
Shares redeemed | (628,512 | ) | (6,437,446 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (282,149 | ) | (2,836,360 | ) | ||||
Shares converted into Class I (See Note 1) | 24,645 | 256,687 | ||||||
|
|
|
| |||||
Net increase (decrease) | (257,504 | ) | $ | (2,579,673 | ) | |||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 685,551 | $ | 6,928,472 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 43,563 | 432,725 | ||||||
Shares redeemed | (1,174,000 | ) | (11,590,399 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (444,886 | ) | (4,229,202 | ) | ||||
Shares converted into Class I (See Note 1) | 764 | 7,674 | ||||||
|
|
|
| |||||
Net increase (decrease) | (444,122 | ) | $ | (4,221,528 | ) | |||
|
|
|
|
Note 10–Recent Accounting Pronouncement
In October 2016, the SEC adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the Fund’s financial statements and related disclosures.
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, 2017, events and transactions subsequent to April 30, 2017, 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 Emerging Markets Debt Fund |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited)
Section 15 of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of trustees initially approve and, following an initial term of up to two years, annually review and approve the fund’s investment advisory agreement(s). At its December 12-14, 2016 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 (Now known as the MainStay Emerging Markets Debt 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 2016 and December 2016, as well as other relevant information furnished to the Board throughout the year. 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 fee and total expenses. The Board also considered information on the fees charged to any other investment advisory clients of New York Life Investments and MacKay Shields (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 Trustees who are not “interested persons” (as such term is defined under the 1940 Act) of the Fund (the “Independent Trustees”). Information provided to the Board in advance of and during meetings throughout the year included, among other items, information regarding the legal standards applicable to their consideration of the Agreements and 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, risk management, portfolio turnover, and sales and marketing activity. At various meetings, the Independent Trustees also met in executive session with their independent legal counsel, and met with senior management of New York Life Investments without other representatives of New York Life Investments present.
Throughout the year and specifically in connection with its June meeting each year, the Board also received an overview of the Funds’ distribution arrangements. In addition, the Board received information regarding the Fund’s asset levels, share purchase and redemption activity and the payment of Rule 12b-1 distribution and service fees by the Fund. New York Life Investments also provided the Board with information regarding the revenue sharing payments made to
intermediaries that promote the sale, distribution, and/or servicing of Fund shares.
In considering the Agreements, the Trustees comprehensively 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 described in greater detail below and included, among other items: (i) the nature, extent 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 have been realized or may be realized if the Fund grows and the extent to which economies of scale have benefited or may benefit Fund shareholders; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to any similar funds and accounts managed by New York Life Investments and MacKay Shields. Although the Board recognized that the comparisons between the Fund’s fees and expenses and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Board also considered the reasonableness of the Fund’s management fee and overall total ordinary operating expenses as compared to the peer funds identified by Strategic Insight.
While individual Trustees may have weighed certain factors or information differently, the Board’s decision to approve the Agreements was based on a consideration of the information provided to the Trustees throughout the year, as well as information furnished specifically in connection with the contract review process. Throughout the year, the Trustees are also afforded an opportunity to ask questions of and request additional information or materials from New York Life Investments and MacKay Shields. The Board’s conclusions with respect to the Agreements may have been based, in part, on the Board’s knowledge of New York Life Investments and MacKay Shields resulting from, among other things, the Board’s consideration of the MainStay Group of Funds’ advisory 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. The factors that figured prominently in the Board’s decision to approve the Agreements are summarized in more detail below.
Nature, Extent and Quality of Services to Be Provided by New York Life Investments and MacKay Shields
The Board examined the nature, extent and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience and capabilities 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
33 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
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 observed that New York Life Investments devotes significant resources and time to providing advisory and non-advisory services to the Fund, including its extensive oversight of MacKay Shields. The Board also considered the full range of services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and on-going oversight services provided by New York Life Investments’ Fund Administration and Accounting 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; (iv) legal services provided by New York Life Investments’ Office of the General Counsel; and (v) risk management and portfolio trading oversight and analysis by compliance and investment personnel. 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, infrastructure, technology, operational enhancements, cyber security, information security and shareholder privacy resources 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, extent and quality of the investment 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 records 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 further considered New York Life Investments’ policies, procedures and systems to reasonably assure compliance with applicable laws and regulations. In addition, the Board considered the policies and procedures in place with respect to matters that may involve conflicts of interest between the Fund’s investments and those of other accounts managed by MacKay Shields. 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, extent 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, and in light of market conditions. 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’s Investment Committee that occur regularly, generally 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 of the services provided by New York Life Investments and MacKay Shields and profits realized by 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
34 | MainStay Emerging Markets Debt Fund |
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 recognized that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds, among other benefits resulting from its relationship with New York Life Investments.
In addition, the Board acknowledged 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. In connection with the annual fund profitability analysis that New York Life Investments presents to the Board, the Board in 2014 engaged Bobroff Consulting, Inc., an independent third-party consultant, to review the methods used to allocate costs to the MainStay Funds, and among individual Funds. As part of this engagement, the consultant analyzed: (i) the various New York Life Investments’ business units and affiliated Subadvisers that provide services to the MainStay Funds; (ii) how costs are allocated to the Fund and other funds managed by New York Life Investments, and to other lines of businesses; and (iii) how New York Life Investments’ cost allocation methods and profitability reports compare to industry practices. The Board noted that the independent consultant had concluded that New York Life Investments’ methods for allocating costs and procedures for estimating overall profitability of the funds in the MainStay Group of Funds, including the Fund, are reasonable, consistent with industry practice and likely to produce reasonable profitability estimates. Although the Board recognized 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 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 incurred by New York Life Investments from its own resources.
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 Fund and other funds in the MainStay Group of Funds. 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, initially setting relatively low management fees or making additional investments to enhance shareholder services. 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. Additionally, the Board considered New York Life Investments’ assessment of the extent economies of scale existed for Funds that had experienced significant increases of assets during the year.
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, because 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 that follow similar investment strategies 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
35 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
provided to registered investment companies 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 also considered its discussions with representatives from New York Life Investments regarding the Fund’s net management fee.
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 demonstrating 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 also noted information received from NYLIM Service Company LLC regarding the sub-transfer agency payments it made to intermediaries in connection with the 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 a number of 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 recognized 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) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iii) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (iv) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (v) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vi) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. The Board also considered that NYLIM Service Company LLC had waived its cost of living adjustments in 2015, 2016 and 2017. In addition, the
Board acknowledged New York Life Investments’ continued 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 and factors summarized above and the evaluation thereof, the Board as a whole, including the Independent Trustees who are not parties to the Agreements or “interested persons” of any such party voting separately, unanimously voted to approve the Agreements.
36 | MainStay Emerging Markets Debt 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; and (ii) on the Securities and Exchange Commission’s (“SEC”) 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 or proxy voting record is available free of charge upon request by calling 800-MAINSTAY (624-6782); visiting the Fund’s website at mainstayinvestments.com; or 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).
37 |
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MainStay Funds
Equity
U.S. Equity
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay Epoch U.S. Small Cap Fund
MainStay ICAP Equity Fund1
MainStay ICAP Select Equity Fund1
MainStay Large Cap Growth Fund
MainStay MAP Equity Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
International/Global Equity
MainStay Emerging Markets Equity Fund
MainStay Epoch Capital Growth Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Choice Fund
MainStay Epoch International Small Cap Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond
MainStay Emerging Markets Debt Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay Indexed Bond Fund
MainStay Short Duration High Yield Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal/Tax Advantaged Bond
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Advantaged Short Term Bond Fund
MainStay Tax Free Bond Fund
Money Market
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
Alternative
MainStay Absolute Return Multi-Strategy Fund
MainStay Cushing Energy Income Fund
MainStay Cushing MLP Premier Fund
MainStay Cushing Renaissance Advantage 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
MainStay Retirement 2060 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Candriam France S.A.S.4
Paris, France
Cornerstone Capital Management Holdings LLC4
New York, New York
Cushing Asset Management, LP
Dallas, Texas
Epoch Investment Partners, Inc.
New York, New York
MacKay Shields LLC4
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC4
New York, New York
Winslow Capital Management, LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Washington, District of Columbia
Independent Registered Public Accounting Firm
KPMG LLP
Philadelphia, Pennsylvania
1. On May 8, 2017, the Fund merged into MainStay Epoch U.S. Equity Yield Fund. Former shareholders of this Fund can request the Fund’s Semiannual Report by calling 800-MAINSTAY (624-6782).
2. Class A and Class I shares of this Fund are registered for sale in AZ, CA, MI, NV, OR, TX, UT and WA. Class I shares are registered for sale in CO, FL, GA, HI, ID, MA, MD, NH, NJ and NY.
3. This Fund is registered for sale in CA, CT, DE, FL, MA, NJ, NY and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Semiannual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
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. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
©2017 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 |
1738550 MS144-17 | MSEMD10-06/17 (NYLIM) NL020 |
MainStay International Equity Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2017
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Message from the President
The six months ended April 30, 2017, proved to be a strong period for many equity investors but presented challenges for some bond investors.
The reporting period began with considerable uncertainty about the outcome of the U.S. election. Once the Republicans gained control of the White House, the Senate and the House of Representatives, however, many investors hoped to see an end to political gridlock; and although debate has continued on a number of issues, the U.S. stock market steadily climbed through the end of the reporting period.
According to FTSE-Russell U.S. market data, stocks at all capitalization levels earned double-digit overall returns during the reporting period. Although growth stocks outperformed value stocks at most capitalization levels, value stocks outperformed growth stocks among micro-cap stocks.
In December 2016 and March 2017, the Federal Reserve announced increases in the target range for the federal funds rate. These moves, which brought the federal funds target range to 0.75% to 1.00%, were felt across the bond market. During the reporting period, yields rose on U.S. Treasury securities of all maturities, with the largest absolute increase on the 5-year U.S. Treasury note. On a percentage basis, however, the largest increases were at the short end of the maturity spectrum, with yields on the 1- and 3-month U.S. Treasury bills more than doubling during the reporting period.
When interest rates rise, bond prices tend to decline (and vice versa). As a result, several broad fixed-income asset classes—including U.S. government and agency bonds, mortgage-backed securities, investment-grade debt and municipal bonds—recorded negative total returns for the reporting period. Convertible securities, high-yield bonds and floating-rate loans, which tend to be less sensitive to interest-rate changes, provided positive total returns.
International stock markets generally advanced during the reporting period, with European stocks providing strong
double-digit returns. The Pacific region and Japan were weaker but provided positive returns in the single digits. Emerging markets also provided solid performance for the reporting period, despite modest commodity prices.
Many short-term political, economic and world events affected the markets during the reporting period. Nevertheless, at MainStay, we believe that the primary concern of our portfolio managers should be the long-term welfare of our shareholders, and we appreciate the discipline our portfolio managers seek to apply in their long-term investment decisions.
Our portfolio managers seek to pursue the investment objectives of their respective MainStay Funds using the various investment strategies outlined in the Fund’s Prospectus. Utilizing their years of professional market experience, they seek to enhance returns when possible, manage risk as necessary and view short-term events in light of long-term investment goals. At MainStay, we believe that shareholders who maintain a long-term perspective may be better able to weather turbulent markets, avoid selling when prices are low and stay focused on their reasons for choosing MainStay Funds.
The report that follows provides more detailed information about the markets, securities and decisions that affected your MainStay Fund during the six months ended April 30, 2017. We invite you to read it carefully and use the information as part of your ongoing portfolio evaluation and review.
Sincerely,
Stephen P. Fisher
President
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, 30 Hudson Street, Jersey City, NJ 07302 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 and other factors, 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, 2017
Class | Sales Charge | Inception Date | Six Months | One Year | Five Years | Ten Years | Gross Expense Ratio2 | |||||||||||||||||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges | 1/3/1995 | | 3.53 9.56 | %
| | 4.85 10.96 | %
| | 4.26 5.44 | %
| | 0.57 1.14 | %
| | 1.33 1.33 | %
| ||||||||||
Investor Class Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges | 2/28/2008 | | 3.30 9.31 |
| | 4.46 10.54 |
| | 3.89 5.08 |
| | 1.24 1.86 |
| | 1.70 1.70 |
| ||||||||||
Class B Shares3 | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges | 9/13/1994 | | 3.93 8.93 |
| | 4.74 9.74 |
| | 3.94 4.28 |
| | 0.07 0.07 |
| | 2.45 2.45 |
| ||||||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges | 9/1/1998 | | 7.93 8.93 |
| | 8.65 9.65 |
| | 4.28 4.28 |
| | 0.08 0.08 |
| | 2.45 2.45 |
| ||||||||||
Class I Shares | No Sales Charge | 1/2/2004 | 9.66 | 11.21 | 5.69 | 1.42 | 1.08 | |||||||||||||||||||||
Class R1 Shares | No Sales Charge | 1/2/2004 | 9.59 | 11.07 | 5.58 | 1.32 | 1.18 | |||||||||||||||||||||
Class R2 Shares | No Sales Charge | 1/2/2004 | 9.49 | 10.88 | 5.33 | 1.08 | 1.42 | |||||||||||||||||||||
Class R3 Shares | No Sales Charge | 4/28/2006 | 9.30 | 10.53 | 5.05 | 0.82 | 1.68 |
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, if any, 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 may 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 (if any), 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. | Class B shares are closed to all new purchases as well as additional investments by existing Class B shareholders. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
5 |
Benchmark Performance | Six Months | One Year | Five Years | Ten Years | ||||||||||||
MSCI ACWI® Ex U.S. Index4 | 10.37 | % | 12.59 | % | 5.13 | % | 1.12 | % | ||||||||
MSCI EAFE® Index5 | 11.47 | 11.29 | 6.78 | 0.87 | ||||||||||||
Average Lipper International Multi-Cap Growth Fund6 | 10.32 | 11.53 | 6.05 | 1.27 |
4. | The Fund has selected the MSCI ACWI® Ex U.S. Index as its primary broad-based securities market index. The MSCI ACWI® Ex U.S. Index 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. Results assume reinvestment of all income and capital gains. An investment cannot be made directly in an index. |
5. | The MSCI EAFE® Index is the Fund’s secondary benchmark. The MSCI EAFE® Index consists of international stocks representing the developed world outside of North America. Results assume reinvestment of all income and capital gains. An investment cannot be made directly in an index. |
6. | 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, 2016, to April 30, 2017, 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, 2016, to April 30, 2017.
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, 2017. 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 11/1/16 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/17 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/17 | Expenses Paid During Period1 | Net Expense Ratio During Period2 | ||||||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,095.60 | $ | 7.07 | $ | 1,018.10 | $ | 6.81 | 1.36% | |||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,093.10 | $ | 8.93 | $ | 1,016.30 | $ | 8.60 | 1.72% | |||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,089.30 | $ | 12.80 | $ | 1,012.50 | $ | 12.33 | 2.47% | |||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,089.30 | $ | 12.80 | $ | 1,012.50 | $ | 12.33 | 2.47% | |||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,096.60 | $ | 5.77 | $ | 1,019.30 | $ | 5.56 | 1.11% | |||||||||||
Class R1 Shares | $ | 1,000.00 | $ | 1,095.90 | $ | 6.29 | $ | 1,018.80 | $ | 6.06 | 1.21% | |||||||||||
Class R2 Shares | $ | 1,000.00 | $ | 1,094.90 | $ | 7.58 | $ | 1,017.60 | $ | 7.30 | 1.46% | |||||||||||
Class R3 Shares | $ | 1,000.00 | $ | 1,093.00 | $ | 8.87 | $ | 1,016.30 | $ | 8.55 | 1.71% |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class 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. |
2. | Expenses are equal to the Fund’s annualized expense ratio to reflect the six-month period. |
| 7 | |
Country Composition as of April 30, 2017 (Unaudited)
United Kingdom | 13.1 | % | ||
Japan | 12.0 | |||
United States | 10.5 | |||
Germany | 8.3 | |||
Switzerland | 6.6 | |||
India | 6.4 | |||
China | 5.7 | |||
Sweden | 4.3 | |||
Brazil | 4.2 | |||
Belgium | 3.5 | |||
Spain | 3.1 | |||
Ireland | 3.0 |
Netherlands | 2.8 | % | ||
Israel | 2.3 | |||
Jordan | 2.1 | |||
South Africa | 1.8 | |||
Denmark | 1.6 | |||
Thailand | 1.6 | |||
Australia | 1.5 | |||
Canada | 1.4 | |||
Italy | 1.2 | |||
Other Assets, Less Liabilities | 3.0 | |||
|
| |||
100.0 | % | |||
|
|
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
Top Ten Holdings as of April 30, 2017 (excluding short-term investment) (Unaudited)
1. | Prudential PLC |
2. | TE Connectivity, Ltd. |
3. | Fresenius Medical Care A.G. & Co. KGaA |
4. | Hexagon AB, Class B |
5. | Johnson Matthey PLC |
6. | Yes Bank, Ltd. |
7. | Tsuruha Holdings, Inc. |
8. | United Internet A.G. Registered |
9. | CyberAgent, Inc. |
10. | NetEase, Inc., ADR |
8 | MainStay International Equity Fund |
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Edward Ramos, CFA, and Carlos Garcia-Tunon, CFA, of Cornerstone Capital Management Holdings LLC, the Fund’s Subadvisor.
How did MainStay International Equity Fund perform relative to its benchmarks and peers during the six months ended April 30, 2017?
Excluding all sales charges, MainStay International Equity Fund returned 9.56% for Class A shares, 9.31% for Investor Class shares and 8.93% for Class B and Class C shares for the six months ended April 30, 2017. Over the same period, the Fund’s Class I shares returned 9.66%, Class R1 shares returned 9.59%, Class R2 shares returned 9.49% and Class R3 shares returned 9.30%. For the six months ended April 30, 2017, all share classes underperformed the 10.37% return of the MSCI ACWI® Ex U.S. Index,1 which is the Fund’s primary benchmark; the 11.47% return of the MSCI EAFE® Index,1 which is the Fund’s secondary benchmark; and the 10.32% return of the Average Lipper2 International Multi-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 April 28, 2017, Eve Glatt no longer serves as a portfolio manager of the Fund. For more information on this change see the prospectus supplement dated April 24, 2017.
What factors affected the Fund’s relative performance during the reporting period?
The Fund’s performance relative to the MSCI ACWI® Ex U.S. Index suffered from negative contributions from country allocation and stock selection, partially offset by a contribution from sector allocation. (Contributions take weightings and total returns into account.) The negative effect of stock selection on a country basis was driven by notable weakness in China, Ireland and Japan. Stock selection on a sector basis was also negative in the health care, consumer staples and materials sectors. The negative effect from country allocation was driven primarily by an underweight position relative to the MSCI ACWI® Ex U.S. Index in France, coupled with overweight positions in Israel and Belgium. The positive effect from sector allocation was mainly driven by an overweight allocation relative to the MSCI ACWI® Ex U.S. Index in the information technology sector. Underweight positions relative to the Index in the telecommunication services and energy sectors also contributed positively to the Fund’s relative performance.
During the reporting period, which sectors were the strongest contributors to the Fund’s relative performance and which sectors were particularly weak?
The sectors that made the strongest positive contributions to the Fund’s performance relative to the MSCI ACWI® Ex U.S. Index
were consumer discretionary, financials and information technology. Consumer discretionary and financials benefited from positive stock selection, while the allocation effect was negative for financials and broadly neutral for consumer discretionary. Information technology benefited from a positive allocation effect, while stock selection was negative. The Fund held overweight positions relative to the MSCI ACWI® Ex U.S. Index in the consumer discretionary and information technology sectors, with consumer discretionary performing broadly in line with the MSCI ACWI® Ex U.S. Index and information technology outperforming the benchmark. The Fund held an underweight position in the financials sector, which underperformed the benchmark.
The sectors that made the weakest contributions to the Fund’s performance relative to the MSCI ACWI® Ex U.S. Index were health care, consumer staples and materials. All three sectors suffered from unfavorable stock selection effects, with sector allocation being negative for health care and materials and positive for consumer staples. The Fund held an overweight position in the health care sector relative to the MSCI ACWI® Ex U.S. Index, which underperformed the MSCI ACWI® Ex U.S. Index, and underweight positions in the materials and consumer staples sectors, of which the materials sector outperformed the Index and the consumer staples sector underperformed.
During the reporting period, which individual stocks made the strongest contributions to the Fund’s absolute performance and which stocks detracted the most?
The stocks that made the strongest positive contributions to the Fund’s absolute performance were U.K. insurer Prudential PLC, Swiss connectivity and sensor solutions manufacturer TE Connectivity and Israeli information technology security provider Check Point Software. All three stocks contributed positively to absolute performance on continued strong growth and strategy execution relative to market expectations.
The most significant detractors from the Fund’s absolute performance were Japanese drugstore operator Tsuruha Holdings, Japanese provider of clinical test reagents and related equipment Sysmex and U.K. medical device producer LivaNova. These companies detracted from absolute performance either because of recent results or guidance forecasts that were below previous guidance or below consensus expectations.
Did the Fund make any significant purchases or sales during the reporting period?
Notable purchases during the reporting period included Brazilian payment processor Cielo and Canadian software holding company Constellation Software. Notable sales during the reporting period included Irish private label over-the-counter
1. | See footnote on page 6 for more information on this index. |
2. | See footnote on page 6 for more information on Lipper Inc. |
9 |
pharmaceutical company Perrigo and Swiss agricultural chemicals company Syngenta. Syngenta was sold while being acquired by China National Chemical, commonly known as ChemChina.
How did the Fund’s sector weightings change during the reporting period?
During the reporting period, the Fund increased its exposure to the financials and consumer discretionary sectors. Over the same period, the Fund reduced its exposure to the health care and consumer staples sectors.
How was the Fund positioned at the end of the reporting period?
As of April 30, 2017, the Fund held overweight positions relative to the MSCI ACWI® Ex U.S. Index in the health care, information technology and consumer discretionary sectors. As of the same date, the Fund held underweight positions in the financials, industrials and energy 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 forecasts 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, 2017 (Unaudited)
Shares | Value | |||||||
Common Stocks 96.9%† | ||||||||
Australia 1.5% |
| |||||||
Corporate Travel Management, Ltd. (Hotels, Restaurants & Leisure) | 101,782 | $ | 1,551,724 | |||||
Gateway Lifestyle (Real Estate Management & Development) | 1,694,883 | 2,703,244 | ||||||
|
| |||||||
4,254,968 | ||||||||
|
| |||||||
Belgium 3.5% |
| |||||||
Ontex Group N.V. (Personal Products) | 130,088 | 4,340,418 | ||||||
UCB S.A. (Pharmaceuticals) | 70,426 | 5,489,727 | ||||||
|
| |||||||
9,830,145 | ||||||||
|
| |||||||
Brazil 4.2% |
| |||||||
Cielo S.A. (IT Services) | 945,840 | 7,181,596 | ||||||
Qualicorp S.A. (Health Care Providers & Services) | 642,200 | 4,572,618 | ||||||
|
| |||||||
11,754,214 | ||||||||
|
| |||||||
Canada 1.4% |
| |||||||
Constellation Software, Inc. (Software) | 8,400 | 3,841,890 | ||||||
|
| |||||||
China 5.7% |
| |||||||
Baidu, Inc., Sponsored ADR (Internet Software & Services) (a) | 24,202 | 4,361,927 | ||||||
China Biologic Products, Inc. (Biotechnology) (a) | 35,949 | 4,241,982 | ||||||
¨NetEase, Inc., ADR (Internet Software & Services) | 28,608 | 7,592,277 | ||||||
|
| |||||||
16,196,186 | ||||||||
|
| |||||||
Denmark 1.6% |
| |||||||
Novo Nordisk A/S, Class B (Pharmaceuticals) | 117,853 | 4,585,881 | ||||||
|
| |||||||
Germany 8.3% |
| |||||||
¨Fresenius Medical Care A.G. & Co. KGaA (Health Care Providers & Services) | 141,689 | 12,571,138 | ||||||
Scout24 A.G. (Internet Software & Services) (a)(b) | 63,541 | 2,180,279 | ||||||
¨United Internet A.G. Registered (Internet Software & Services) | 186,617 | 8,589,674 | ||||||
|
| |||||||
23,341,091 | ||||||||
|
| |||||||
India 6.4% |
| |||||||
Housing Development Finance Corp., Ltd. (Thrifts & Mortgage Finance) | 250,006 | 5,973,251 | ||||||
Lupin, Ltd. (Pharmaceuticals) | 153,547 | 3,191,238 | ||||||
¨Yes Bank, Ltd. (Banks) | 345,564 | 8,787,628 | ||||||
|
| |||||||
17,952,117 | ||||||||
|
| |||||||
Ireland 3.0% |
| |||||||
Experian PLC (Professional Services) | 181,941 | 3,909,431 |
Shares | Value | |||||||
Ireland (continued) |
| |||||||
Paddy Power Betfair PLC (Hotels, Restaurants & Leisure) | 40,039 | $ | 4,461,760 | |||||
|
| |||||||
8,371,191 | ||||||||
|
| |||||||
Israel 2.3% |
| |||||||
Check Point Software Technologies, Ltd. (Software) (a) | 61,278 | 6,373,525 | ||||||
|
| |||||||
Italy 1.2% |
| |||||||
De’Longhi S.p.A. (Household Durables) | 108,637 | 3,313,471 | ||||||
|
| |||||||
Japan 12.0% |
| |||||||
¨CyberAgent, Inc. (Media) | 269,200 | 8,355,524 | ||||||
Relo Group, Inc. (Real Estate Management & Development) | 182,000 | 2,987,755 | ||||||
Start Today Co., Ltd. (Internet & Direct Marketing Retail) | 322,896 | 6,893,855 | ||||||
Sysmex Corp. (Health Care Equipment & Supplies) | 112,974 | 6,871,170 | ||||||
¨Tsuruha Holdings, Inc. (Food & Staples Retailing) | 85,588 | 8,675,886 | ||||||
|
| |||||||
33,784,190 | ||||||||
|
| |||||||
Jordan 2.1% |
| |||||||
Hikma Pharmaceuticals PLC (Pharmaceuticals) | 238,784 | 5,990,615 | ||||||
|
| |||||||
Netherlands 2.8% |
| |||||||
GrandVision N.V. (Specialty Retail) (b) | 179,032 | 4,674,618 | ||||||
IMCD Group N.V. (Trading Companies & Distributors) | 59,352 | 3,197,047 | ||||||
|
| |||||||
7,871,665 | ||||||||
|
| |||||||
South Africa 1.8% |
| |||||||
Mediclinic International PLC (Health Care Providers & Services) | 484,680 | 5,153,886 | ||||||
|
| |||||||
Spain 3.1% |
| |||||||
Almirall S.A. (Pharmaceuticals) | 168,150 | 3,036,888 | ||||||
Grifols S.A. (Biotechnology) | 207,224 | 5,565,350 | ||||||
|
| |||||||
8,602,238 | ||||||||
|
| |||||||
Sweden 4.3% |
| |||||||
¨Hexagon AB, Class B (Electronic Equipment, Instruments & Components) | 275,745 | 12,007,592 | ||||||
|
| |||||||
Switzerland 6.6% |
| |||||||
DKSH Holding A.G. (Professional Services) | 34,040 | 2,738,595 | ||||||
¨TE Connectivity, Ltd. (Electronic Equipment, Instruments & Components) | 171,602 | 13,276,847 |
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings, as of April 30, 2017, 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. | 11 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Switzerland (continued) |
| |||||||
Tecan Group A.G. Registered (Life Sciences Tools & Services) | 15,588 | $ | 2,660,143 | |||||
|
| |||||||
18,675,585 | ||||||||
|
| |||||||
Thailand 1.6% |
| |||||||
Kasikornbank PCL (Banks) | 854,344 | 4,569,345 | ||||||
|
| |||||||
United Kingdom 13.1% |
| |||||||
Big Yellow Group PLC (Real Estate Investment Trusts) | 202,713 | 2,032,166 | ||||||
HomeServe PLC (Commercial Services & Supplies) | 289,180 | 2,505,711 | ||||||
¨Johnson Matthey PLC (Chemicals) | 251,836 | 9,716,836 | ||||||
¨Prudential PLC (Insurance) | 607,767 | 13,507,998 | ||||||
Sage Group PLC (Software) | 408,304 | 3,543,195 | ||||||
Telit Communications PLC (Communications Equipment) | 313,407 | 1,509,024 | ||||||
Whitbread PLC (Hotels, Restaurants & Leisure) | 78,478 | 4,101,361 | ||||||
|
| |||||||
36,916,291 | ||||||||
|
| |||||||
United States 10.4% |
| |||||||
Accenture PLC, Class A (IT | 59,094 | 7,168,102 | ||||||
ICON PLC (Life Sciences Tools & Services) (a) | 59,547 | 5,031,126 | ||||||
LivaNova PLC (Health Care Equipment & | 129,475 | 6,823,333 | ||||||
Samsonite International S.A. (Textiles, Apparel & Luxury Goods) | 1,517,400 | 5,852,398 | ||||||
Shire PLC (Biotechnology) | 75,715 | 4,449,255 | ||||||
|
| |||||||
29,324,214 | ||||||||
|
| |||||||
Total Common Stocks | 272,710,300 | |||||||
|
|
Principal Amount | Value | |||||||
Short-Term Investment 0.1% | ||||||||
Repurchase Agreement 0.1% |
| |||||||
United States 0.1% |
| |||||||
Fixed Income Clearing Corp. | $ | 157,840 | $ | 157,840 | ||||
|
| |||||||
Total Short-Term Investment | 157,840 | |||||||
|
| |||||||
Total Investments | 97.0 | % | 272,868,140 | |||||
Other Assets, Less Liabilities | 3.0 | 8,485,687 | ||||||
Net Assets | 100.0 | % | $ | 281,353,827 |
(a) | Non-income producing security. |
(b) | 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. |
(c) | As of April 30, 2017, cost was $233,266,059 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 47,170,196 | ||
Gross unrealized depreciation | (7,568,115 | ) | ||
|
| |||
Net unrealized appreciation | $ | 39,602,081 | ||
|
|
The following abbreviation is used in the preceding pages:
ADR—American Depositary Receipt
The following is a summary of the fair valuations according to the inputs used as of April 30, 2017, 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 | $ | 272,710,300 | $ | — | $ | — | $ | 272,710,300 | ||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 157,840 | — | 157,840 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | 272,710,300 | $ | 157,840 | $ | — | $ | 272,868,140 | ||||||||
|
|
|
|
|
|
|
|
(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, 2017, the Fund did not have any transfers among levels. (See Note 2)
As of April 30, 2017, the Fund did not hold any investments with significant unobservable inputs (Level 3). (See Note 2)
12 | MainStay International Equity Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
The table below sets forth the diversification of MainStay International Equity Fund investments by industry.
Industry Diversification (unaudited)
Value | Percent † | |||||||
Banks | $ | 13,356,973 | 4.7 | % | ||||
Biotechnology | 14,256,587 | 5.1 | ||||||
Capital Markets | 157,840 | 0.1 | ||||||
Chemicals | 9,716,836 | 3.5 | ||||||
Commercial Services & Supplies | 2,505,711 | 0.9 | ||||||
Communications Equipment | 1,509,024 | 0.5 | ||||||
Electronic Equipment, Instruments & Components | 25,284,439 | 9.0 | ||||||
Food & Staples Retailing | 8,675,886 | 3.1 | ||||||
Health Care Equipment & Supplies | 13,694,503 | 4.9 | ||||||
Health Care Providers & Services | 22,297,642 | 7.9 | ||||||
Hotels, Restaurants & Leisure | 10,114,845 | 3.6 | ||||||
Household Durables | 3,313,471 | 1.2 | ||||||
Insurance | 13,507,998 | 4.8 | ||||||
Internet & Direct Marketing Retail | 6,893,855 | 2.4 | ||||||
Internet Software & Services | 22,724,157 | 8.1 | ||||||
IT Services | 14,349,698 | 5.1 | ||||||
Life Sciences Tools & Services | 7,691,269 | 2.7 | ||||||
Media | 8,355,524 | 3.0 | ||||||
Personal Products | 4,340,418 | 1.5 | ||||||
Pharmaceuticals | 22,294,349 | 7.9 | ||||||
Professional Services | 6,648,026 | 2.4 | ||||||
Real Estate Investment Trusts | 2,032,166 | 0.7 | ||||||
Real Estate Management & Development | 5,690,999 | 2.0 | ||||||
Software | 13,758,610 | 4.9 | ||||||
Specialty Retail | 4,674,618 | 1.7 | ||||||
Textiles, Apparel & Luxury Goods | 5,852,398 | 2.1 | ||||||
Thrifts & Mortgage Finance | 5,973,251 | 2.1 | ||||||
Trading Companies & Distributors | 3,197,047 | 1.1 | ||||||
|
|
|
| |||||
272,868,140 | 97.0 | |||||||
Other Assets, Less Liabilities | 8,485,687 | 3.0 | ||||||
|
|
|
| |||||
Net Assets | $ | 281,353,827 | 100.0 | % | ||||
|
|
|
|
† | Percentages indicated are based on Fund net assets. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 13 |
Statement of Assets and Liabilities as of April 30, 2017 (Unaudited)
Assets | ||||
Investment in securities, at value | $ | 272,868,140 | ||
Cash denominated in foreign currencies | 8,188,634 | |||
Receivables: | ||||
Dividends | 821,211 | |||
Fund shares sold | 437,386 | |||
Other assets | 62,287 | |||
|
| |||
Total assets | 282,377,658 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Fund shares redeemed | 526,402 | |||
Manager (See Note 3) | 200,964 | |||
Foreign capital gains tax (See Note 2(C)) | 90,404 | |||
Transfer agent (See Note 3) | 64,595 | |||
Investment securities purchased | 40,443 | |||
Professional fees | 36,071 | |||
Shareholder communication | 29,248 | |||
NYLIFE Distributors (See Note 3) | 26,289 | |||
Custodian | 7,990 | |||
Trustees | 584 | |||
Accrued expenses | 841 | |||
|
| |||
Total liabilities | 1,023,831 | |||
|
| |||
Net assets | $ | 281,353,827 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 191,316 | ||
Additional paid-in capital | 299,845,776 | |||
|
| |||
300,037,092 | ||||
Distributions in excess of net investment loss | (1,694,500 | ) | ||
Accumulated net realized gain (loss) on investments and foreign currency transactions (a) | (58,318,269 | ) | ||
Net unrealized appreciation (depreciation) on | 41,433,752 | |||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies | (104,248 | ) | ||
|
| |||
Net assets | $ | 281,353,827 | ||
|
|
(a) | Realized gain (loss) on security transactions recorded net of foreign capital gains tax. |
(b) | Unrealized appreciation (depreciation) on investments recorded net of foreign capital gains tax in the amount of $90,404. |
Class A | ||||
Net assets applicable to outstanding shares | $ | 39,348,320 | ||
|
| |||
Shares of beneficial interest outstanding | 2,666,638 | |||
|
| |||
Net asset value per share outstanding | $ | 14.76 | ||
Maximum sales charge (5.50% of offering price) | 0.86 | |||
|
| |||
Maximum offering price per share outstanding | $ | 15.62 | ||
|
| |||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 32,854,641 | ||
|
| |||
Shares of beneficial interest outstanding | 2,238,356 | |||
|
| |||
Net asset value per share outstanding | $ | 14.68 | ||
Maximum sales charge (5.50% of offering price) | 0.85 | |||
|
| |||
Maximum offering price per share outstanding | $ | 15.53 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 6,434,478 | ||
|
| |||
Shares of beneficial interest outstanding | 488,152 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 13.18 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 7,231,848 | ||
|
| |||
Shares of beneficial interest outstanding | 548,582 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 13.18 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 190,347,330 | ||
|
| |||
Shares of beneficial interest outstanding | 12,841,461 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 14.82 | ||
|
| |||
Class R1 | ||||
Net assets applicable to outstanding shares | $ | 2,493,671 | ||
|
| |||
Shares of beneficial interest outstanding | 169,131 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 14.74 | ||
|
| |||
Class R2 | ||||
Net assets applicable to outstanding shares | $ | 1,249,925 | ||
|
| |||
Shares of beneficial interest outstanding | 84,448 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 14.80 | ||
|
| |||
Class R3 | ||||
Net assets applicable to outstanding shares | $ | 1,393,614 | ||
|
| |||
Shares of beneficial interest outstanding | 94,836 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 14.69 | ||
|
|
14 | MainStay International Equity Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Statement of Operations for the six months ended April 30, 2017 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Dividends (a) | $ | 1,586,405 | ||
Interest | 378 | |||
Other income | 179 | |||
|
| |||
Total income | 1,586,962 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 1,179,465 | |||
Transfer agent (See Note 3) | 189,891 | |||
Distribution/Service—Class A (See Note 3) | 48,994 | |||
Distribution/Service—Investor Class (See Note 3) | 38,264 | |||
Distribution/Service—Class B (See Note 3) | 31,756 | |||
Distribution/Service—Class C (See Note 3) | 34,713 | |||
Distribution/Service—Class R2 (See Note 3) | 1,245 | |||
Distribution/Service—Class R3 (See Note 3) | 3,046 | |||
Registration | 53,850 | |||
Professional fees | 36,917 | |||
Custodian | 36,590 | |||
Shareholder communication | 26,885 | |||
Trustees | 3,398 | |||
Shareholder service (See Note 3) | 2,278 | |||
Miscellaneous | 26,133 | |||
|
| |||
Total expenses | 1,713,425 | |||
|
| |||
Net investment income (loss) | (126,463 | ) | ||
|
| |||
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 9,369,422 | |||
Foreign currency transactions | (437,528 | ) | ||
|
| |||
Net realized gain (loss) on investments and foreign currency transactions | 8,931,894 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments (b) | 16,207,856 | |||
Translation of other assets and liabilities in foreign currencies | (78,805 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions | 16,129,051 | |||
|
| |||
Net realized and unrealized gain (loss) on investments and foreign currency transactions | 25,060,945 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 24,934,482 | ||
|
|
(a) | Dividends recorded net of foreign withholding taxes in the amount of $105,030. |
(b) | Unrealized appreciation (depreciation) on investments recorded net of foreign capital gains tax in the amount of $90,404. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 15 |
Statements of Changes in Net Assets
for the six months ended April 30, 2017 (Unaudited) and the year ended October 31, 2016
2017 | 2016 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | (126,463 | ) | $ | 1,112,367 | |||
Net realized gain (loss) on investments and foreign currency transactions | 8,931,894 | 17,018,979 | ||||||
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions | 16,129,051 | (16,498,874 | ) | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 24,934,482 | 1,632,472 | ||||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Class A | (109,089 | ) | (21,107 | ) | ||||
Class I | (939,444 | ) | (653,743 | ) | ||||
Class R1 | (10,000 | ) | (5,305 | ) | ||||
Class R2 | (1,310 | ) | — | |||||
|
| |||||||
Total dividends to shareholders | (1,059,843 | ) | (680,155 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 20,952,775 | 38,503,958 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 1,054,330 | 677,340 | ||||||
Cost of shares redeemed | (36,489,266 | ) | (94,035,967 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | (14,482,161 | ) | (54,854,669 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets | 9,392,478 | (53,902,352 | ) | |||||
Net Assets | ||||||||
Beginning of period | 271,961,349 | 325,863,701 | ||||||
|
| |||||||
End of period | $ | 281,353,827 | $ | 271,961,349 | ||||
|
| |||||||
Distributions in excess of net investment income at end of period | $ | (1,694,500 | ) | $ | (508,194 | ) | ||
|
|
16 | MainStay International Equity Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class A | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 13.51 | $ | 13.51 | $ | 13.11 | $ | 13.37 | $ | 11.68 | $ | 10.82 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | (0.01 | ) | 0.04 | 0.03 | 0.07 | 0.05 | 0.10 | |||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.33 | (0.04 | ) | 0.49 | (0.26 | ) | 1.75 | 1.07 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.03 | ) | 0.01 | (0.03 | ) | (0.04 | ) | (0.01 | ) | 0.00 | ‡ | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 1.29 | 0.01 | 0.49 | (0.23 | ) | 1.79 | 1.17 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends: | ||||||||||||||||||||||||||||
From net investment income | (0.04 | ) | (0.01 | ) | (0.09 | ) | (0.03 | ) | (0.10 | ) | (0.31 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 14.76 | $ | 13.51 | $ | 13.51 | $ | 13.11 | $ | 13.37 | $ | 11.68 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment | 9.56 | % | 0.05 | % | 3.78 | % | (1.76 | %) | 15.43 | % | 11.27 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | (0.18 | %)†† | 0.28 | %(c) | 0.20 | % | 0.51 | % | 0.38 | % | 0.87 | % | ||||||||||||||||
Net expenses | 1.36 | % †† | 1.32 | %(d) | 1.33 | % | 1.34 | % | 1.40 | % | 1.43 | % | ||||||||||||||||
Portfolio turnover rate | 20 | % | 33 | % | 42 | % | 37 | % | 29 | % | 43 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 39,348 | $ | 41,891 | $ | 43,405 | $ | 45,882 | $ | 57,948 | $ | 60,303 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been 0.27%. |
(d) | Without the custody fee reimbursement, net expenses would have been 1.33%. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Investor Class | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 13.43 | $ | 13.47 | $ | 13.07 | $ | 13.35 | $ | 11.66 | $ | 10.81 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | (0.03 | ) | (0.01 | ) | (0.02 | ) | 0.03 | 0.01 | 0.06 | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.31 | (0.04 | ) | 0.50 | (0.27 | ) | 1.75 | 1.07 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.03 | ) | 0.01 | (0.03 | ) | (0.04 | ) | (0.01 | ) | 0.00 | ‡ | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 1.25 | (0.04 | ) | 0.45 | (0.28 | ) | 1.75 | 1.13 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends: | ||||||||||||||||||||||||||||
From net investment income | — | — | (0.05 | ) | — | (0.06 | ) | (0.28 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 14.68 | $ | 13.43 | $ | 13.47 | $ | 13.07 | $ | 13.35 | $ | 11.66 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment | 9.31 | % | (0.30 | %) | 3.43 | % | (2.10 | %) | 15.07 | % | 10.81 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | (0.52 | %)†† | (0.11 | %)(c) | (0.14 | %) | 0.19 | % | 0.05 | % | 0.54 | % | ||||||||||||||||
Net expenses | 1.72 | % †† | 1.69 | % (d) | 1.68 | % | 1.67 | % | 1.72 | % | 1.77 | % | ||||||||||||||||
Portfolio turnover rate | 20 | % | 33 | % | 42 | % | 37 | % | 29 | % | 43 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 32,855 | $ | 31,523 | $ | 34,329 | $ | 34,377 | $ | 37,457 | $ | 34,822 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been (0.12)%. |
(d) | Without the custody fee reimbursement, net expenses would have been 1.70%. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 17 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class B | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 12.10 | $ | 12.23 | $ | 11.91 | $ | 12.26 | $ | 10.73 | $ | 9.95 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | (0.08 | ) | (0.10 | ) | (0.11 | ) | (0.07 | ) | (0.08 | ) | (0.02 | ) | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.18 | (0.04 | ) | 0.46 | (0.24 | ) | 1.62 | 0.99 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.02 | ) | 0.01 | (0.03 | ) | (0.04 | ) | (0.01 | ) | 0.00 | ‡ | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 1.08 | (0.13 | ) | 0.32 | (0.35 | ) | 1.53 | 0.97 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends: | ||||||||||||||||||||||||||||
From net investment income | — | — | — | — | — | (0.19 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 13.18 | $ | 12.10 | $ | 12.23 | $ | 11.91 | $ | 12.26 | $ | 10.73 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment | 8.93 | % | (1.06 | %) | 2.69 | % | (2.85 | %) | 14.26 | % (c) | 10.05 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | (1.30 | %)†† | (0.86 | %)(d) | (0.91 | %) | (0.57 | %) | (0.73 | %) | (0.22 | %) | ||||||||||||||||
Net expenses | 2.47 | % †† | 2.44 | % (e) | 2.43 | % | 2.42 | % | 2.47 | % | 2.52 | % | ||||||||||||||||
Portfolio turnover rate | 20 | % | 33 | % | 42 | % | 37 | % | 29 | % | 43 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 6,434 | $ | 6,991 | $ | 8,982 | $ | 11,058 | $ | 13,981 | $ | 16,186 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Total investment return may reflect adjustments to conform to generally accepted accounting principles. |
(d) | Without the custody fee reimbursement, net investment income (loss) would have been (0.87)%. |
(e) | Without the custody fee reimbursement, net expenses would have been 2.45%. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class C | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 12.10 | $ | 12.23 | $ | 11.92 | $ | 12.26 | $ | 10.74 | $ | 9.96 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | (0.08 | ) | (0.10 | ) | (0.11 | ) | (0.07 | ) | (0.08 | ) | (0.02 | ) | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.18 | (0.04 | ) | 0.45 | (0.24 | ) | 1.61 | 0.99 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.02 | ) | 0.01 | (0.03 | ) | (0.03 | ) | (0.01 | ) | 0.00 | ‡ | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 1.08 | (0.13 | ) | 0.31 | (0.34 | ) | 1.52 | 0.97 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends: | ||||||||||||||||||||||||||||
From net investment income | — | — | — | — | — | (0.19 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 13.18 | $ | 12.10 | $ | 12.23 | $ | 11.92 | $ | 12.26 | $ | 10.74 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment | 8.93 | % | (1.06 | %) | 2.60 | % | (2.77 | %) | 14.15 | % | 10.05 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | (1.29 | %)†† | (0.84 | %)(c) | (0.90 | %) | (0.57 | %) | (0.71 | %) | (0.21 | %) | ||||||||||||||||
Net expenses | 2.47 | % †† | 2.44 | % (d) | 2.43 | % | 2.42 | % | 2.47 | % | 2.52 | % | ||||||||||||||||
Portfolio turnover rate | 20 | % | 33 | % | 42 | % | 37 | % | 29 | % | 43 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 7,232 | $ | 7,850 | $ | 8,292 | $ | 8,383 | $ | 10,088 | $ | 11,111 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been (0.85)%. |
(d) | Without the custody fee reimbursement, net expenses would have been 2.45%. |
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 I | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 13.59 | $ | 13.59 | $ | 13.19 | $ | 13.45 | $ | 11.75 | $ | 10.89 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.01 | 0.07 | 0.06 | 0.11 | 0.08 | 0.13 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.32 | (0.04 | ) | 0.50 | (0.27 | ) | 1.76 | 1.07 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.03 | ) | 0.01 | (0.03 | ) | (0.04 | ) | (0.01 | ) | 0.00 | ‡ | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 1.30 | 0.04 | 0.53 | (0.20 | ) | 1.83 | 1.20 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends: | ||||||||||||||||||||||||||||
From net investment income | (0.07 | ) | (0.04 | ) | (0.13 | ) | (0.06 | ) | (0.13 | ) | (0.34 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 14.82 | $ | 13.59 | $ | 13.59 | $ | 13.19 | $ | 13.45 | $ | 11.75 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment | 9.66 | % | 0.29 | % | 4.04 | % | (1.49 | %) | 15.72 | % | 11.45 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 0.09 | %†† | 0.54 | %(c) | 0.46 | % | 0.79 | % | 0.62 | % | 1.15 | % | ||||||||||||||||
Net expenses | 1.11 | %†† | 1.07 | %(d) | 1.08 | % | 1.09 | % | 1.14 | % | 1.18 | % | ||||||||||||||||
Portfolio turnover rate | 20 | % | 33 | % | 42 | % | 37 | % | 29 | % | 43 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 190,347 | $ | 179,274 | $ | 224,307 | $ | 223,797 | $ | 202,289 | $ | 177,726 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been 0.53%. |
(d) | Without the custody fee reimbursement, net expenses would have been 1.08%. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class R1 | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 13.51 | $ | 13.51 | $ | 13.11 | $ | 13.37 | $ | 11.67 | $ | 10.82 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | (0.00 | )‡ | 0.06 | 0.04 | 0.09 | 0.06 | 0.11 | |||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.32 | (0.05 | ) | 0.50 | (0.27 | ) | 1.76 | 1.07 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.03 | ) | 0.01 | (0.03 | ) | (0.04 | ) | (0.01 | ) | 0.00 | ‡ | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 1.29 | 0.02 | 0.51 | (0.22 | ) | 1.81 | 1.18 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends: | ||||||||||||||||||||||||||||
From net investment income | (0.06 | ) | (0.02 | ) | (0.11 | ) | (0.04 | ) | (0.11 | ) | (0.33 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 14.74 | $ | 13.51 | $ | 13.51 | $ | 13.11 | $ | 13.37 | $ | 11.67 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment | 9.59 | % | 0.18 | % | 3.95 | % | (1.63 | %) | 15.68 | % | 11.41 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | (0.01 | %)†† | 0.41 | %(c) | 0.33 | % | 0.66 | % | 0.49 | % | 1.04 | % | ||||||||||||||||
Net expenses | 1.21 | % †† | 1.17 | %(d) | 1.18 | % | 1.19 | % | 1.25 | % | 1.28 | % | ||||||||||||||||
Portfolio turnover rate | 20 | % | 33 | % | 42 | % | 37 | % | 29 | % | 43 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 2,494 | $ | 2,478 | $ | 3,032 | $ | 3,597 | $ | 4,003 | $ | 4,677 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been 0.40%. |
(d) | Without the custody fee reimbursement, net expenses would have been 1.18%. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 19 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class R2 | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 13.54 | $ | 13.54 | $ | 13.14 | $ | 13.40 | $ | 11.70 | $ | 10.84 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | (0.00 | )‡ | 0.01 | 0.01 | 0.05 | 0.03 | 0.09 | |||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.31 | (0.01 | ) | 0.50 | (0.26 | ) | 1.76 | 1.06 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.03 | ) | 0.00 | ‡ | (0.03 | ) | (0.04 | ) | (0.01 | ) | 0.00 | ‡ | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 1.28 | 0.00 | ‡ | 0.48 | (0.25 | ) | 1.78 | 1.15 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends: | ||||||||||||||||||||||||||||
From net investment income | (0.02 | ) | — | (0.08 | ) | (0.01 | ) | (0.08 | ) | (0.29 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 14.80 | $ | 13.54 | $ | 13.54 | $ | 13.14 | $ | 13.40 | $ | 11.70 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment | 9.49 | % | (0.07 | %) | 3.73 | % | (1.88 | %) | 15.34 | % | 11.12 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | (0.07 | %)†† | 0.08 | % | 0.11 | % | 0.36 | % | 0.26 | % | 0.82 | % | ||||||||||||||||
Net expenses | 1.46 | % †† | 1.42 | % | 1.43 | % | 1.44 | % | 1.49 | % | 1.53 | % | ||||||||||||||||
Portfolio turnover rate | 20 | % | 33 | % | 42 | % | 37 | % | 29 | % | 43 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 1,250 | $ | 847 | $ | 2,313 | $ | 3,509 | $ | 8,487 | $ | 10,545 |
* | 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. For periods of less than one year, total return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class R3 | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 13.44 | $ | 13.48 | $ | 13.07 | $ | 13.35 | $ | 11.64 | $ | 10.79 | ||||||||||||||||
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Net investment income (loss) (a) | (0.03 | ) | (0.01 | ) | (0.02 | ) | 0.02 | (0.01 | ) | 0.06 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.31 | (0.04 | ) | 0.50 | (0.26 | ) | 1.76 | 1.06 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.03 | ) | 0.01 | (0.03 | ) | (0.04 | ) | (0.01 | ) | 0.00 | ‡ | |||||||||||||||||
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Total from investment operations | 1.25 | (0.04 | ) | 0.45 | (0.28 | ) | 1.74 | 1.12 | ||||||||||||||||||||
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Less dividends: | ||||||||||||||||||||||||||||
From net investment income | — | — | (0.04 | ) | — | (0.03 | ) | (0.27 | ) | |||||||||||||||||||
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Net asset value at end of period | $ | 14.69 | $ | 13.44 | $ | 13.48 | $ | 13.07 | $ | 13.35 | $ | 11.64 | ||||||||||||||||
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Total investment | 9.30 | % | (0.30 | %) | 3.44 | % | (2.10 | %) | 15.02 | % | 10.82 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | (0.49 | %)†† | (0.11 | %)(c) | (0.15 | %) | 0.17 | % | (0.05 | %) | 0.56 | % | ||||||||||||||||
Net expenses | 1.71 | % †† | 1.67 | % (d) | 1.68 | % | 1.69 | % | 1.74 | % | 1.78 | % | ||||||||||||||||
Portfolio turnover rate | 20 | % | 33 | % | 42 | % | 37 | % | 29 | % | 43 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 1,394 | $ | 1,108 | $ | 1,204 | $ | 1,291 | $ | 1,365 | $ | 2,218 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been (0.12)%. |
(d) | Without the custody fee reimbursement, net expenses would have been 1.68%. |
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. |
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, and is governed by a Declaration of 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, as that term is defined in the 1940 Act, as interpreted or modified by regulatory authorities having jurisdiction, from time to time.
The Fund currently offers ten 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. Class R6 and Class T shares of the Fund were registered for sale effective as of February 28, 2017. As of the period ended April 30, 2017, Class R6 and Class T shares had no investment operations. Investor Class shares commenced operations on February 28, 2008. Effective February 28, 2017, Class B shares of the MainStay Group of Funds were closed to all new purchases as well as additional investments by existing Class B shareholders. Existing Class B shareholders may continue to reinvest dividends and capital gains distributions, as well as exchange their Class B shares for Class B shares of other Funds as permitted by the current exchange privileges. Class B shareholders continue to be subject to any applicable contingent deferred sales charge at the time of redemption. All other features of the Class B shares, including but not limited to the fees and expenses applicable to Class B shares, remain unchanged. Unless redeemed, Class B shareholders will remain in Class B shares of their respective Fund until the Class B shares are converted to Class A or Investor Class shares pursuant to the applicable conversion schedule.
Class A and Investor Class shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No initial sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Class A and Investor Class shares. Effective August 1, 2017, a contingent deferred sales charge (“CDSC”) of 1.00% may be imposed on certain redemptions of Class A and Investor Class shares made within 18 months of the date of purchase on shares that were purchased without an initial sales charge. For purchases of Class A and Investor Class shares made from January 1, 2017 through July 31, 2017, a CDSC of 1.00% may be imposed on certain redemptions made within 24 months of the date of purchase on shares that were purchased without an initial sales charge. For purchases of Class A and Investor Class shares made prior to January 1, 2017, a CDSC of 1.00% may be imposed on certain redemptions made within one year of the date of purchase on shares that were purchased without an initial sales charge. Class C shares are offered at NAV without an initial sales charge, although a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. When Class B Shares were offered, they were offered at NAV without an initial sales charge, although a CDSC that declines depending on the number of years a shareholder has held its Class B shares may be imposed on redemptions made within six years of the date of purchase of such shares. Class T shares are offered at NAV per share plus an initial sales
charge. 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 Class A or Investor Class shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Class A shares may convert to Investor Class shares and Investor Class shares may convert to Class A shares. Under certain circumstances and as may be permitted by the Trust’s multiple class plan under Rule 18f-3 of the 1940 Act, an exchange/conversion may be made from specified share classes of the Fund to one or more other share classes of the Fund as disclosed in the capital share transactions within these Notes. The ten 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 under distribution plans pursuant to Rule 12b-1 under the 1940 Act, Class B and Class C shares are subject to higher distribution and/or service fee rates than Class A, Investor Class, Class T, Class R2 and Class R3 shares. 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 is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services—Investment Companies. 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 usually valued as of the close of regular trading on the New York Stock Exchange (the “Exchange”) (usually 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 establishing methodologies for the valuation of the Fund’s securities and other assets and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Trust (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 establishing the prices of securities for which market quotations are not readily available or the prices of which are not otherwise readily determinable under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. Subsequently, the Valuation Committee meets 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 the day-to-day valuation of portfolio assets (including fair value measurements for the Fund’s assets and liabilities) 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.
21 |
Notes to Financial Statements (Unaudited) (continued)
To assess the appropriateness of security valuations, the Manager, Subadvisor 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 with changes 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, if appropriate, 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 or other asset is submitted by the Valuation Committee to the Board for its review and ratification, if appropriate, at its next regularly scheduled meeting.
“Fair value” is defined as the price the Fund would reasonably expect to 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 establishes 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 assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities. 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) |
The level of an asset or liability within the fair value hierarchy is based on the lowest level of an input, both individually and in the aggregate, that is significant to the fair value measurement. As of April 30, 2017, the aggregate value by input level of the Fund’s assets and 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:
• Broker/dealer quotes | • Benchmark securities | |
• Two-sided markets | • Reference data (corporate actions or material event notices) | |
• Bids/offers | • Monthly payment information | |
• Industry and economic events | • Reported trades |
An asset or liability for which market values cannot be measured using the methodologies described above is valued by methods deemed reasonable 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. Fair value represents a good faith approximation of the value of a security. Fair value determinations involve the consideration of a number of subjective factors, an analysis of applicable facts and circumstances and the exercise of judgment. As a result, it is possible that the fair value for a security determined in good faith in accordance with the Fund’s valuation procedures may differ from valuations for the same security determined by other funds using their own valuation procedures. Although the Fund’s valuation procedures are designed to value a security at the price the Fund may reasonably expect to receive upon its sale in an orderly transaction, there can be no assurance that any fair value determination thereunder would, in fact, approximate the amount that the Fund would actually realize upon the sale of the security or the price at which the security would trade if a reliable market price were readily available. During the six-month period ended April 30, 2017, there were 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, 2017, there were no securities held by the Fund 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 the foreign markets close and the time at which the Fund’s NAVs are calculated. These events may include, but are not limited to, situations relating to a single issuer
22 | MainStay International Equity Fund |
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 certain thresholds. In such cases, the securities are fair valued by applying factors provided by a third party vendor in accordance with valuation procedures adopted by the Board and are generally categorized as Level 2 in the hierarchy. As of April 30, 2017, no foreign equity securities held by the Fund were fair valued in such a manner.
Equity securities are valued at the last quoted sales prices as of the close of regular trading on the relevant 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 mutual funds, including money market 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 at the time of purchase 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 using the amortized cost method of valuation, unless the use of such method would be inappropriate. 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 using the amortized cost method are not valued using quoted prices in an active market and are generally categorized as Level 2 in the hierarchy.
The information above is not intended to reflect an exhaustive list of the methodologies that may be used to value portfolio investments. The valuation procedures permit the use of a variety of valuation methodologies in connection with valuing portfolio investments. The methodology used for a specific type of investment may vary based on the market data available or other considerations. The methodologies summarized above may not represent the specific means by which portfolio investments are valued on any particular business day.
A Fund security or other asset may be determined to be illiquid under procedures approved by the Board. Illiquidity of a security 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 the 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 materially 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 determines 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 are often valued in accordance with methods deemed by the Board in good faith to be reasonable and appropriate to accurately reflect their fair value. The liquidity of the Fund’s investments, as shown in the Portfolio of Investments, was determined as of April 30, 2017 and can change at any time in response to, among other relevant factors, market conditions or events or developments with respect to an individual issuer or instrument. As of April 30, 2017, the Fund did not hold any securities deemed to be illiquid under procedures approved by the Board.
(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 its 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 permitted only to the extent 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 it invests. A portion of the taxes on gains on investments or currency purchases/repatriation may be reclaimable. The Fund will accrue such taxes and reclaims 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
23 |
Notes to Financial Statements (Unaudited) (continued)
the six-month period ended April 30, 2017, 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. 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.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated pro rata to separate classes of shares 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/or 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 (i.e., buy a security from another party with the agreement that it be sold back in the future) to earn income. The Fund may enter into repurchase agreements only with counterparties, usually 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 the Fund to the counterparty secured by the securities transferred to the Fund.
Repurchase agreements are subject to counterparty risk, meaning the Fund could lose money by the counterparty’s failure to perform under the terms of the agreement. The Fund mitigates this risk by ensuring the repurchase agreement is collateralized by cash, U.S. government securities, fixed income securities and/or other securities. The collateral is held by the Fund’s custodian 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 counterparty’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, realization and/or retention of the collateral may be limited or subject to delay, to legal proceedings and possible realized loss to the Fund.
(I) Foreign Currency Transactions. The Fund’s books and records are maintained 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) 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 (“SEC”). 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 collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund against counterparty risk. The loans will be collateralized by U.S. Treasury securities at least equal at all times to the market value of the securities loaned. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record a realized gain
24 | MainStay International Equity Fund |
or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund bears the risk of any loss on investment of the collateral. The Fund will receive compensation for lending its securities in the form of fees or it will retain a portion of interest on the investment of any cash received as collateral. The Fund will also 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. During the six-month period ended April 30, 2017, the Fund did not have any portfolio securities on loan.
(K) Foreign Securities Risk. The Fund invests in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic securities. 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.
(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.
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 attributable to 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 an Amended and Restated Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and Cornerstone Holdings, New York Life Investments pays for the services of the Subadvisor.
Under the Management Agreement, 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.
During the six-month period ended April 30, 2017, the effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.89%.
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.
During the six-month period ended April 30, 2017, New York Life Investments earned fees from the Fund in the amount of $1,179,465.
State Street 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 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 Class A, Investor Class, Class T and Class R2 Plans, the Distributor receives a monthly distribution fee from the Class A, Investor Class, Class T and Class R2 shares at an annual rate of 0.25% of the average daily net assets of the Class A, Investor Class, Class T 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
25 |
Notes to Financial Statements (Unaudited) (continued)
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.
During the six-month period ended April 30, 2017, shareholder service fees incurred by the Fund were as follows:
Class R1 | $ | 1,171 | ||
Class R2 | 498 | |||
Class R3 | 609 |
(C) Sales Charges. During the six-month period ended April 30, 2017, the Fund was advised by the Distributor that the amount of initial sales charges retained on sales of Class A and Investor Class shares were $1,672 and $4,259, respectively.
During the six-month period ended April 30, 2017, the Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Investor Class, Class B and Class C shares of $1,319, $2, $10,788 and $251, respectively.
(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. During the six-month period ended April 30, 2017, transfer agent expenses incurred by the Fund were as follows:
Class A | $ | 16,393 | ||
Investor Class | 67,956 | |||
Class B | 14,117 | |||
Class C | 15,444 | |||
Class I | 74,081 | |||
Class R1 | 979 | |||
Class R2 | 413 | |||
Class R3 | 508 |
(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, 2017, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class I | $ | 78,559,629 | 41.3% |
Note 4–Federal Income Tax
During the year ended October 31, 2016, the tax character of distributions paid as reflected in the Statements of Changes in Net Assets was as follows:
2016 | ||||
Distributions paid from: | $ | 680,155 |
The Fund utilized $17,488,395 of capital loss carryforwards during the year ended October 31, 2016.
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 transactions incurred by the Fund.
Note 6–Line of Credit
The Fund and certain other funds managed by New York Life Investments, 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 2, 2016, under an amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $600,000,000 with an additional uncommitted amount of $100,000,000. The commitment fee is an annual rate of 0.15% 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 their respective 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 1, 2017, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 2, 2016, the aggregate commitment amount was $600,000,000 with an additional uncommitted amount of $100,000,000, and the commitment fee was at an annual rate of 0.10% of the average commitment amount. During the six-month period ended April 30, 2017, there were no borrowings made or outstanding with respect to the Fund under the Credit Agreement.
Note 7–Interfund Lending Program
Pursuant to an exemptive order issued by the SEC, the Fund, along with certain other funds managed by New York Life Investments, may participate in an interfund lending program. The interfund lending program provides an alternative credit facility that permits the Fund and certain other funds managed by New York Life Investments to lend or borrow money for temporary purposes directly to or from one another, subject to the conditions of the exemptive order. During the six-month period ended April 30, 2017, there were no interfund loans made or outstanding with respect to the Fund.
26 | MainStay International Equity Fund |
Note 8–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2017, purchases and sales of securities, other than short-term securities, were $53,315 and $66,924, respectively.
Note 9–Capital Share Transactions
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 135,888 | $ | 1,830,299 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 8,386 | 106,672 | ||||||
Shares redeemed | (595,498 | ) | (8,132,807 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (451,224 | ) | (6,195,836 | ) | ||||
Shares converted into Class A (See Note 1) | 44,359 | 604,676 | ||||||
Shares converted from Class A (See Note 1) | (26,660 | ) | (370,837 | ) | ||||
|
| |||||||
Net increase (decrease) | (433,525 | ) | $ | (5,961,997 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 682,885 | $ | 9,152,419 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,533 | 20,613 | ||||||
Shares redeemed | (905,522 | ) | (12,201,735 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (221,104 | ) | (3,028,703 | ) | ||||
Shares converted into Class A (See Note 1) | 124,559 | 1,701,280 | ||||||
Shares converted from Class A (See Note 1) | (16,464 | ) | (217,568 | ) | ||||
|
| |||||||
Net increase (decrease) | (113,009 | ) | $ | (1,544,991 | ) | |||
|
| |||||||
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 79,076 | $ | 1,070,554 | |||||
Shares redeemed | (190,993 | ) | (2,589,631 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (111,917 | ) | (1,519,077 | ) | ||||
Shares converted into Investor Class (See Note 1) | 44,059 | 590,277 | ||||||
Shares converted from Investor Class (See Note 1) | (41,382 | ) | (562,371 | ) | ||||
|
| |||||||
Net increase (decrease) | (109,240 | ) | $ | (1,491,171 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 120,057 | $ | 1,600,542 | |||||
Shares redeemed | (308,815 | ) | (4,142,432 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (188,758 | ) | (2,541,890 | ) | ||||
Shares converted into Investor Class (See Note 1) | 100,778 | 1,352,914 | ||||||
Shares converted from Investor Class (See Note 1) | (113,873 | ) | (1,551,578 | ) | ||||
|
| |||||||
Net increase (decrease) | (201,853 | ) | $ | (2,740,554 | ) | |||
|
|
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 27,825 | $ | 335,385 | |||||
Shares redeemed | (76,256 | ) | (922,659 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (48,431 | ) | (587,274 | ) | ||||
Shares converted from Class B (See Note 1) | (40,966 | ) | (486,814 | ) | ||||
|
| |||||||
Net increase (decrease) | (89,397 | ) | $ | (1,074,088 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 87,362 | $ | 1,061,625 | |||||
Shares redeemed | (138,782 | ) | (1,685,117 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (51,420 | ) | (623,492 | ) | ||||
Shares converted from Class B (See Note 1) | (105,505 | ) | (1,285,048 | ) | ||||
|
| |||||||
Net increase (decrease) | (156,925 | ) | $ | (1,908,540 | ) | |||
|
| |||||||
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 54,311 | $ | 656,011 | |||||
Shares redeemed | (154,207 | ) | (1,838,407 | ) | ||||
|
| |||||||
Net increase (decrease) | (99,896 | ) | $ | (1,182,396 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 166,359 | $ | 1,959,543 | |||||
Shares redeemed | (195,770 | ) | (2,387,072 | ) | ||||
|
| |||||||
Net increase (decrease) | (29,411 | ) | $ | (427,529 | ) | |||
|
| |||||||
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 1,196,619 | $ | 16,039,964 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 73,427 | 936,927 | ||||||
Shares redeemed | (1,632,127 | ) | (22,244,146 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (362,081 | ) | (5,267,255 | ) | ||||
Shares converted into Class I (See Note 1) | 16,255 | 225,069 | ||||||
|
| |||||||
Net increase (decrease) | (345,826 | ) | $ | (5,042,186 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 1,821,203 | $ | 24,276,645 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 48,253 | 651,422 | ||||||
Shares redeemed | (5,189,521 | ) | (71,048,636 | ) | ||||
|
| |||||||
Net increase (decrease) | (3,320,065 | ) | $ | (46,120,569 | ) | |||
|
| |||||||
Class R1 | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 1,229 | $ | 16,842 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 788 | 10,000 | ||||||
Shares redeemed | (16,232 | ) | (219,770 | ) | ||||
|
| |||||||
Net increase (decrease) | (14,215 | ) | $ | (192,928 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 4,825 | $ | 65,501 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 395 | 5,305 | ||||||
Shares redeemed | (46,398 | ) | (630,744 | ) | ||||
|
| |||||||
Net increase (decrease) | (41,178 | ) | $ | (559,938 | ) | |||
|
|
27 |
Notes to Financial Statements (Unaudited) (continued)
Class R2 | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 50,602 | $ | 702,849 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 57 | 731 | ||||||
Shares redeemed | (28,769 | ) | (402,257 | ) | ||||
|
| |||||||
Net increase (decrease) | 21,890 | $ | 301,323 | |||||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 12,594 | $ | 168,776 | |||||
Shares redeemed | (120,810 | ) | (1,618,498 | ) | ||||
|
| |||||||
Net increase (decrease) | (108,216 | ) | $ | (1,449,722 | ) | |||
|
| |||||||
Class R3 | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 22,751 | $ | 300,871 | |||||
Shares redeemed | (10,334 | ) | (139,589 | ) | ||||
|
| |||||||
Net increase (decrease) | 12,417 | $ | 161,282 | |||||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 16,664 | $ | 218,907 | |||||
Shares redeemed | (23,564 | ) | (321,733 | ) | ||||
|
| |||||||
Net increase (decrease) | (6,900 | ) | $ | (102,826 | ) | |||
|
|
Note 10–Recent Accounting Pronouncement
In October 2016, the SEC adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the Fund’s financial statements and related disclosures.
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, 2017, events and transactions subsequent to April 30, 2017, through the date the financial statements were issued have been evaluated by the Fund’s management for possible adjustment and/or disclosure. No subsequent events requiring financial statement adjustment or disclosure have been identified.
28 | MainStay International Equity Fund |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited)
Section 15 of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of trustees initially approve and, following an initial term of up to two years, annually review and approve the fund’s investment advisory agreement(s). At its December 12-14, 2016 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 2016 and December 2016, as well as other relevant information furnished to the Board throughout the year. 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 fee and total expenses. The Board also considered information on the fees charged to any other investment advisory clients of New York Life Investments and Cornerstone Holdings (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 Trustees who are not “interested persons” (as such term is defined under the 1940 Act) of the Fund (the “Independent Trustees”). Information provided to the Board in advance of and during meetings throughout the year included, among other items, information regarding the legal standards applicable to their consideration of the Agreements and 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, risk management, portfolio turnover, and sales and marketing activity. At various meetings, the Independent Trustees also met in executive session with their independent legal counsel, and met with senior management of New York Life Investments without other representatives of New York Life Investments present.
Throughout the year and specifically in connection with its June meeting each year, the Board also received an overview of the Fund’s distribution arrangements. In addition, the Board received information regarding the Fund’s asset levels, share purchase and redemption activity and the payment of Rule 12b-1 distribution and service fees by
the Fund. New York Life Investments also provided the Board with information regarding the revenue sharing payments made to intermediaries that promote the sale, distribution, and/or servicing of Fund shares.
In considering the Agreements, the Trustees comprehensively 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 described in greater detail below and included, among other items: (i) the nature, extent 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 have been realized or may be realized if the Fund grows and the extent to which economies of scale have benefited or may benefit Fund shareholders; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to any similar funds and accounts managed by New York Life Investments and Cornerstone Holdings. Although the Board recognized that the comparisons between the Fund’s fees and expenses and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Board also considered the reasonableness of the Fund’s management fee and overall total ordinary operating expenses as compared to the peer funds identified by Strategic Insight.
While individual Trustees may have weighed certain factors or information differently, the Board’s decision to approve the Agreements was based on a consideration of the information provided to the Trustees throughout the year, as well as information furnished specifically in connection with the contract review process. Throughout the year, the Trusteesare also afforded an opportunity to ask questions of and request additional information or materials from New York Life Investments and Cornerstone Holdings. The Board’s conclusions with respect to the Agreements may have been based, in part, on the Board’s knowledge of New York Life Investments and Cornerstone Holdings resulting from, among other things, the Board’s consideration of the MainStay Group of Funds’ advisory 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. The factors that figured prominently in the Board’s decision to approve the Agreements are summarized in more detail below.
Nature, Extent and Quality of Services to Be Provided by New York Life Investments and Cornerstone Holdings
The Board examined the nature, extent and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience and capabilities 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,
29 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
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 observed that New York Life Investments devotes significant resources and time to providing advisory and non-advisory services to the Fund, including its extensive oversight of Cornerstone Holdings. The Board also considered the full range of services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and on-going oversight services provided by New York Life Investments’ Fund Administration and Accounting 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; (iv) legal services provided by New York Life Investments’ Office of the General Counsel; and (v) risk management and portfolio trading oversight and analysis by compliance and investment personnel. 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, infrastructure, technology, operational enhancements, cyber security, information security and shareholder privacy resources 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, extent and quality of the investment 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 further considered New York Life Investments’ policies, procedures and systems to reasonably assure compliance with applicable laws and regulations. In addition, the Board considered the policies and procedures in place with respect to matters that may involve conflicts of interest between the Fund’s investments and those of other accounts managed by Cornerstone Holdings. 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, extent 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 peerfunds, as appropriate, and in light of market conditions. 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’s Investment Committee that occur regularly, generally 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 of the services provided by New York Life Investments and Cornerstone Holdings and profits realized by 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
30 | MainStay International Equity Fund |
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 recognized that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds, among other benefits resulting from its relationship with New York Life Investments.
In addition, the Board acknowledged 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. In connection with the annual fund profitability analysis that New York Life Investments presents to the Board, the Board in 2014 engaged Bobroff Consulting, Inc., an independent third-party consultant, to review the methods used to allocate costs to the MainStay Funds, and among individual Funds. As part of this engagement, the consultant analyzed: (i) the various New York Life Investments’ business units and affiliated Subadvisers that provide services to the MainStay Funds; (ii) how costs are allocated to the Fund and other funds managed by New York Life Investments, and to other lines of businesses; and (iii) how New York Life Investments’ cost allocation methods and profitability reports compare to industry practices. The Board noted that the independent consultant had concluded that New York Life Investments’ methods for allocating costs and procedures for estimating overall profitability of the funds in the MainStay Group of Funds, including the Fund, are reasonable, consistent with industry practice and likely to produce reasonable profitability estimates. Although the Board recognized 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 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 incurred by New York Life Investments from its own resources.
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 Fund and other funds in the MainStay Group of Funds. 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, initially setting relatively low management fees or making additional investments to enhance shareholder services. 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. Additionally, the Board considered New York Life Investments’ assessment of the extent economies of scale existed for Funds that had experienced significant increases of assets during the year.
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, because 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 Corner-
31 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
stone Holdings on fees charged to other investment advisory clients, including institutional separate accounts and other funds that follow similar investment strategies 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 registered investment companies 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 demonstrating 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 also noted information received from NYLIM Service Company LLC regarding the sub-transfer agency payments it made to intermediaries in connection with the 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 a number of 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 recognized 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) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iii) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (iv) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent
monthly purchases of $100; (v) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vi) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. The Board also considered that NYLIM Service Company LLC had waived its cost of living adjustments in 2015, 2016 and 2017. In addition, the Board acknowledged New York Life Investments’ continued 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 and factors summarized above and the evaluation thereof, the Board as a whole, including the Independent Trustees who are not parties to the Agreements or “interested persons” of any such party voting separately, unanimously voted to approve the Agreements.
32 | MainStay International Equity 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 or proxy voting record 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).
33 |
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MainStay Funds
Equity
U.S. Equity
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay Epoch U.S. Small Cap Fund
MainStay ICAP Equity Fund1
MainStay ICAP Select Equity Fund1
MainStay Large Cap Growth Fund
MainStay MAP Equity Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
International/Global Equity
MainStay Emerging Markets Equity Fund
MainStay Epoch Capital Growth Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Choice Fund
MainStay Epoch International Small Cap Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond
MainStay Emerging Markets Debt Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay Indexed Bond Fund
MainStay Short Duration High Yield Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal/Tax Advantaged Bond
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Advantaged Short Term Bond Fund
MainStay Tax Free Bond Fund
Money Market
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
Alternative
MainStay Absolute Return Multi-Strategy Fund
MainStay Cushing Energy Income Fund
MainStay Cushing MLP Premier Fund
MainStay Cushing Renaissance Advantage 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
MainStay Retirement 2060 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Candriam France S.A.S.4
Paris, France
Cornerstone Capital Management Holdings LLC4
New York, New York
Cushing Asset Management, LP
Dallas, Texas
Epoch Investment Partners, Inc.
New York, New York
MacKay Shields LLC4
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC4
New York, New York
Winslow Capital Management, LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Washington, District of Columbia
Independent Registered Public Accounting Firm
KPMG LLP
Philadelphia, Pennsylvania
1. On May 8, 2017, the Fund merged into MainStay Epoch U.S. Equity Yield Fund. Former shareholders of this Fund can request the Fund’s Semiannual Report by calling 800-MAINSTAY (624-6782).
2. Class A and Class I shares of this Fund are registered for sale in AZ, CA, MI, NV, OR, TX, UT and WA. Class I shares are registered for sale in CO, FL, GA, HI, ID, MA, MD, NH, NJ and NY.
3. This Fund is registered for sale in CA, CT, DE, FL, MA, NJ, NY and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Semiannual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
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. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
©2017 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 |
1737261 MS144-17 | MSIE10-06/17 (NYLIM) NL010 |
MainStay Common Stock Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2017
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Message from the President
The six months ended April 30, 2017, proved to be a strong period for many equity investors but presented challenges for some bond investors.
The reporting period began with considerable uncertainty about the outcome of the U.S. election. Once the Republicans gained control of the White House, the Senate and the House of Representatives, however, many investors hoped to see an end to political gridlock; and although debate has continued on a number of issues, the U.S. stock market steadily climbed through the end of the reporting period.
According to FTSE-Russell U.S. market data, stocks at all capitalization levels earned double-digit overall returns during the reporting period. Although growth stocks outperformed value stocks at most capitalization levels, value stocks outperformed growth stocks among micro-cap stocks.
In December 2016 and March 2017, the Federal Reserve announced increases in the target range for the federal funds rate. These moves, which brought the federal funds target range to 0.75% to 1.00%, were felt across the bond market. During the reporting period, yields rose on U.S. Treasury securities of all maturities, with the largest absolute increase on the 5-year U.S. Treasury note. On a percentage basis, however, the largest increases were at the short end of the maturity spectrum, with yields on the 1- and 3-month U.S. Treasury bills more than doubling during the reporting period.
When interest rates rise, bond prices tend to decline (and vice versa). As a result, several broad fixed-income asset classes—including U.S. government and agency bonds, mortgage-backed securities, investment-grade debt and municipal bonds—recorded negative total returns for the reporting period. Convertible securities, high-yield bonds and floating-rate loans, which tend to be less sensitive to interest-rate changes, provided positive total returns.
International stock markets generally advanced during the reporting period, with European stocks providing strong
double-digit returns. The Pacific region and Japan were weaker but provided positive returns in the single digits. Emerging markets also provided solid performance for the reporting period, despite modest commodity prices.
Many short-term political, economic and world events affected the markets during the reporting period. Nevertheless, at MainStay, we believe that the primary concern of our portfolio managers should be the long-term welfare of our shareholders, and we appreciate the discipline our portfolio managers seek to apply in their long-term investment decisions.
Our portfolio managers seek to pursue the investment objectives of their respective MainStay Funds using the various investment strategies outlined in the Fund’s Prospectus. Utilizing their years of professional market experience, they seek to enhance returns when possible, manage risk as necessary and view short-term events in light of long-term investment goals. At MainStay, we believe that shareholders who maintain a long-term perspective may be better able to weather turbulent markets, avoid selling when prices are low and stay focused on their reasons for choosing MainStay Funds.
The report that follows provides more detailed information about the markets, securities and decisions that affected your MainStay Fund during the six months ended April 30, 2017. We invite you to read it carefully and use the information as part of your ongoing portfolio evaluation and review.
Sincerely,
Stephen P. Fisher
President
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, 30 Hudson Street, Jersey City, NJ 07302 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 and other factors, 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, 2017
Class | Sales Charge | Inception Date | Six Months | One Year | Five Years or Since Inception | Ten Years or Since Inception | Gross Expense Ratio2 | |||||||||||||||||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges | | 6/1/1998 | | | 6.47 12.67 | %
| | 9.49 15.86 | %
| | 12.10 13.38 | %
| | 5.06 5.66 | %
| | 0.98 0.98 | %
| ||||||||
Investor Class Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges | | 2/28/2008 | | | 6.36 12.55 |
| | 9.21 15.56 |
| | 11.76 13.03 |
| | 6.02 6.67 |
| | 1.23 1.23 |
| ||||||||
Class B Shares3 | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges | | 6/1/1998 | | | 7.11 12.11 |
| | 9.75 14.75 |
| | 11.94 12.19 |
| | 4.49 4.49 |
| | 1.98 1.98 |
| ||||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges | | 9/1/1998 | | | 11.12 12.12 |
| | 13.70 14.70 |
| | 12.18 12.18 |
| | 4.48 4.48 |
| | 1.98 1.98 |
| ||||||||
Class I Shares | No Sales Charge | 12/28/2004 | 12.84 | 16.21 | 13.67 | 5.98 | 0.73 | |||||||||||||||||||||
Class R3 Shares | No Sales Charge | 2/29/2016 | 12.50 | 15.46 | 18.08 | N/A | 1.34 |
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, if any, 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 may 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 (if any), 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. | Class B shares are closed to all new purchases as well as additional investments by existing Class B shareholders. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
5 |
Benchmark Performance | Six Months | One Year | Five Years or Since Inception | Ten Years or Since Inception | ||||||||||||
S&P 500® Index4 | 13.32% | 17.92% | 13.68 | % | 7.15 | % | ||||||||||
Russell 1000® Index5 | 13.46 | 18.03 | 13.63 | 7.25 | ||||||||||||
Average Lipper Multi-Cap Core Fund6 | 13.06 | 16.57 | 11.98 | 5.99 |
4. | The S&P 500® Index is the Fund’s primary broad-based securities market index for comparison purposes. “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. Results assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
5. | The Russell 1000® Index is the Fund’s secondary benchmark. 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. Results assume |
reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
6. | 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, 2016, to April 30, 2017, 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, 2016, to April 30, 2017.
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, 2017. 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 11/1/16 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/17 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/17 | Expenses Paid During Period1 | Net Expense Ratio During Period2 | ||||||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,126.70 | $ | 5.11 | $ | 1,020.00 | $ | 4.86 | 0.97% | |||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,125.50 | $ | 6.43 | $ | 1,018.70 | $ | 6.11 | 1.22% | |||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,121.10 | $ | 10.36 | $ | 1,015.00 | $ | 9.84 | 1.97% | |||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,121.20 | $ | 10.36 | $ | 1,015.00 | $ | 9.84 | 1.97% | |||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,128.40 | $ | 3.80 | $ | 1,021.20 | $ | 3.61 | 0.72% | |||||||||||
Class R3 Shares | $ | 1,000.00 | $ | 1,125.00 | $ | 6.95 | $ | 1,018.20 | $ | 6.61 | 1.32% |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class 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. |
2. | Expenses are equal to the Fund’s annualized expense ratio to reflect the six-month period. |
7 |
Industry Composition as of April 30, 2017 (Unaudited)
Technology Hardware, Storage & Peripherals | 6.7 | % | ||
Banks | 6.5 | |||
Internet Software & Services | 6.1 | |||
Health Care Providers & Services | 5.6 | |||
Oil, Gas & Consumable Fuels | 5.6 | |||
Software | 4.5 | |||
Media | 4.2 | |||
Pharmaceuticals | 3.8 | |||
Semiconductors & Semiconductor Equipment | 3.7 | |||
Hotels, Restaurants & Leisure | 3.3 | |||
Specialty Retail | 3.3 | |||
Capital Markets | 3.1 | |||
Internet & Direct Marketing Retail | 3.1 | |||
Insurance | 2.8 | |||
IT Services | 2.7 | |||
Tobacco | 2.7 | |||
Chemicals | 2.6 | |||
Electric Utilities | 2.0 | |||
Exchange-Traded Funds | 2.0 | |||
Aerospace & Defense | 1.9 | |||
Diversified Telecommunication Services | 1.8 | |||
Household Products | 1.8 | |||
Food & Staples Retailing | 1.7 | |||
Beverages | 1.6 |
Biotechnology | 1.6 | % | ||
Industrial Conglomerates | 1.5 | |||
Real Estate Investment Trusts | 1.5 | |||
Diversified Financial Services | 1.4 | |||
Health Care Equipment & Supplies | 1.4 | |||
Energy Equipment & Services | 1.3 | |||
Professional Services | 1.1 | |||
Electronic Equipment, Instruments & Components | 0.9 | |||
Machinery | 0.9 | |||
Diversified Consumer Services | 0.7 | |||
Food Products | 0.7 | |||
Multi-Utilities | 0.6 | |||
Trading Companies & Distributors | 0.6 | |||
Metals & Mining | 0.5 | |||
Textiles, Apparel & Luxury Goods | 0.5 | |||
Commercial Services & Supplies | 0.4 | |||
Communications Equipment | 0.4 | |||
Airlines | 0.3 | |||
Paper & Forest Products | 0.3 | |||
Building Products | 0.2 | |||
Independent Power & Renewable Electricity Producers | 0.2 | |||
Auto Components | 0.0 | ‡ | ||
Other Assets, Less Liabilities | –0.1 | |||
|
| |||
100.0 | % | |||
|
|
See Portfolio of Investments beginning on page 10 for specific holdings within these categories.
‡ | Less than one-tenth of a percent. |
Top Ten Holdings as of April 30, 2017 (excluding short-term investment) (Unaudited)
1. | Apple, Inc. |
2. | Microsoft Corp. |
3. | Amazon.com, Inc. |
4. | Alphabet, Inc. |
5. | Johnson & Johnson |
6. | JPMorgan Chase & Co. |
7. | SPDR S&P 500 ETF Trust |
8. | Exxon Mobil Corp. |
9. | Bank of America Corp. |
10. | Facebook, Inc. Class A |
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 benchmarks and peers during the six months ended April 30, 2017?
Excluding all sales charges, MainStay Common Stock Fund returned 12.67% for Class A shares, 12.55% for Investor Class shares, 12.11% for Class B shares and 12.12% for Class C shares for the six months ended April 30, 2017. Over the same period, the Fund’s Class I shares returned 12.84% and Class R3 shares returned 12.50%. For the six months ended April 30, 2017, all share classes underperformed the 13.32% return of the S&P 500® Index,1 which is the Fund’s primary benchmark; the 13.46% return of the Russell 1000® Index,1 which is the Fund’s secondary benchmark; and 13.06% return of the Average Lipper2 Multi-Cap Core 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 underperformance relative to the S&P 500® Index resulted primarily from stock selection. Allocation effects—being overweight or underweight relative to the benchmark in specific sectors as a result of the Fund’s bottom-up stock-selection process—contributed modestly to relative performance.
During the reporting period, which sectors were the strongest positive contributors to the Fund’s relative performance and which sectors were particularly weak?
The strongest positive sector contributions to the Fund’s performance relative to the S&P 500® Index came from information technology and industrials. (Contributions take weightings and total returns into account.) In both sectors, stock selection was the main driver of the positive contributions to performance.
The weakest sector contributions to the Fund’s relative performance came from consumer discretionary and materials. In both sectors, stock selection detracted from the Fund’s relative performance. An overweight position relative to the S&P 500® Index in the energy sector and an underweight position in the financials sector also detracted from the Fund’s 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 strongest positive contributor to absolute performance was personal computing and mobile device maker Apple. Best known for its iPhone, the company
continued to deliver strong sales and earnings growth. Large diversified financial institutions Bank of America and JPMorgan Chase were also among the strongest contributors to the Fund’s absolute performance, supported by accelerating growth in the United States and the likelihood of rising interest rates.
On an absolute basis, the Fund’s weakest performer was steel producer United States Steel, which suffered from oversupply concerns and slowing demand for steel. Other commodities such as oil, faced similar challenges during the reporting period. Supply and demand concerns detracted from the performance of offshore drilling contractor Transocean. Shares of specialty retailer Urban Outfitters declined after the company reported disappointing earnings.
Did the Fund make any significant purchases or sales during the reporting period?
The Fund established new positions that are overweight relative to the S&P 500® Index in cruise ship operator Carnival Corporation and vertically integrated natural gas provider Williams Companies. The Fund’s investment process viewed both companies as attractive because of their earnings trends and valuation measures.
The Fund exited positions in telecommunications software and integrated circuits maker Qualcomm and gold miner Newmont Mining. The Fund’s investment process viewed the former as unattractive for its valuation measures and the latter because of deteriorating price trends.
How did the Fund’s sector weightings change during the reporting period?
During the reporting period, the Fund modestly increased its weightings relative to the S&P 500® Index in the consumer discretionary and financials sectors. Over the same period, the Fund modestly reduced its weightings relative to the benchmark in the health care and industrials sectors.
How was the Fund positioned at the end of the reporting period?
As of April 30, 2017, the Fund’s most substantially overweight sectors relative to the S&P 500® Index were information technology and consumer discretionary. As of the same date, the Fund held modestly underweight positions relative to the Index in the industrials and health care sectors.
1. | See footnote on page 6 for more information on this index. |
2. | See footnote on page 6 for more information on Lipper Inc. |
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 forecasts will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
9 |
Portfolio of Investments April 30, 2017 (Unaudited)
Shares | Value | |||||||
Common Stocks 98.1% † | ||||||||
Aerospace & Defense 1.9% | ||||||||
Arconic, Inc. | 18,920 | $ | 517,084 | |||||
Boeing Co. | 11,651 | 2,153,454 | ||||||
Lockheed Martin Corp. | 3,151 | 849,037 | ||||||
Northrop Grumman Corp. | 204 | 50,176 | ||||||
|
| |||||||
3,569,751 | ||||||||
|
| |||||||
Airlines 0.3% | ||||||||
Southwest Airlines Co. | 11,242 | 632,025 | ||||||
|
| |||||||
Auto Components 0.0%‡ | ||||||||
Goodyear Tire & Rubber Co. | 379 | 13,731 | ||||||
|
| |||||||
Banks 6.5% | ||||||||
¨Bank of America Corp. | 138,883 | 3,241,529 | ||||||
Citigroup, Inc. | 36,279 | 2,144,814 | ||||||
¨JPMorgan Chase & Co. | 45,307 | 3,941,709 | ||||||
U.S. Bancorp | 4,934 | 253,016 | ||||||
Wells Fargo & Co. | 45,320 | 2,440,029 | ||||||
|
| |||||||
12,021,097 | ||||||||
|
| |||||||
Beverages 1.6% | ||||||||
Coca-Cola Co. | 7,044 | 303,949 | ||||||
Dr. Pepper Snapple Group, Inc. | 93 | 8,523 | ||||||
PepsiCo., Inc. | 23,000 | 2,605,440 | ||||||
|
| |||||||
2,917,912 | ||||||||
|
| |||||||
Biotechnology 1.6% | ||||||||
AbbVie, Inc. | 6,239 | 411,400 | ||||||
Amgen, Inc. | 539 | 88,030 | ||||||
Gilead Sciences, Inc. | 25,248 | 1,730,750 | ||||||
United Therapeutics Corp. (a) | 6,453 | 811,142 | ||||||
|
| |||||||
3,041,322 | ||||||||
|
| |||||||
Building Products 0.2% | ||||||||
Johnson Controls International PLC | 8,389 | 348,731 | ||||||
|
| |||||||
Capital Markets 3.1% | ||||||||
Ameriprise Financial, Inc. | 10,440 | 1,334,754 | ||||||
E*TRADE Financial Corp. (a) | 22,350 | 772,193 | ||||||
Franklin Resources, Inc. | 10,663 | 459,682 | ||||||
Raymond James Financial, Inc. | 14,966 | 1,115,266 | ||||||
S&P Global, Inc. | 10,703 | 1,436,236 | ||||||
T. Rowe Price Group, Inc. | 9,197 | 651,975 | ||||||
|
| |||||||
5,770,106 | ||||||||
|
| |||||||
Chemicals 2.6% | ||||||||
Chemours Co. | 33,213 | 1,338,152 | ||||||
LyondellBasell Industries N.V. Class A | 13,203 | 1,119,086 |
Shares | Value | |||||||
Chemicals (continued) | ||||||||
Mosaic Co. | 45,260 | $ | 1,218,852 | |||||
Olin Corp. | 36,140 | 1,161,178 | ||||||
|
| |||||||
4,837,268 | ||||||||
|
| |||||||
Commercial Services & Supplies 0.4% | ||||||||
Waste Management, Inc. | 9,401 | 684,205 | ||||||
|
| |||||||
Communications Equipment 0.4% | ||||||||
Cisco Systems, Inc. | 9,578 | 326,323 | ||||||
F5 Networks, Inc. (a) | 3,578 | 462,027 | ||||||
|
| |||||||
788,350 | ||||||||
|
| |||||||
Diversified Consumer Services 0.7% | ||||||||
H&R Block, Inc. | 51,260 | 1,270,735 | ||||||
|
| |||||||
Diversified Financial Services 1.4% | ||||||||
Berkshire Hathaway, Inc., Class B (a) | 15,779 | 2,606,849 | ||||||
|
| |||||||
Diversified Telecommunication Services 1.8% |
| |||||||
AT&T, Inc. | 71,388 | 2,829,106 | ||||||
Verizon Communications, Inc. | 12,525 | 575,023 | ||||||
|
| |||||||
3,404,129 | ||||||||
|
| |||||||
Electric Utilities 2.0% | ||||||||
American Electric Power Co., Inc. | 5,105 | 346,272 | ||||||
Duke Energy Corp. | 7,900 | 651,750 | ||||||
Edison International | 8,099 | 647,677 | ||||||
Exelon Corp. | 14,203 | 491,850 | ||||||
FirstEnergy Corp. | 9,771 | 292,544 | ||||||
NextEra Energy, Inc. | 6,467 | 863,733 | ||||||
PG&E Corp. | 2,543 | 170,508 | ||||||
Xcel Energy, Inc. | 4,547 | 204,842 | ||||||
|
| |||||||
3,669,176 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components 0.9% |
| |||||||
Corning, Inc. | 13,012 | 375,396 | ||||||
Jabil Circuit, Inc. | 42,634 | 1,237,239 | ||||||
|
| |||||||
1,612,635 | ||||||||
|
| |||||||
Energy Equipment & Services 1.3% | ||||||||
Baker Hughes, Inc. | 2,582 | 153,293 | ||||||
National Oilwell Varco, Inc. | 29,694 | 1,038,399 | ||||||
Transocean, Ltd. (a) | 104,548 | 1,153,165 | ||||||
|
| |||||||
2,344,857 | ||||||||
|
| |||||||
Food & Staples Retailing 1.7% | ||||||||
CVS Health Corp. | 10,258 | 845,670 | ||||||
Wal-Mart Stores, Inc. | 29,790 | 2,239,612 | ||||||
Walgreens Boots Alliance, Inc. | 1,693 | 146,512 | ||||||
|
| |||||||
3,231,794 | ||||||||
|
|
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings, as of April 30, 2017. May be subject to change daily. |
10 | 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) | ||||||||
Food Products 0.7% | ||||||||
Tyson Foods, Inc. Class A | 21,091 | $ | 1,355,308 | |||||
|
| |||||||
Health Care Equipment & Supplies 1.4% | ||||||||
Abbott Laboratories | 2,552 | 111,369 | ||||||
Baxter International, Inc. | 11,326 | 630,632 | ||||||
Becton Dickinson & Co. | 3,507 | 655,704 | ||||||
Danaher Corp. | 5,449 | 454,065 | ||||||
Masimo Corp. (a) | 6,138 | 630,618 | ||||||
Medtronic PLC | 459 | 38,138 | ||||||
|
| |||||||
2,520,526 | ||||||||
|
| |||||||
Health Care Providers & Services 5.6% | ||||||||
Aetna, Inc. | 9,211 | 1,244,130 | ||||||
Anthem, Inc. | 1,677 | 298,321 | ||||||
Centene Corp. (a) | 18,154 | 1,350,658 | ||||||
Cigna Corp. | 7,438 | 1,163,080 | ||||||
DaVita, Inc. (a) | 111 | 7,660 | ||||||
Express Scripts Holding Co. (a) | 6,605 | 405,151 | ||||||
HCA Holdings, Inc. (a) | 13,953 | 1,174,982 | ||||||
Humana, Inc. | 39 | 8,657 | ||||||
McKesson Corp. | 7,784 | 1,076,449 | ||||||
UnitedHealth Group, Inc. | 14,328 | 2,505,681 | ||||||
WellCare Health Plans, Inc. (a) | 8,062 | 1,236,791 | ||||||
|
| |||||||
10,471,560 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure 3.3% | ||||||||
Carnival Corp. | 24,201 | 1,494,896 | ||||||
Darden Restaurants, Inc. | 15,538 | 1,323,682 | ||||||
McDonald’s Corp. | 1,992 | 278,740 | ||||||
Royal Caribbean Cruises, Ltd. | 13,386 | 1,426,948 | ||||||
Wyndham Worldwide Corp. | 14,706 | 1,401,629 | ||||||
Yum! Brands, Inc. | 3,054 | 200,800 | ||||||
|
| |||||||
6,126,695 | ||||||||
|
| |||||||
Household Products 1.8% | ||||||||
Kimberly-Clark Corp. | 1,598 | 207,340 | ||||||
Procter & Gamble Co. | 36,097 | 3,152,351 | ||||||
|
| |||||||
3,359,691 | ||||||||
|
| |||||||
Independent Power & Renewable Electricity Producers 0.2% |
| |||||||
NRG Energy, Inc. | 17,073 | 288,534 | ||||||
|
| |||||||
Industrial Conglomerates 1.5% | ||||||||
3M Co. | 5,485 | 1,074,128 | ||||||
General Electric Co. | 39,154 | 1,135,074 | ||||||
Honeywell International, Inc. | 4,629 | 607,047 | ||||||
|
| |||||||
2,816,249 | ||||||||
|
| |||||||
Insurance 2.8% | ||||||||
Aflac, Inc. | 15,303 | 1,145,889 | ||||||
Allstate Corp. | 3,771 | 306,545 | ||||||
Assurant, Inc. | 3,333 | 320,768 |
Shares | Value | |||||||
Insurance (continued) | ||||||||
Everest Re Group, Ltd. | 247 | $ | 62,172 | |||||
Prudential Financial, Inc. | 14,763 | 1,580,084 | ||||||
Travelers Cos., Inc. | 9,020 | 1,097,373 | ||||||
Unum Group | 11,751 | 544,424 | ||||||
XL Group, Ltd. | 3,579 | 149,781 | ||||||
|
| |||||||
5,207,036 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail 3.1% | ||||||||
¨Amazon.com, Inc. (a) | 4,874 | 4,508,401 | ||||||
Expedia, Inc. | 10,030 | 1,341,212 | ||||||
|
| |||||||
5,849,613 | ||||||||
|
| |||||||
Internet Software & Services 6.1% | ||||||||
Akamai Technologies, Inc. (a) | 20,525 | 1,250,794 | ||||||
¨Alphabet, Inc. (a) | ||||||||
Class A | 2,462 | 2,276,168 | ||||||
Class C | 2,409 | 2,182,458 | ||||||
eBay, Inc. (a) | 44,183 | 1,476,154 | ||||||
¨Facebook, Inc. Class A (a) | 20,986 | 3,153,146 | ||||||
VeriSign, Inc. (a) | 12,353 | 1,098,429 | ||||||
|
| |||||||
11,437,149 | ||||||||
|
| |||||||
IT Services 2.7% | ||||||||
DXC Technology Co. (a) | 8,579 | 646,342 | ||||||
Fidelity National Information Services, Inc. | 1,473 | 124,012 | ||||||
International Business Machines Corp. | 8,933 | 1,431,871 | ||||||
MasterCard, Inc. Class A | 8,463 | 984,416 | ||||||
MAXIMUS, Inc. | 2,283 | 139,240 | ||||||
Science Applications International Corp. | 872 | 63,647 | ||||||
Visa, Inc. Class A | 16,645 | 1,518,357 | ||||||
Western Union Co. | 4,456 | 88,496 | ||||||
|
| |||||||
4,996,381 | ||||||||
|
| |||||||
Machinery 0.9% | ||||||||
Oshkosh Corp. | 16,707 | 1,159,299 | ||||||
Trinity Industries, Inc. | 19,267 | 518,282 | ||||||
|
| |||||||
1,677,581 | ||||||||
|
| |||||||
Media 4.2% | ||||||||
AMC Networks, Inc. Class A (a) | 40 | 2,387 | ||||||
Comcast Corp. Class A | 73,794 | 2,891,987 | ||||||
Live Nation Entertainment, Inc. (a) | 17,514 | 563,250 | ||||||
Omnicom Group, Inc. | 16,042 | 1,317,369 | ||||||
Scripps Networks Interactive, Inc. Class A | 16,073 | 1,200,975 | ||||||
TEGNA, Inc. | 1,484 | 37,812 | ||||||
Time Warner, Inc. | 3,450 | 342,481 | ||||||
Walt Disney Co. | 13,183 | 1,523,955 | ||||||
|
| |||||||
7,880,216 | ||||||||
|
| |||||||
Metals & Mining 0.5% | ||||||||
Nucor Corp. | 593 | 36,369 | ||||||
Steel Dynamics, Inc. | 3,901 | 140,982 | ||||||
United States Steel Corp. | 37,024 | 826,375 | ||||||
|
| |||||||
1,003,726 | ||||||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 11 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Multi-Utilities 0.6% | ||||||||
CenterPoint Energy, Inc. | 23,441 | $ | 668,772 | |||||
Consolidated Edison, Inc. | 6,143 | 487,017 | ||||||
|
| |||||||
1,155,789 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels 5.6% | ||||||||
Anadarko Petroleum Corp. | 12,459 | 710,412 | ||||||
Apache Corp. | 6,266 | 304,778 | ||||||
Chevron Corp. | 5,932 | 632,944 | ||||||
ConocoPhillips | 11,711 | 561,074 | ||||||
Devon Energy Corp. | 6,138 | 242,390 | ||||||
EOG Resources, Inc. | 681 | 62,993 | ||||||
¨Exxon Mobil Corp. | 45,633 | 3,725,934 | ||||||
Marathon Petroleum Corp. | 11,847 | 603,486 | ||||||
Newfield Exploration Co. (a) | 674 | 23,334 | ||||||
Noble Energy, Inc. | 2,789 | 90,168 | ||||||
ONEOK, Inc. | 11,795 | 620,535 | ||||||
Tesoro Corp. | 563 | 44,877 | ||||||
Valero Energy Corp. | 21,536 | 1,391,441 | ||||||
Williams Cos., Inc. | 47,123 | 1,443,378 | ||||||
|
| |||||||
10,457,744 | ||||||||
|
| |||||||
Paper & Forest Products 0.3% | ||||||||
Louisiana-Pacific Corp. (a) | 22,471 | 578,404 | ||||||
|
| |||||||
Pharmaceuticals 3.8% | ||||||||
¨Johnson & Johnson | 32,873 | 4,058,829 | ||||||
Merck & Co., Inc. | 6,360 | 396,419 | ||||||
Pfizer, Inc. | 78,582 | 2,665,502 | ||||||
|
| |||||||
7,120,750 | ||||||||
|
| |||||||
Professional Services 1.1% | ||||||||
ManpowerGroup, Inc. | 8,807 | 889,331 | ||||||
Robert Half International, Inc. | 24,610 | 1,133,290 | ||||||
|
| |||||||
2,022,621 | ||||||||
|
| |||||||
Real Estate Investment Trusts 1.5% | ||||||||
American Tower Corp. | 4,062 | 511,568 | ||||||
Camden Property Trust | 3,478 | 286,344 | ||||||
Host Hotels & Resorts, Inc. | 70,456 | 1,264,685 | ||||||
Senior Housing Properties Trust | 13,024 | 280,276 | ||||||
Uniti Group, Inc. (a) | 13,571 | 372,660 | ||||||
|
| |||||||
2,715,533 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment 3.7% |
| |||||||
Applied Materials, Inc. | 29,475 | 1,196,980 | ||||||
Broadcom, Ltd. | 1,781 | 393,263 | ||||||
Intel Corp. | 52,316 | 1,891,223 | ||||||
Lam Research Corp. | 10,472 | 1,516,869 | ||||||
Micron Technology, Inc. (a) | 50,564 | 1,399,106 | ||||||
NVIDIA Corp. | 2,513 | 262,106 | ||||||
Qorvo, Inc. (a) | 2,883 | 196,130 | ||||||
Skyworks Solutions, Inc. | 481 | 47,975 | ||||||
|
| |||||||
6,903,652 | ||||||||
|
|
Shares | Value | |||||||
Software 4.5% | ||||||||
Activision Blizzard, Inc. | 27,207 | $ | 1,421,566 | |||||
¨Microsoft Corp. | 87,377 | 5,981,829 | ||||||
Oracle Corp. | 9,348 | 420,286 | ||||||
Take-Two Interactive Software, Inc. (a) | 7,652 | 480,928 | ||||||
|
| |||||||
8,304,609 | ||||||||
|
| |||||||
Specialty Retail 3.3% | ||||||||
Best Buy Co., Inc. | 27,431 | 1,421,200 | ||||||
Foot Locker, Inc. | 12,945 | 1,001,166 | ||||||
Gap, Inc. | 24,347 | 637,892 | ||||||
Home Depot, Inc. | 5,792 | 904,131 | ||||||
Lowe’s Cos., Inc. | 22,157 | 1,880,686 | ||||||
TJX Cos., Inc. | 3,712 | 291,912 | ||||||
|
| |||||||
6,136,987 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals 6.7% |
| |||||||
¨Apple, Inc. | 55,485 | 7,970,420 | ||||||
Hewlett Packard Enterprise Co. | 7,450 | 138,793 | ||||||
HP, Inc. | 81,003 | 1,524,476 | ||||||
NCR Corp. (a) | 12,451 | 513,604 | ||||||
NetApp, Inc. | 26,307 | 1,048,334 | ||||||
Seagate Technology PLC | 27,312 | 1,150,655 | ||||||
Western Digital Corp. | 372 | 33,134 | ||||||
|
| |||||||
12,379,416 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods 0.5% | ||||||||
Michael Kors Holdings, Ltd. (a) | 26,399 | 985,475 | ||||||
|
| |||||||
Tobacco 2.7% | ||||||||
Altria Group, Inc. | 33,220 | 2,384,532 | ||||||
Philip Morris International, Inc. | 24,094 | 2,670,579 | ||||||
|
| |||||||
5,055,111 | ||||||||
|
| |||||||
Trading Companies & Distributors 0.6% | ||||||||
United Rentals, Inc. (a) | 10,476 | 1,148,798 | ||||||
W.W. Grainger, Inc. | 46 | 8,864 | ||||||
|
| |||||||
1,157,662 | ||||||||
|
| |||||||
Total Common Stocks | 182,728,691 | |||||||
|
| |||||||
Exchange-Traded Funds 2.0% (b) | ||||||||
¨SPDR S&P 500 ETF Trust | 15,716 | 3,741,665 | ||||||
|
| |||||||
Total Exchange-Traded Funds | 3,741,665 | |||||||
|
| |||||||
Total Investments | 100.1 | % | 186,470,356 | |||||
Other Assets, Less Liabilities | (0.1 | ) | (133,683 | ) | ||||
Net Assets | 100.0 | % | $ | 186,336,673 |
‡ | Less than one-tenth of a percent. |
(a) | Non-income producing security. |
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. |
(b) | Exchange-Traded Fund—An investment vehicle that represents a basket of securities that is traded on an exchange. |
(c) | As of April 30, 2017, cost was $166,055,244 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 24,406,220 | ||
Gross unrealized depreciation | (3,991,108 | ) | ||
|
| |||
Net unrealized appreciation | $ | 20,415,112 | ||
|
|
The following abbreviations are used in the preceding pages:
ETF—Exchange-Traded Fund
SPDR—Standard & Poor’s Depositary Receipt
The following is a summary of the fair valuations according to the inputs used as of April 30, 2017, 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 | $ | 182,728,691 | $ | — | $ | — | $ | 182,728,691 | ||||||||
Exchange-Traded Funds | 3,741,665 | — | — | 3,741,665 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | 186,470,356 | $ | — | $ | — | $ | 186,470,356 | ||||||||
|
|
|
|
|
|
|
|
(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, 2017, the Fund did not have any transfers among levels. (See Note 2)
As of April 30, 2017, 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. | 13 |
Statement of Assets and Liabilities as of April 30, 2017 (Unaudited)
Assets | ||||
Investment in securities, at value | $ | 186,470,356 | ||
Cash | 17,506 | |||
Receivables: | ||||
Fund shares sold | 229,582 | |||
Dividends and interest | 151,518 | |||
Other assets | 64,474 | |||
|
| |||
Total assets | 186,933,436 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Fund shares redeemed | 295,008 | |||
Investment securities purchased | 89,545 | |||
Manager (See Note 3) | 83,534 | |||
Professional fees | 33,046 | |||
NYLIFE Distributors (See Note 3) | 32,240 | |||
Transfer agent (See Note 3) | 31,750 | |||
Shareholder communication | 16,648 | |||
Custodian | 13,258 | |||
Trustees | 349 | |||
Accrued expenses | 1,385 | |||
|
| |||
Total liabilities | 596,763 | |||
|
| |||
Net assets | $ | 186,336,673 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 84,642 | ||
Additional paid-in capital | 185,888,566 | |||
|
| |||
185,973,208 | ||||
Undistributed net investment income | 678,305 | |||
Accumulated net realized gain (loss) on investments | (21,746,050 | ) | ||
Net unrealized appreciation (depreciation) on investments | 21,431,210 | |||
|
| |||
Net assets | $ | 186,336,673 | ||
|
|
Class A | ||||
Net assets applicable to outstanding shares | $ | 41,318,341 | ||
|
| |||
Shares of beneficial interest outstanding | 1,860,047 | |||
|
| |||
Net asset value per share outstanding | $ | 22.21 | ||
Maximum sales charge (5.50% of offering price) | 1.29 | |||
|
| |||
Maximum offering price per share outstanding | $ | 23.50 | ||
|
| |||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 24,104,662 | ||
|
| |||
Shares of beneficial interest outstanding | 1,084,986 | |||
|
| |||
Net asset value per share outstanding | $ | 22.22 | ||
Maximum sales charge (5.50% of offering price) | 1.29 | |||
|
| |||
Maximum offering price per share outstanding | $ | 23.51 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 6,730,018 | ||
|
| |||
Shares of beneficial interest outstanding | 329,574 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 20.42 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 16,047,010 | ||
|
| |||
Shares of beneficial interest outstanding | 786,325 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 20.41 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 98,102,298 | ||
|
| |||
Shares of beneficial interest outstanding | 4,401,702 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 22.29 | ||
|
| |||
Class R3 | ||||
Net assets applicable to outstanding shares | $ | 34,344 | ||
|
| |||
Shares of beneficial interest outstanding | 1,548 | |||
|
| |||
Net asset value and offering price per share outstanding (a) | $ | 22.18 | ||
|
|
(a) | The difference in the NAV recalculation and NAV stated is caused by rounding differences. |
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 Operations for the six months ended April 30, 2017 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Dividends | $ | 1,939,662 | ||
Other income | 121 | |||
Interest | 43 | |||
|
| |||
Total income | 1,939,826 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 507,424 | |||
Distribution/Service—Class A (See Note 3) | 53,942 | |||
Distribution/Service—Investor Class (See Note 3) | 28,984 | |||
Distribution/Service—Class B (See Note 3) | 34,077 | |||
Distribution/Service—Class C (See Note 3) | 82,640 | |||
Distribution/Service—Class R3 (See Note 3) | 80 | |||
Transfer agent (See Note 3) | 95,300 | |||
Registration | 54,272 | |||
Professional fees | 27,788 | |||
Shareholder communication | 16,133 | |||
Custodian | 8,159 | |||
Trustees | 2,358 | |||
Shareholder service (See Note 3) | 16 | |||
Miscellaneous | 7,693 | |||
|
| |||
Total expenses | 918,866 | |||
|
| |||
Net investment income (loss) | 1,020,960 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments | 8,403,102 | |||
Net change in unrealized appreciation (depreciation) on investments | 12,544,184 | |||
|
| |||
Net realized and unrealized gain (loss) on investments | 20,947,286 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 21,968,246 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 15 |
Statements of Changes in Net Assets
for the six months ended April 30, 2017 (Unaudited) and the year ended October 31, 2016
2017 | 2016 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 1,020,960 | $ | 2,346,788 | ||||
Net realized gain (loss) on investments | 8,403,102 | 4,451,239 | ||||||
Net change in unrealized appreciation (depreciation) on investments | 12,544,184 | (6,715,636 | ) | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 21,968,246 | 82,391 | ||||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: |
| |||||||
Class A | (566,825 | ) | (546,900 | ) | ||||
Investor Class | (220,199 | ) | (202,195 | ) | ||||
Class B | (13,572 | ) | (12,079 | ) | ||||
Class C | (33,607 | ) | (44,949 | ) | ||||
Class I | (1,365,745 | ) | (1,194,013 | ) | ||||
Class R3 | (287 | ) | — | |||||
|
| |||||||
Total dividends to shareholders | (2,200,235 | ) | (2,000,136 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 17,780,382 | 47,224,998 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 2,141,325 | 1,936,763 | ||||||
Cost of shares redeemed | (29,076,508 | ) | (71,596,871 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | (9,154,801 | ) | (22,435,110 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets | 10,613,210 | (24,352,855 | ) | |||||
Net Assets | ||||||||
Beginning of period | 175,723,463 | 200,076,318 | ||||||
|
| |||||||
End of period | $ | 186,336,673 | $ | 175,723,463 | ||||
|
| |||||||
Undistributed net investment income at end of period | $ | 678,305 | $ | 1,857,580 | ||||
|
|
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. |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Class A | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Net asset value at beginning of period | $ | 19.95 | $ | 20.20 | $ | 19.39 | $ | 16.59 | $ | 12.90 | $ | 11.34 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | 0.12 | 0.25 | 0.20 | 0.18 | 0.16 | 0.15 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.39 | (0.28 | ) | 0.76 | 2.83 | 3.71 | 1.60 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 2.51 | (0.03 | ) | 0.96 | 3.01 | 3.87 | 1.75 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends: | ||||||||||||||||||||||||
From net investment income | (0.25 | ) | (0.22 | ) | (0.15 | ) | (0.21 | ) | (0.18 | ) | (0.19 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 22.21 | $ | 19.95 | $ | 20.20 | $ | 19.39 | $ | 16.59 | $ | 12.90 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 12.67 | % | (0.13 | %) | 4.95 | % | 18.30 | % | 30.35 | % | 15.64 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | 1.15 | %†† | 1.29 | % (c) | 1.01 | % | 0.98 | % | 1.11 | % | 1.22 | % | ||||||||||||
Net expenses | 0.97 | %†† | 0.95 | % (d) | 0.96 | % | 1.00 | % | 1.05 | % | 1.06 | % | ||||||||||||
Portfolio turnover rate | 70 | % | 164 | % | 158 | % | 165 | % | 150 | % | 182 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 41,318 | $ | 42,928 | $ | 52,985 | $ | 34,139 | $ | 19,011 | $ | 12,402 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been 1.28%. |
(d) | Without the custody fee reimbursement, net expenses would have been 0.96%. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Investor Class | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Net asset value at beginning of period | $ | 19.93 | $ | 20.19 | $ | 19.38 | $ | 16.58 | $ | 12.89 | $ | 11.32 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | 0.09 | 0.21 | 0.16 | 0.13 | 0.10 | 0.09 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.40 | (0.29 | ) | 0.76 | 2.82 | 3.70 | 1.61 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 2.49 | (0.08 | ) | 0.92 | 2.95 | 3.80 | 1.70 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends: | ||||||||||||||||||||||||
From net investment income | (0.20 | ) | (0.18 | ) | (0.11 | ) | (0.15 | ) | (0.11 | ) | (0.13 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 22.22 | $ | 19.93 | $ | 20.19 | $ | 19.38 | $ | 16.58 | $ | 12.89 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 12.55 | % | (0.39 | %) | 4.77 | % | 17.94 | % | 29.75 | % | 15.15 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | 0.88 | %†† | 1.05 | % (c) | 0.82 | % | 0.71 | % | 0.72 | % | 0.72 | % | ||||||||||||
Net expenses | 1.22 | %†† | 1.20 | % (d) | 1.17 | % | 1.28 | % | 1.46 | % | 1.56 | % | ||||||||||||
Portfolio turnover rate | 70 | % | 164 | % | 158 | % | 165 | % | 150 | % | 182 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 24,105 | $ | 21,880 | $ | 22,939 | $ | 20,856 | $ | 18,436 | $ | 15,093 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been 1.04%. |
(d) | Without the custody fee reimbursement, net expenses would have been 1.21%. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 17 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Class B | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Net asset value at beginning of period | $ | 18.25 | $ | 18.49 | $ | 17.81 | $ | 15.27 | $ | 11.87 | $ | 10.43 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | 0.01 | 0.05 | 0.02 | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.20 | (0.26 | ) | 0.69 | 2.59 | 3.42 | 1.48 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 2.21 | (0.21 | ) | 0.71 | 2.59 | 3.42 | 1.48 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends: | ||||||||||||||||||||||||
From net investment income | (0.04 | ) | (0.03 | ) | (0.03 | ) | (0.05 | ) | (0.02 | ) | (0.04 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 20.42 | $ | 18.25 | $ | 18.49 | $ | 17.81 | $ | 15.27 | $ | 11.87 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 12.11 | % | (1.12 | %) | 4.01 | % | 17.00 | % | 28.87 | % | 14.23 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | 0.15 | %†† | 0.30 | % (c) | 0.09 | % | (0.03 | %) | (0.03 | %) | (0.02 | %) | ||||||||||||
Net expenses | 1.97 | %†† | 1.95 | % (d) | 1.92 | % | 2.03 | % | 2.21 | % | 2.31 | % | ||||||||||||
Portfolio turnover rate | 70 | % | 164 | % | 158 | % | 165 | % | 150 | % | 182 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 6,730 | $ | 6,604 | $ | 6,816 | $ | 7,240 | $ | 6,760 | $ | 5,836 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been 0.29%. |
(d) | Without the custody fee reimbursement, net expenses would have been 1.96%. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Class C | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Net asset value at beginning of period | $ | 18.24 | $ | 18.48 | $ | 17.80 | $ | 15.26 | $ | 11.87 | $ | 10.43 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | 0.01 | 0.06 | 0.01 | (0.02 | ) | (0.01 | ) | (0.00 | )‡ | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.20 | (0.27 | ) | 0.70 | 2.61 | 3.42 | 1.48 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 2.21 | (0.21 | ) | 0.71 | 2.59 | 3.41 | 1.48 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends: | ||||||||||||||||||||||||
From net investment income | (0.04 | ) | (0.03 | ) | (0.03 | ) | (0.05 | ) | (0.02 | ) | (0.04 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 20.41 | $ | 18.24 | $ | 18.48 | $ | 17.80 | $ | 15.26 | $ | 11.87 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 12.12 | % | (1.12 | %) | 4.01 | % | 17.01 | % | 28.78 | % | 14.23 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | 0.14 | %†† | 0.34 | % (c) | 0.06 | % | (0.10 | %) | (0.10 | %) | (0.02 | %) | ||||||||||||
Net expenses | 1.97 | %†† | 1.95 | % (d) | 1.92 | % | 2.03 | % | 2.21 | % | 2.31 | % | ||||||||||||
Portfolio turnover rate | 70 | % | 164 | % | 158 | % | 165 | % | 150 | % | 182 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 16,047 | $ | 16,509 | $ | 25,775 | $ | 16,536 | $ | 3,441 | $ | 1,575 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been 0.33%. |
(d) | Without the custody fee reimbursement, net expenses would have been 1.96%. |
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 I | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Net asset value at beginning of period | $ | 20.04 | $ | 20.29 | $ | 19.45 | $ | 16.64 | $ | 12.94 | $ | 11.38 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | 0.15 | 0.31 | 0.26 | 0.22 | 0.20 | 0.18 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.41 | (0.29 | ) | 0.76 | 2.83 | 3.71 | 1.60 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 2.56 | 0.02 | 1.02 | 3.05 | 3.91 | 1.78 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends: | ||||||||||||||||||||||||
From net investment income | (0.31 | ) | (0.27 | ) | (0.18 | ) | (0.24 | ) | (0.21 | ) | (0.22 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 22.29 | $ | 20.04 | $ | 20.29 | $ | 19.45 | $ | 16.64 | $ | 12.94 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 12.84 | % | 0.12 | % | 5.26 | % | 18.55 | % | 30.65 | % | 15.89 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | 1.38 | %†† | 1.55 | %(c) | 1.30 | % | 1.24 | % | 1.40 | % | 1.48 | % | ||||||||||||
Net expenses | 0.72 | %†† | 0.70 | %(d) | 0.71 | % | 0.75 | % | 0.80 | % | 0.81 | % | ||||||||||||
Portfolio turnover rate | 70 | % | 164 | % | 158 | % | 165 | % | 150 | % | 182 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 98,102 | $ | 87,774 | $ | 91,561 | $ | 108,343 | $ | 77,476 | $ | 75,985 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Without the custody fee reimbursement, net investment income (loss) would have been 1.54%. |
(d) | Without the custody fee reimbursement, net expenses would have been 0.71%. |
Class R3 | Six months ended April 30, 2017* | February 29, 2016** through October 31, 2016 | ||||||
Net asset value at beginning of period | $ | 19.90 | $ | 18.44 | ||||
|
|
|
| |||||
Net investment income (loss) (a) | 0.08 | 0.10 | ||||||
Net realized and unrealized gain (loss) on investments | 2.40 | 1.36 | ||||||
|
|
|
| |||||
Total from investment operations | 2.48 | 1.46 | ||||||
|
|
|
| |||||
Less dividends: | ||||||||
From net investment income | (0.20 | ) | — | |||||
|
|
|
| |||||
Net asset value at end of period | $ | 22.18 | $ | 19.90 | ||||
|
|
|
| |||||
Total investment return (b) | 12.50 | % | 7.92 | %(c) | ||||
Ratios (to average net assets)/Supplemental Data: | ||||||||
Net investment income (loss)†† | 0.76 | % | 0.74 | %(d) | ||||
Net expenses†† | 1.32 | % | 1.31 | %(e) | ||||
Portfolio turnover rate | 70 | % | 164 | % | ||||
Net assets at end of period (in 000’s) | $ | 34 | $ | 29 |
* | 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 R3 shares are not subject to sales charges. For periods of less than one year, total return is not annualized. |
(c) | Total investment return may reflect adjustments to conform to generally accepted accounting principles. |
(d) | Without the custody fee reimbursement, net investment income (loss) would have been 0.73%. |
(e) | Without the custody fee reimbursement, net expenses would have been 1.32%. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 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, and is governed by a Declaration of 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”, as that term is defined in the 1940 Act, as interpreted or modified by regulatory authorities having jurisdiction, from time to time.
The Fund currently offers nine 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, Class R6 and Class T shares of the Fund were registered for sale effective as of December 14, 2007 (for Class R2 shares) and February 28, 2017 (for Class R6 and Class T shares). As of the period ended April 30, 2017, Class R2, Class R6 and Class T shares had no investment operations. Investor Class shares commenced operations on February 28, 2008. Class R3 shares commenced operations on February 29, 2016. Effective February 28, 2017, Class B shares of the MainStay Group of Funds were closed to all new purchases as well as additional investments by existing Class B shareholders. Existing Class B shareholders may continue to reinvest dividends and capital gains distributions, as well as exchange their Class B shares for Class B shares of other Funds as permitted by the current exchange privileges. Class B shareholders continue to be subject to any applicable contingent deferred sales charge (“CDSC”) at the time of redemption. All other features of the Class B shares, including but not limited to the fees and expenses applicable to Class B shares, remain unchanged. Unless redeemed, Class B shareholders will remain in Class B shares of their respective Fund until the Class B shares are converted to Class A or Investor Class shares pursuant to the applicable conversion schedule.
Class A and Investor Class shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No initial sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Class A and Investor Class shares. Effective August 1, 2017, a CDSC of 1.00% may be imposed on certain redemptions of Class A and Investor Class shares made within 18 months of the date of purchase on shares that were purchased without an initial sales charge. For purchases of Class A and Investor Class shares made from January 1, 2017 through July 31, 2017, a CDSC of 1.00% may be imposed on certain redemptions made within 24 months of the date of purchase on shares that were purchased without an initial sales charge. For purchases of Class A and Investor Class shares made prior to January 1, 2017, a CDSC of 1.00% may be imposed on redemptions made within one year of the date of purchase on shares that were purchased without an initial sales charge. Class C shares are offered at NAV without an initial sales charge, although a 1.00% CDSC may be imposed on certain redemptions made within one year of the date of purchase of Class C shares. When Class B shares were offered, they were offered at NAV without an initial sales charge, although a CDSC that declines depending on the number of years a shareholder has held its Class B shares may be imposed on redemptions made within six years of the date of purchase of such shares. Class T Shares are offered at NAV per
share plus an initial sales charge. Class I, 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 Class A or Investor Class shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Class A shares may convert to Investor Class shares and Investor Class shares may convert to Class A shares. Under certain circumstances and as may be permitted by the Trust’s multiple class plan under Rule 18f-3 of the 1940 Act, an exchange/conversion may be made from specified share classes of the Fund to one or more other share classes of the Fund as disclosed in the capital share transactions within these Notes. 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 under distribution plans pursuant to Rule 12b-1 under the 1940 Act, Class B and Class C shares are subject to higher distribution and/or service fee rates than Class A, Investor Class, Class T, Class R2 and Class R3 shares. Class I and Class R6 shares are not subject to a distribution and/or service fee. 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 is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services—Investment Companies. 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 usually valued as of the close of regular trading on the New York Stock Exchange (the “Exchange”) (usually 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 establishing methodologies for the valuation of the Fund’s securities and other assets and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Trust (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 establishing the prices of securities for which market quotations are not readily available or the prices of which are not otherwise readily determinable under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. Subsequently, the Valuation Committee meets 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 the day-to-day valuation of portfolio assets (including fair value measurements for the Fund’s assets and liabilities) 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.
20 | MainStay Common Stock Fund |
To assess the appropriateness of security valuations, the Manager, Subadvisor 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 with changes 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, if appropriate, 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 or other asset is submitted by the Valuation Committee to the Board for its review and ratification, if appropriate, at its next regularly scheduled meeting.
“Fair value” is defined as the price the Fund would reasonably expect to 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 establishes 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 assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities. 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) |
The level of an asset or liability within the fair value hierarchy is based on the lowest level of an input, both individually and in the aggregate, that is significant to the fair value measurement. As of April 30, 2017, the aggregate value by input level of the Fund’s assets and 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:
• Broker/dealer quotes | • Benchmark securities | |
• Two-sided markets | • Reference data (corporate actions or material event notices) | |
• Bids/offers | • Monthly payment information | |
• Industry and economic events | • Reported trades |
An asset or liability for which market values cannot be measured using the methodologies described above is valued by methods deemed reasonable 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. Fair value represents a good faith approximation of the value of a security. Fair value determinations involve the consideration of a number of subjective factors, an analysis of applicable facts and circumstances and the exercise of judgment. As a result, it is possible that the fair value for a security determined in good faith in accordance with the Fund’s valuation procedures may differ from valuations for the same security determined by other funds using their own valuation procedures. Although the Fund’s valuation procedures are designed to value a security at the price the Fund may reasonably expect to receive upon its sale in an orderly transaction, there can be no assurance that any fair value determination thereunder would, in fact, approximate the amount that the Fund would actually realize upon the sale of the security or the price at which the security would trade if a reliable market price were readily available. During the six-month period ended April 30, 2017, there were 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, 2017, there were no securities held by the Fund that were fair valued in such a manner.
Equity securities and shares of Exchange-Traded Funds (“ETFs”) are valued at the last quoted sales prices as of the close of regular trading on the relevant exchange on each valuation date. Securities that are not traded on the valuation date are valued at the mean of the last quoted
21 |
Notes to Financial Statements (Unaudited) (continued)
bid and ask prices. Prices are normally taken from the principal market in which each security trades. Investments in mutual funds, including money market 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 at the time of purchase 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 using the amortized cost method of valuation, unless the use of such method would be inappropriate. 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 using the amortized cost method are not valued using quoted prices in an active market and are generally categorized as Level 2 in the hierarchy.
The information above is not intended to reflect an exhaustive list of the methodologies that may be used to value portfolio investments. The valuation procedures permit the use of a variety of valuation methodologies in connection with valuing portfolio investments. The methodology used for a specific type of investment may vary based on the market data available or other considerations. The methodologies summarized above may not represent the specific means by which portfolio investments are valued on any particular business day.
(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 its 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 permitted only to the extent 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. Income from payment-in-kind securities is accreted daily based on the effective interest method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated pro rata to separate classes of shares 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/or 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 (i.e., buy a security from another party with the agreement that it be sold back in the future) to earn income. The Fund may enter into repurchase agreements only with counterparties, usually 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 the Fund to the counterparty secured by the securities transferred to the Fund. Repurchase agreements are subject to counterparty risk, meaning the Fund could lose money by the counterparty’s failure to perform under the terms of the agreement. The Fund mitigates this risk by ensuring the repurchase agreement is collateralized by cash, U.S. government securities, fixed income securities and/or other securities. The collateral is held by the Fund’s custodian 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 counterparty’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, realization and/or retention of the collateral may be
22 | MainStay Common Stock Fund |
limited or subject to delay, 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 (“SEC”). 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 collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund against counterparty risk. The loans will be collateralized by U.S. Treasury securities at least equal at all times to the market value of the securities loaned. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record a realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund bears the risk of any loss on investment of the collateral. The Fund will receive compensation for lending its securities in the form of fees or it will retain a portion of interest on the investment of any cash received as collateral. The Fund will also 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. During the six-month period ended April 30, 2017, the Fund did not have any portfolio securities on loan.
(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 attributable to 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 an Amended and Restated Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and Cornerstone Holdings, New York Life Investments pays for the services of the Subadvisor.
Under the Management Agreement, 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. During the six-month period ended April 30, 2017, the effective management fee rate was 0.55%.
New York Life Investments has agreed to voluntarily 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%. 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. These voluntary waivers or reimbursements may be discontinued at any time without notice.
During the six-month period ended April 30, 2017, New York Life Investments earned fees from the Fund in the amount of $507,424.
State Street 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 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 Class A, Investor Class, Class T and Class R2 Plans, the Distributor receives a monthly distribution fee from the Class A, Investor Class, Class T and Class R2 shares at an annual rate of 0.25% of the average daily net assets of the Class A, Investor Class, Class T 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 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.
23 |
Notes to Financial Statements (Unaudited) (continued)
In accordance with the Shareholder Services Plan for the 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 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 R2 and Class R3 shares. This is in addition to any fees paid under a distribution plan, where applicable.
(C) Sales Charges. During the six-month period ended April 30, 2017, the Fund was advised by the Distributor that the amount of initial sales charges retained on sales of Class A and Investor Class shares were $5,282 and $6,206, respectively.
During the six-month period ended April 30, 2017, the Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Class B and Class C shares of $633, $22,178 and $118, respectively.
(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. During the six-month period ended April 30, 2017, transfer agent expenses incurred by the Fund were as follows:
Class A | $ | 8,736 | ||
Investor Class | 33,558 | |||
Class B | 9,864 | |||
Class C | 23,935 | |||
Class I | 19,201 | |||
Class R3 | 6 |
(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, 2017, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class R3 | $ | 30,352 | 88.4 | % |
Note 4–Federal Income Tax
During the year ended October 31, 2016, the tax character of distributions paid as reflected in the Statements of Changes in Net Assets was as follows:
2016 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 2,000,136 |
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 transactions incurred by the Fund.
Note 6–Line of Credit
The Fund and certain other funds managed by New York Life Investments, 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 2, 2016, under an amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $600,000,000 with an additional uncommitted amount of $100,000,000. The commitment fee is an annual rate of 0.15% 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 their respective 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 1, 2017, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 2, 2016, the aggregate commitment amount was $600,000,000 with an additional uncommitted amount of $100,000,000, and the commitment fee was at an annual rate of 0.10% of the average commitment amount. During the six-month period ended April 30, 2017, there were no borrowings made or outstanding with respect to the Fund under the Credit Agreement.
Note 7–Interfund Lending Program
Pursuant to an exemptive order issued by the SEC, the Fund, along with certain other funds managed by New York Life Investments, may participate in an interfund lending program. The interfund lending program provides an alternative credit facility that permits the Fund and certain other funds managed by New York Life Investments to lend or borrow money for temporary purposes directly to or from one another subject to the conditions of the exemptive order. During the six-month period ended April 30, 2017, there were no interfund loans made or outstanding with respect to the Fund.
Note 8–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2017, purchases and sales of securities, other than short-term securities, were $128,743 and $138,911, respectively.
24 | MainStay Common Stock Fund |
Note 9–Capital Share Transactions
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 298,211 | $ | 6,297,913 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 25,363 | 534,139 | ||||||
Shares redeemed | (551,509 | ) | (11,753,793 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (227,935 | ) | (4,921,741 | ) | ||||
Shares converted into Class A (See Note 1) | 46,924 | 1,019,394 | ||||||
Shares converted from Class A (See Note 1) | (110,321 | ) | (2,346,297 | ) | ||||
|
| |||||||
Net increase (decrease) | (291,332 | ) | $ | (6,248,644 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 1,251,418 | $ | 24,675,950 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 26,849 | 520,878 | ||||||
Shares redeemed | (1,802,139 | ) | (36,048,711 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (523,872 | ) | (10,851,883 | ) | ||||
Shares converted into Class A (See Note 1) | 66,498 | 1,308,332 | ||||||
Shares converted from Class A (See Note 1) | (13,967 | ) | (280,865 | ) | ||||
|
| |||||||
Net increase (decrease) | (471,341 | ) | $ | (9,824,416 | ) | |||
|
| |||||||
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 65,270 | $ | 1,401,921 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 10,399 | 219,209 | ||||||
Shares redeemed | (74,034 | ) | (1,586,690 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 1,635 | 34,440 | ||||||
Shares converted into Investor Class (See Note 1) | 29,840 | 647,077 | ||||||
Shares converted from Investor Class (See Note 1) | (44,319 | ) | (963,237 | ) | ||||
|
| |||||||
Net increase (decrease) | (12,844 | ) | $ | (281,720 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 122,624 | $ | 2,385,551 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 10,373 | 201,445 | ||||||
Shares redeemed | (153,115 | ) | (3,008,109 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (20,118 | ) | (421,113 | ) | ||||
Shares converted into Investor Class (See Note 1) | 45,097 | 893,686 | ||||||
Shares converted from Investor Class (See Note 1) | (63,429 | ) | (1,248,269 | ) | ||||
|
| |||||||
Net increase (decrease) | (38,450 | ) | $ | (775,696 | ) | |||
|
| |||||||
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 37,435 | $ | 727,575 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 670 | 13,018 | ||||||
Shares redeemed | (43,028 | ) | (851,444 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (4,923 | ) | (110,851 | ) | ||||
Shares converted from Class B (See Note 1) | (27,386 | ) | (544,075 | ) | ||||
|
| |||||||
Net increase (decrease) | (32,309 | ) | $ | (654,926 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 119,948 | $ | 2,140,730 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 638 | 11,415 | ||||||
Shares redeemed | (88,530 | ) | (1,573,401 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 32,056 | 578,744 | ||||||
Shares converted from Class B (See Note 1) | (38,808 | ) | (701,777 | ) | ||||
|
| |||||||
Net increase (decrease) | (6,752 | ) | $ | (123,033 | ) | |||
|
| |||||||
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 104,561 | $ | 2,040,600 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,201 | 23,317 | ||||||
Shares redeemed | (224,589 | ) | (4,396,998 | ) | ||||
|
| |||||||
Net increase (decrease) | (118,827 | ) | $ | (2,333,081 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 219,476 | $ | 3,963,348 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,795 | 32,117 | ||||||
Shares redeemed | (710,934 | ) | (12,699,832 | ) | ||||
|
| |||||||
Net increase (decrease) | (489,663 | ) | $ | (8,704,367 | ) | |||
|
| |||||||
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 339,967 | $ | 7,305,187 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 64,045 | 1,351,355 | ||||||
Shares redeemed | (484,158 | ) | (10,482,595 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (80,146 | ) | (1,826,053 | ) | ||||
Shares converted into Class I (See Note 1) | 102,691 | 2,187,138 | ||||||
|
| |||||||
Net increase (decrease) | 22,545 | $ | 361,085 | |||||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 716,226 | $ | 14,032,867 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 60,232 | 1,170,908 | ||||||
Shares redeemed | (910,950 | ) | (18,266,818 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (134,492 | ) | (3,063,043 | ) | ||||
Shares converted into Class I (See Note 1) | 1,423 | 28,893 | ||||||
|
| |||||||
Net increase (decrease) | (133,069 | ) | $ | (3,034,150 | ) | |||
|
| |||||||
25 |
Notes to Financial Statements (Unaudited) (continued)
Class R3 | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 339 | $ | 7,186 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 13 | 287 | ||||||
Shares redeemed | (237 | ) | (4,988 | ) | ||||
|
| |||||||
Net increase (decrease) | 115 | $ | 2,485 | |||||
|
| |||||||
Year ended October 31, 2016 (a): | ||||||||
Shares sold | 1,433 | $ | 26,552 | |||||
|
| |||||||
Net increase (decrease) | 1,433 | $ | 26,552 | |||||
|
|
(a) | Inception date was February 29, 2016. |
Note 10–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 Fund as a defendant.
The FitzSimons action and Deutsche Bank action have been consolidated with the majority of the other Tribune LBO-related lawsuits in a multidistrict litigation proceeding entitled In re Tribune Co. Fraudulent Conveyance Litig., No. 11-md-2296 (S.D.N.Y.) (the “MDL Proceeding”).
On 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 November 5, 2014, the Second Circuit Court of Appeals held an oral argument on appeal. On March 29, 2016, the United States Court of Appeals for the Second Circuit issued its opinion on the appeal of the SLCFC actions. The appeals court affirmed the district court’s dismissal of those lawsuits, but on different grounds than the district court. The appeals court held that while the plaintiffs have standing under the U.S. Bankruptcy Code, their claims were preempted by Section 546(e) of the Bankruptcy Code—the statutory safe harbor for settlement payments. On April 12, 2016, the plaintiffs in the SLCFC actions filed a petition seeking rehearing en banc before the appeals court. On July 22, 2016, the appeals court denied
the petition. On September 9, 2016, the plaintiffs filed a petition for writ of certiorari in the U.S. Supreme Court challenging the Second Circuit’s decision that the safe harbor of Section 546(e) applied to their claims. Certain shareholder defendants filed a joint brief in opposition to the petition for certiorari on October 24, 2016. The plaintiffs filed a reply in support of the petition on November 4, 2016. The Supreme Court has not yet granted or denied the petition for certiorari.
On August 2, 2013, the plaintiff in the FitzSimons action filed a Fifth Amended Complaint. On May 23, 2014, the defendants filed motions to dismiss the FitzSimons action, including a global motion to dismiss Count I, which is the claim brought against former Tribune shareholders for intentional fraudulent conveyance under U.S. federal law. On January 6, 2017, the United States District Court for the Southern District of New York granted the shareholder defendants’ motion to dismiss the intentional fraudulent conveyance claim in the FitzSimons action. In dismissing the intentional fraudulent conveyance claim, the Court denied the plaintiff’s request to amend the complaint. The Court’s order is not immediately appealable, but the plaintiff has asked the Court to direct entry of a final judgment in order to make the order immediately appealable. On February 23, 2017, the Court issued an order stating that it intends to permit an interlocutory appeal of the dismissal order, but will wait to do so until it has resolved outstanding motions to dismiss filed by other defendants. Accordingly, the timing of the appeal is uncertain.
The value of the proceeds received by the Fund in connection with the LBO and the Fund’s cost basis in shares of Tribune was as follows:
Fund | Proceeds | Cost Basis | ||||||
MainStay Common Stock Fund | $ | 751,774 | $ | 729,369 |
At this stage of the proceedings, it would be difficult to assess with any reasonable certainty the probable outcome of the pending litigation or the effect, if any, on the Fund’s net asset value.
Note 11–Recent Accounting Pronouncement
In October 2016, the SEC adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the Fund’s financial statements and related disclosures.
Note 12–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, 2017, events and transactions subsequent to April 30, 2017, 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 of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of trustees initially approve and, following an initial term of up to two years, annually review and approve the fund’s investment advisory agreement(s). At its December 12-14, 2016 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”) 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 2016 and December 2016, as well as other relevant information furnished to the Board throughout the year. 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 fee and total expenses. The Board also considered information on the fees charged to any other investment advisory clients of New York Life Investments and Cornerstone Holdings (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 Trustees who are not “interested persons” (as such term is defined under the 1940 Act) of the Fund (the “Independent Trustees”). Information provided to the Board in advance of and during meetings throughout the year included, among other items, information regarding the legal standards applicable to their consideration of the Agreements and 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, risk management, portfolio turnover, and sales and marketing activity. At various meetings, the Independent Trustees also met in executive session with their independent legal counsel, and met with senior management of New York Life Investments without other representatives of New York Life Investments present.
Throughout the year and specifically in connection with its June meeting each year, the Board also received an overview of the Fund’s distribution arrangements. In addition, the Board received information regarding the Fund’s asset levels, share purchase and redemption activity and the payment of Rule 12b-1 distribution and service fees by the Fund. New York Life Investments also provided the Board with
information regarding the revenue sharing payments made to intermediaries that promote the sale, distribution, and/or servicing of Fund shares.
In considering the Agreements, the Trustees comprehensively 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 described in greater detail below and included, among other items: (i) the nature, extent 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 have been realized or may be realized if the Fund grows and the extent to which economies of scale have benefited or may benefit Fund shareholders; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to any similar funds and accounts managed by New York Life Investments and Cornerstone Holdings. Although the Board recognized that the comparisons between the Fund’s fees and expenses and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Board also considered the reasonableness of the Fund’s management fee and overall total ordinary operating expenses as compared to the peer funds identified by Strategic Insight.
While individual Trustees may have weighed certain factors or information differently, the Board’s decision to approve the Agreements was based on a consideration of the information provided to the Trustees throughout the year, as well as information furnished specifically in connection with the contract review process. Throughout the year, the Trustees are also afforded an opportunity to ask questions of and request additional information or materials from New York Life Investments and Cornerstone Holdings. The Board’s conclusions with respect to the Agreements may have been based, in part, on the Board’s knowledge of New York Life Investments and Cornerstone Holdings resulting from, among other things, the Board’s consideration of the MainStay Group of Funds’ advisory 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. The factors that figured prominently in the Board’s decision to approve the Agreements are summarized in more detail below.
Nature, Extent and Quality of Services to Be Provided by New York Life Investments and Cornerstone Holdings
The Board examined the nature, extent and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience and capabilities 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
27 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
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 observed that New York Life Investments devotes significant resources and time to providing advisory and non-advisory services to the Fund, including its extensive oversight of Cornerstone Holdings. The Board also considered the full range of services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and on-going oversight services provided by New York Life Investments’ Fund Administration and Accounting 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; (iv) legal services provided by New York Life Investments’ Office of the General Counsel; and (v) risk management and portfolio trading oversight and analysis by compliance and investment personnel. 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, infrastructure, technology, operational enhancements, cyber security, information security and shareholder privacy resources 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, extent and quality of the investment 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 further considered New York Life Investments’ policies, procedures and systems to reasonably assure compliance with applicable laws and regulations. In addition, the Board considered the policies and procedures in place with respect to matters that may involve conflicts of interest between the Fund’s investments and those of other accounts managed by Cornerstone Holdings. 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, extent 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, and in light of market conditions. 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’s Investment Committee that occur regularly, generally 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 of the services provided by New York Life Investments and Cornerstone Holdings and profits realized by 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
28 | MainStay Common Stock Fund |
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 recognized that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds, among other benefits resulting from its relationship with New York Life Investments.
In addition, the Board acknowledged 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. In connection with the annual fund profitability analysis that New York Life Investments presents to the Board, the Board in 2014 engaged Bobroff Consulting, Inc., an independent third-party consultant, to review the methods used to allocate costs to the MainStay Funds, and among individual Funds. As part of this engagement, the consultant analyzed: (i) the various New York Life Investments’ business units and affiliated Subadvisers that provide services to the MainStay Funds; (ii) how costs are allocated to the Fund and other funds managed by New York Life Investments, and to other lines of businesses; and (iii) how New York Life Investments’ cost allocation methods and profitability reports compare to industry practices. The Board noted that the independent consultant had concluded that New York Life Investments’ methods for allocating costs and procedures for estimating overall profitability of the funds in the MainStay Group of Funds, including the Fund, are reasonable, consistent with industry practice and likely to produce reasonable profitability estimates. Although the Board recognized 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 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 incurred by New York Life Investments from its own resources.
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 Fund and other funds in the MainStay Group of Funds. 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, initially setting relatively low management fees or making additional investments to enhance shareholder services. 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. Additionally, the Board considered New York Life Investments’ assessment of the extent economies of scale existed for Funds that had experienced significant increases of assets during the year.
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, because 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,
29 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
including institutional separate accounts and other funds that follow similar investment strategies 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 registered investment companies 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 demonstrating 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 also noted information received from NYLIM Service Company LLC regarding the sub-transfer agency payments it made to intermediaries in connection with the 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 a number of 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 recognized 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) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iii) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (iv) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (v) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and
(vi) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. The Board also considered that NYLIM Service Company LLC had waived its cost of living adjustments in 2015, 2016 and 2017. In addition, the Board acknowledged New York Life Investments’ continued 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 and factors summarized above and the evaluation thereof, the Board as a whole, including the Independent Trustees who are not parties to the Agreements or “interested persons” of any such party voting separately, 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 or proxy voting record 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).
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MainStay Funds
Equity
U.S. Equity
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay Epoch U.S. Small Cap Fund
MainStay ICAP Equity Fund1
MainStay ICAP Select Equity Fund1
MainStay Large Cap Growth Fund
MainStay MAP Equity Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
International/Global Equity
MainStay Emerging Markets Equity Fund
MainStay Epoch Capital Growth Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Choice Fund
MainStay Epoch International Small Cap Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond
MainStay Emerging Markets Debt Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay Indexed Bond Fund
MainStay Short Duration High Yield Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal/Tax Advantaged Bond
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Advantaged Short Term Bond Fund
MainStay Tax Free Bond Fund
Money Market
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
Alternative
MainStay Absolute Return Multi-Strategy Fund
MainStay Cushing Energy Income Fund
MainStay Cushing MLP Premier Fund
MainStay Cushing Renaissance Advantage 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
MainStay Retirement 2060 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Candriam France S.A.S.4
Paris, France
Cornerstone Capital Management Holdings LLC4
New York, New York
Cushing Asset Management, LP
Dallas, Texas
Epoch Investment Partners, Inc.
New York, New York
MacKay Shields LLC4
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC4
New York, New York
Winslow Capital Management, LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Washington, District of Columbia
Independent Registered Public Accounting Firm
KPMG LLP
Philadelphia, Pennsylvania
1. On May 8, 2017, the Fund merged into MainStay Epoch U.S. Equity Yield Fund. Former shareholders of this Fund can request the Fund’s Semiannual Report by calling 800-MAINSTAY (624-6782).
2. Class A and Class I shares of this Fund are registered for sale in AZ, CA, MI, NV, OR, TX, UT and WA. Class I shares are registered for sale in CO, FL, GA, HI, ID, MA, MD, NH, NJ and NY.
3. This Fund is registered for sale in CA, CT, DE, FL, MA, NJ, NY and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Semiannual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
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. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
©2017 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 |
1737426 MS144-17 | MSCS10-06/17 (NYLIM) NL021 |
MainStay Large Cap Growth Fund
Message from the President and Semiannual Report
Unaudited | April 30, 2017
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Message from the President
The six months ended April 30, 2017, proved to be a strong period for many equity investors but presented challenges for some bond investors.
The reporting period began with considerable uncertainty about the outcome of the U.S. election. Once the Republicans gained control of the White House, the Senate and the House of Representatives, however, many investors hoped to see an end to political gridlock; and although debate has continued on a number of issues, the U.S. stock market steadily climbed through the end of the reporting period.
According to FTSE-Russell U.S. market data, stocks at all capitalization levels earned double-digit overall returns during the reporting period. Although growth stocks outperformed value stocks at most capitalization levels, value stocks outperformed growth stocks among micro-cap stocks.
In December 2016 and March 2017, the Federal Reserve announced increases in the target range for the federal funds rate. These moves, which brought the federal funds target range to 0.75% to 1.00%, were felt across the bond market. During the reporting period, yields rose on U.S. Treasury securities of all maturities, with the largest absolute increase on the 5-year U.S. Treasury note. On a percentage basis, however, the largest increases were at the short end of the maturity spectrum, with yields on the 1- and 3-month U.S. Treasury bills more than doubling during the reporting period.
When interest rates rise, bond prices tend to decline (and vice versa). As a result, several broad fixed-income asset classes—including U.S. government and agency bonds, mortgage-backed securities, investment-grade debt and municipal bonds—recorded negative total returns for the reporting period. Convertible securities, high-yield bonds and floating-rate loans, which tend to be less sensitive to interest-rate changes, provided positive total returns.
International stock markets generally advanced during the reporting period, with European stocks providing strong
double-digit returns. The Pacific region and Japan were weaker but provided positive returns in the single digits. Emerging markets also provided solid performance for the reporting period, despite modest commodity prices.
Many short-term political, economic and world events affected the markets during the reporting period. Nevertheless, at MainStay, we believe that the primary concern of our portfolio managers should be the long-term welfare of our shareholders, and we appreciate the discipline our portfolio managers seek to apply in their long-term investment decisions.
Our portfolio managers seek to pursue the investment objectives of their respective MainStay Funds using the various investment strategies outlined in the Fund’s Prospectus. Utilizing their years of professional market experience, they seek to enhance returns when possible, manage risk as necessary and view short-term events in light of long-term investment goals. At MainStay, we believe that shareholders who maintain a long-term perspective may be better able to weather turbulent markets, avoid selling when prices are low and stay focused on their reasons for choosing MainStay Funds.
The report that follows provides more detailed information about the markets, securities and decisions that affected your MainStay Fund during the six months ended April 30, 2017. We invite you to read it carefully and use the information as part of your ongoing portfolio evaluation and review.
Sincerely,
Stephen P. Fisher
President
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, 30 Hudson Street, Jersey City, NJ 07302 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 and other factors, 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, 2017
Class | Sales Charge | Inception Date | Six Months | One Year | Five Years or Since Inception | Ten Years or Since Inception | Gross Expense Ratio2 | |||||||||||||||||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges | 7/1/1995 | | 7.47 13.72 | %
| | 11.48 17.97 | %
| | 10.35 11.61 | %
| | 7.95 8.57 | %
| | 1.00 1.00 | %
| ||||||||||
Investor Class Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges | 2/28/2008 | | 7.48 13.74 |
| | 11.53 18.02 |
| | 10.31 11.57 |
| | 7.81 8.48 |
| | 1.06 1.06 |
| ||||||||||
Class B Shares3 | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges | | 4/1/2005 | | | 8.48 13.40 |
| | 12.15 17.15 |
| | 10.48 10.75 |
| | 7.68 7.68 |
| | 1.81 1.81 |
| ||||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges | | 4/1/2005 | | | 12.29 13.27 |
| | 16.03 17.03 |
| | 10.71 10.71 |
| | 7.66 7.66 |
| | 1.81 1.81 |
| ||||||||
Class I Shares | No Sales Charge | 4/1/2005 | 13.88 | 18.29 | 11.89 | 8.88 | 0.75 | |||||||||||||||||||||
Class R1 Shares | No Sales Charge | 4/1/2005 | 13.81 | 18.17 | 11.79 | 8.78 | 0.85 | |||||||||||||||||||||
Class R2 Shares | No Sales Charge | 4/1/2005 | 13.76 | 17.88 | 11.51 | 8.51 | 1.10 | |||||||||||||||||||||
Class R3 Shares | No Sales Charge | 4/28/2006 | 13.52 | 17.64 | 11.22 | 8.24 | 1.35 | |||||||||||||||||||||
Class R6 Shares | No Sales Charge | 6/17/2013 | 13.93 | 18.46 | 12.84 | N/A | 0.63 |
1. | The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or Fund share redemptions. Total returns reflect maximum applicable sales charges as indicated in the table above, if any, 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 may 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 (if any), 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. | Class B shares are closed to all new purchases as well as additional investments by existing Class B shareholders. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
5 |
Benchmark Performance | Six Months | One Year | Five Years or Since Inception | Ten Years or Since Inception | ||||||||||||
Russell 1000® Growth Index4 | 15.23 | % | 19.50 | % | 13.87 | % | 8.88 | % | ||||||||
S&P 500® Index5 | 13.32 | 17.92 | 13.68 | 7.15 | ||||||||||||
Average Lipper Large-Cap Growth Fund6 | 13.49 | 18.13 | 12.32 | 7.85 |
4. | The Russell 1000® Growth Index is the Fund’s primary broad-based securities market index for comparison purposes. 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. Results assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
5. | The S&P 500® Index is the Fund’s secondary benchmark. “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. Results assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
6. | 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, 2016, to April 30, 2017, 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, 2016, to April 30, 2017.
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, 2017. 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 11/1/16 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/17 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/17 | Expenses Paid During Period1 | Net Expense Ratio During Period2 | ||||||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,074.70 | $ | 5.25 | $ | 1,019.70 | $ | 5.11 | 1.02% | |||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,074.80 | $ | 5.56 | $ | 1,019.40 | $ | 5.41 | 1.08% | |||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,084.80 | $ | 9.46 | $ | 1,015.70 | $ | 9.15 | 1.83% | |||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,122.90 | $ | 9.63 | $ | 1,015.70 | $ | 9.15 | 1.83% | |||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,138.80 | $ | 4.08 | $ | 1,021.00 | $ | 3.86 | 0.77% | |||||||||||
Class R1 Shares | $ | 1,000.00 | $ | 1,138.10 | $ | 4.61 | $ | 1,020.50 | $ | 4.36 | 0.87% | |||||||||||
Class R2 Shares | $ | 1,000.00 | $ | 1,137.60 | $ | 5.94 | $ | 1,019.20 | $ | 5.61 | 1.12% | |||||||||||
Class R3 Shares | $ | 1,000.00 | $ | 1,135.20 | $ | 7.25 | $ | 1,018.00 | $ | 6.85 | 1.37% | |||||||||||
Class R6 Shares | $ | 1,000.00 | $ | 1,139.30 | $ | 3.34 | $ | 1,021.70 | $ | 3.16 | 0.63% |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class 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. |
2. | Expenses are equal to the Fund’s annualized expense ratio to reflect the six-month period. |
7 |
Industry Composition as of April 30, 2017 (Unaudited)
Software | 12.3 | % | ||
Internet Software & Services | 11.3 | |||
IT Services | 10.2 | |||
Internet & Direct Marketing Retail | 9.4 | |||
Technology Hardware, Storage & Peripherals | 4.4 | |||
Semiconductors & Semiconductor Equipment | 4.1 | |||
Aerospace & Defense | 3.8 | |||
Biotechnology | 3.8 | |||
Pharmaceuticals | 3.7 | |||
Health Care Equipment & Supplies | 3.5 | |||
Hotels, Restaurants & Leisure | 3.2 | |||
Health Care Providers & Services | 3.1 | |||
Media | 3.1 | |||
Life Sciences Tools & Services | 2.9 | |||
Airlines | 2.3 | |||
Chemicals | 2.2 |
Specialty Retail | 2.2 | % | ||
Capital Markets | 2.1 | |||
Industrial Conglomerates | 1.9 | |||
Textiles, Apparel & Luxury Goods | 1.6 | |||
Oil, Gas & Consumable Fuels | 1.4 | |||
Real Estate Investment Trusts | 1.4 | |||
Food & Staples Retailing | 1.3 | |||
Banks | 1.2 | |||
Road & Rail | 1.2 | |||
Machinery | 1.1 | |||
Multiline Retail | 1.0 | |||
Short-Term Investment | 1.1 | |||
Other Assets, Less Liabilities | –0.8 | |||
|
| |||
100.0 | % | |||
|
|
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
Top Ten Holdings as of April 30, 2017 (excluding short-term investment) (Unaudited)
1. | Alphabet, Inc. |
2. | Amazon.com, Inc. |
3. | Apple, Inc. |
4. | Visa, Inc. Class A |
5. | Microsoft Corp. |
6. | UnitedHealth Group, Inc. |
7. | salesforce.com, Inc. |
8. | Facebook, Inc. Class A |
9. | Celgene Corp. |
10. | Zoetis, Inc. |
8 | MainStay Large Cap Growth Fund |
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Clark J. Winslow,1 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 benchmarks and peers during the six months ended April 30, 2017?
Excluding all sales charges, MainStay Large Cap Growth Fund returned 13.72% for Class A shares, 13.74% for Investor Class shares, 13.40% for Class B shares and 13.27% for Class C shares for the six months ended April 30, 2017. Over the same period, the Fund returned 13.88% for Class I shares, 13.81% for Class R1 shares, 13.76% for Class R2 shares, 13.52% for Class R3 shares and 13.93% for Class R6 shares. For the six months ended April 30, 2017, all share classes underperformed the 15.23% return of the Russell 1000® Growth Index,2 which is the Fund’s primary benchmark. Over the same period, with the exception of Class C shares, all share classes outperformed the 13.32% return of the S&P 500® Index,2 which is the Fund’s secondary benchmark. For the six months ended April 30, 2017, with the exception of Class B and Class C shares, all share classes outperformed the 13.49% return of the Average Lipper3 Large-Cap Growth Fund. See page 5 for Fund returns with applicable sales charges.
What factors affected the Fund’s relative performance during the reporting period?
The Fund generated robust absolute performance, but lagged the return of the Russell 1000® Growth Index during the reporting period. Consistent with the move in interest rates, the best performing sector in the Russell 1000® Growth Index was financials. While we believed that interest rates were likely to continue to rise, we viewed many bank stocks as being overpriced relative to expectations for net interest margin expansion and positive earnings impact from regulatory reform. For this reason, the Fund remained underweight the financials sector during the reporting period. This positioning detracted from relative performance as financial stocks quickly appreciated. Detracting even more was the impact of stock selection in the health care and consumer discretionary sectors. These relative weaknesses were partially offset by the Fund’s underweight position in the consumer staples sector and the Fund’s strong stock selection in the materials sector.
During the reporting period, which sectors were the strongest contributors to the Fund’s relative performance and which sectors were particularly weak?
The sectors that made the strongest contributions to the Fund’s performance relative to the Russell 1000® Growth Index were consumer staples, materials and telecommunication services. (Contributions take weightings and total returns into account.) We had concluded that global interest rates were too low and
were likely to rise from the levels they had reached in 2016. For this reason, we viewed many holdings in sectors that are widely considered as bond surrogates (i.e., consumer staples, real estate, utilities and telecommunication services) as overvalued. The Fund was underweight in these sectors and this added to its relative performance. The top-contributing sector was consumer staples, with a noticeable underweight driving the Fund’s performance relative to the Russell 1000® Growth Index.
The sectors that detracted the most from the Fund’s performance relative to the Russell 1000® Growth Index were health care, consumer discretionary and information technology. Weak stock selection was the primary driver in each of these sectors.
During the reporting period, which individual stocks made the strongest contributions to the Fund’s absolute performance and which stocks detracted the most?
The strongest contributions to the Fund’s absolute performance during the reporting period came from Israel-based technology company Mobileye, memory and semiconductor technology company Micron Technology, and paint and coating company Sherwin-Williams. Mobileye manufactures semiconductors for semiautonomous and autonomous driving. Its shares increased meaningfully during the reporting period when Intel announced a cash offer for the company. The Fund later sold its position in Mobileye. Shares of Micron Technology rose sharply during the reporting period, reflecting strong demand in the company’s chip end markets, including smartphones, tablets, personal computers and servers. The Fund sold its position in light of the stock’s valuation. Sherwin-Williams’ stock also rose sharply, driven by strong organic growth in the company’s paint stores group and in anticipation of benefits from the acquisition of Valspar. We continued to model material upside for the holding and maintained the Fund’s position.
The three worst performing stocks during the reporting period on an absolute basis were FleetCor Technologies, CVS Health and Lululemon. The stock of FleetCor Technologies, a global provider of fuel cards for commercial fleets was challenged as concerns arose about some of the company’s business practices. At a minimum, these concerns moderated stock performance for a while, and we trimmed the Fund’s position during the reporting period. The stock of integrated pharmacy health care services provider CVS Health was a poor performer during the reporting period because of rising concerns about competition and other industry headwinds. The management of athletic apparel company Lululemon reduced guidance on same-store sales when the company reported its most recent results, and the stock price suffered. Both CVS and Lululemon have been sold to fund more attractive investment opportunities.
1. | Mr. Winslow served as portfolio manager until December 31, 2016. |
2. | See footnote on page 6 for more information on this index. |
3. | See footnote on page 6 for more information on Lipper Inc. |
9 |
Did the Fund make any significant purchases or sales during the reporting period?
The Fund’s largest new purchases during the reporting period were Biogen, Electronic Arts and General Dynamics. Biogen is a biopharmaceutical company. We model strong growth for the company’s recently launched therapy for spinal muscular atrophy in children. Electronic Arts’ video gaming business benefited from the transition from retail stores to online distribution. General Dynamics is a major defense contractor and manufacturer. We model higher defense spending and improved demand for the company’s Gulfstream jets as propelling earnings growth.
The Fund’s most significant sales during the reporting period included Charter Communications, Intuitive Surgical and Micron Technologies. The Fund exited its position in large cable company Charter Communications because of its valuation after rumors that the company might be acquired by Verizon. Intuitive Surgical provides da Vinci robotic-assisted surgical technology. We sold the stock as it reached our price target. The Fund sold its position in Micron Technology, a leading provider of memory and semiconductor technology, after the stock moved strongly and steadily higher.
How did the Fund’s sector weightings change during the reporting period?
During the reporting period, we increased the Fund’s weightings relative to the Russell 1000® Growth Index in the industrials,
information technology and financials sectors. The largest decreases were in health care, consumer staples and real estate sectors. In all cases, the weighting changes were driven by bottom-up stock analysis.
How was the Fund positioned at the end of the reporting period?
As of April 30, 2017, the Fund’s most substantially overweight positions relative to the Russell 1000® Growth Index were in the information technology and health care sectors. We continue to model excellent growth opportunities in the information technology sector, coupled with compelling valuations. Importantly, the weighting comprises several discrete subsectors, including payment processors, Internet companies and software companies. The health care sector has been challenged since 2015, as political uncertainty has weighed on many holdings. We model certain stocks as offering compelling valuations in the sector.
As of April 30, 2017, the Fund held underweight positions in the consumer staples and real estate sectors. Many stocks in the consumer staples sector face secular headwinds as consumer tastes shift away from tobacco, carbonated beverages and processed foods. The real estate sector had benefited from many of the stocks being viewed as bond surrogates. Many of these holdings now have valuations that our model finds unattractive.
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, 2017 (Unaudited)
Shares | Value | |||||||
Common Stocks 99.7%† | ||||||||
Aerospace & Defense 3.8% |
| |||||||
General Dynamics Corp. | 775,600 | $ | 150,303,523 | |||||
Northrop Grumman Corp. | 503,900 | 123,939,244 | ||||||
Raytheon Co. | 1,429,600 | 221,888,216 | ||||||
|
| |||||||
496,130,983 | ||||||||
|
| |||||||
Airlines 2.3% |
| |||||||
Delta Air Lines, Inc. | 2,687,700 | 122,129,088 | ||||||
Southwest Airlines Co. | 3,016,500 | 169,587,630 | ||||||
|
| |||||||
291,716,718 | ||||||||
|
| |||||||
Banks 1.2% |
| |||||||
JPMorgan Chase & Co. | 1,779,900 | 154,851,300 | ||||||
|
| |||||||
Biotechnology 3.8% | ||||||||
Biogen, Inc. (a) | 654,700 | 177,561,187 | ||||||
¨Celgene Corp. (a) | 2,508,970 | 311,237,729 | ||||||
|
| |||||||
488,798,916 | ||||||||
|
| |||||||
Capital Markets 2.1% |
| |||||||
Intercontinental Exchange, Inc. | 2,366,000 | 142,433,200 | ||||||
Moody’s Corp. | 1,127,900 | 133,453,128 | ||||||
|
| |||||||
275,886,328 | ||||||||
|
| |||||||
Chemicals 2.2% |
| |||||||
Ecolab, Inc. | 1,015,100 | 131,039,259 | ||||||
Sherwin-Williams Co. | 469,625 | 157,174,095 | ||||||
|
| |||||||
288,213,354 | ||||||||
|
| |||||||
Food & Staples Retailing 1.3% |
| |||||||
Costco Wholesale Corp. | 961,500 | 170,685,480 | ||||||
|
| |||||||
Health Care Equipment & Supplies 3.5% |
| |||||||
Boston Scientific Corp. (a) | 5,389,600 | 142,177,648 | ||||||
Danaher Corp. | 1,694,600 | 141,211,018 | ||||||
Edwards Lifesciences Corp. (a) | 1,568,550 | 172,022,879 | ||||||
|
| |||||||
455,411,545 | ||||||||
|
| |||||||
Health Care Providers & Services 3.1% |
| |||||||
¨UnitedHealth Group, Inc. | 2,251,700 | 393,777,296 | ||||||
|
| |||||||
Hotels, Restaurants & Leisure 3.2% |
| |||||||
Hilton Worldwide Holdings, Inc. | 2,606,200 | 153,687,614 | ||||||
Starbucks Corp. | 4,214,800 | 253,140,888 | ||||||
|
| |||||||
406,828,502 | ||||||||
|
| |||||||
Industrial Conglomerates 1.9% |
| |||||||
Honeywell International, Inc. | 1,829,900 | 239,973,086 | ||||||
|
| |||||||
Internet & Direct Marketing Retail 9.4% |
| |||||||
¨Amazon.com, Inc. (a) | 664,840 | 614,970,352 | ||||||
Ctrip.com International, Ltd. ADR (a) | 2,752,050 | 139,006,045 |
Shares | Value | |||||||
Internet & Direct Marketing Retail (continued) |
| |||||||
Expedia, Inc. | 1,075,750 | $ | 143,849,290 | |||||
Netflix, Inc. (a) | 445,200 | 67,759,440 | ||||||
Priceline Group, Inc. (a) | 136,540 | 252,164,803 | ||||||
|
| |||||||
1,217,749,930 | ||||||||
|
| |||||||
Internet Software & Services 11.3% |
| |||||||
Alibaba Group Holding, Ltd. Sponsored ADR (a) | 2,120,000 | 244,860,000 | ||||||
¨Alphabet, Inc. (a) | ||||||||
Class A | 360,260 | 333,067,575 | ||||||
Class C | 394,231 | 357,157,517 | ||||||
CoStar Group, Inc. (a) | 649,460 | 156,448,419 | ||||||
¨Facebook, Inc. Class A (a) | 2,458,900 | 369,449,725 | ||||||
|
| |||||||
1,460,983,236 | ||||||||
|
| |||||||
IT Services 10.2% |
| |||||||
Fidelity National Information Services, Inc. | 1,679,800 | 141,422,362 | ||||||
Fiserv, Inc. (a) | 1,197,200 | 142,634,408 | ||||||
FleetCor Technologies, Inc. (a) | 305,150 | 43,068,871 | ||||||
MasterCard, Inc. Class A | 2,233,800 | 259,835,616 | ||||||
PayPal Holdings, Inc. (a) | 4,102,950 | 195,792,774 | ||||||
¨Visa, Inc. Class A | 5,804,200 | 529,459,124 | ||||||
|
| |||||||
1,312,213,155 | ||||||||
|
| |||||||
Life Sciences Tools & Services 2.9% |
| |||||||
Illumina, Inc. (a) | 867,300 | 160,329,078 | ||||||
Thermo Fisher Scientific, Inc. | 1,300,900 | 215,077,797 | ||||||
|
| |||||||
375,406,875 | ||||||||
|
| |||||||
Machinery 1.1% |
| |||||||
Fortive Corp. | 2,187,350 | 138,371,761 | ||||||
|
| |||||||
Media 3.1% |
| |||||||
Comcast Corp. Class A | 4,900,100 | 192,034,919 | ||||||
Walt Disney Co. | 1,772,700 | 204,924,120 | ||||||
|
| |||||||
396,959,039 | ||||||||
|
| |||||||
Multiline Retail 1.0% |
| |||||||
Dollar Tree, Inc. (a) | 1,601,100 | 132,523,047 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels 1.4% |
| |||||||
Diamondback Energy, Inc. (a) | 1,739,700 | 173,691,648 | ||||||
|
| |||||||
Pharmaceuticals 3.7% |
| |||||||
Eli Lilly & Co. | 2,612,700 | 214,398,162 | ||||||
¨Zoetis, Inc. | 4,710,600 | 264,311,766 | ||||||
|
| |||||||
478,709,928 | ||||||||
|
| |||||||
Real Estate Investment Trusts 1.4% |
| |||||||
American Tower Corp. | 1,391,700 | 175,270,698 | ||||||
|
|
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings, as of April 30, 2017, 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. | 11 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Road & Rail 1.2% |
| |||||||
Union Pacific Corp. | 1,426,000 | $ | 159,654,960 | |||||
|
| |||||||
Semiconductors & Semiconductor Equipment 4.1% |
| |||||||
Broadcom, Ltd. | 936,400 | 206,766,484 | ||||||
NVIDIA Corp. | 689,800 | 71,946,140 | ||||||
Skyworks Solutions, Inc. | 1,236,600 | 123,338,484 | ||||||
Xilinx, Inc. | 2,087,200 | 131,723,192 | ||||||
|
| |||||||
533,774,300 | ||||||||
|
| |||||||
Software 12.3% |
| |||||||
Adobe Systems, Inc. (a) | 1,022,200 | 136,709,028 | ||||||
Electronic Arts, Inc. (a) | 1,708,400 | 161,990,488 | ||||||
Intuit, Inc. | 1,208,000 | 151,253,680 | ||||||
¨Microsoft Corp. | 6,359,700 | 435,385,062 | ||||||
¨salesforce.com, Inc. (a) | 4,437,600 | 382,166,112 | ||||||
ServiceNow, Inc. (a) | 1,765,600 | 166,813,888 | ||||||
Splunk, Inc. (a) | 2,444,600 | 157,212,226 | ||||||
|
| |||||||
1,591,530,484 | ||||||||
|
| |||||||
Specialty Retail 2.2% |
| |||||||
Home Depot, Inc. | 1,458,200 | 227,625,020 | ||||||
O’Reilly Automotive, Inc. (a) | 242,675 | 60,219,801 | ||||||
|
| |||||||
287,844,821 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals 4.4% |
| |||||||
¨Apple, Inc. | 3,905,385 | 561,008,555 | ||||||
|
| |||||||
Textiles, Apparel & Luxury Goods 1.6% |
| |||||||
NIKE, Inc. Class B | 3,788,600 | 209,926,326 | ||||||
|
| |||||||
Total Common Stocks | 12,867,892,271 | |||||||
|
|
Principal Amount | Value | |||||||
Short-Term Investment 1.1% | ||||||||
Repurchase Agreement 1.1% |
| |||||||
Fixed Income Clearing Corp. 0.09%, dated 4/28/17 | $ | 142,808,535 | $ | 142,808,535 | ||||
|
| |||||||
Total Short-Term Investment | 142,808,535 | |||||||
|
| |||||||
Total Investments | 100.8 | % | 13,010,700,806 | |||||
Other Assets, Less Liabilities | (0.8 | ) | (102,284,434 | ) | ||||
Net Assets | 100.0 | % | $ | 12,908,416,372 |
(a) | Non-income producing security. |
(b) | As of April 30, 2017, cost was $8,285,971,230 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 4,783,315,616 | ||
Gross unrealized depreciation | (58,586,040 | ) | ||
|
| |||
Net unrealized appreciation | $ | 4,724,729,576 | ||
|
|
The following abbreviation is used in the preceding pages:
ADR—American Depositary Receipt
The following is a summary of the fair valuations according to the inputs used as of April 30, 2017, for valuing the Fund’s assets.
Asset Valuation Inputs
Description | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Common Stocks | $ | 12,867,892,271 | $ | — | $ | — | $ | 12,867,892,271 | ||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 142,808,535 | — | 142,808,535 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | 12,867,892,271 | $ | 142,808,535 | $ | — | $ | 13,010,700,806 | ||||||||
|
|
|
|
|
|
|
|
(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, 2017, the Fund did not have any transfers among levels. (See Note 2)
As of April 30, 2017, the Fund did not hold any investments with significant unobservable inputs (Level 3). (See Note 2)
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. |
Statement of Assets and Liabilities as of April 30, 2017 (Unaudited)
Assets | ||||
Investment in securities, at value | $ | 13,010,700,806 | ||
Receivables: | ||||
Investment securities sold | 263,702,265 | |||
Fund shares sold | 13,170,274 | |||
Dividends and interest | 3,700,727 | |||
Other assets | 239,031 | |||
|
| |||
Total assets | 13,291,513,103 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 345,412,992 | |||
Fund shares redeemed | 27,041,438 | |||
Manager (See Note 3) | 6,534,013 | |||
Transfer agent (See Note 3) | 2,719,942 | |||
NYLIFE Distributors (See Note 3) | 534,327 | |||
Shareholder communication | 420,997 | |||
Professional fees | 194,990 | |||
Custodian | 103,044 | |||
Trustees | 33,648 | |||
Accrued expenses | 101,340 | |||
|
| |||
Total liabilities | 383,096,731 | |||
|
| |||
Net assets | $ | 12,908,416,372 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 13,394,459 | ||
Additional paid-in capital | 7,173,047,411 | |||
|
| |||
7,186,441,318 | ||||
Net investment income | 407,157 | |||
Accumulated net realized gain (loss) on investments | 954,950,359 | |||
Net unrealized appreciation (depreciation) on investments | 4,766,616,986 | |||
|
| |||
Net assets | $ | 12,908,416,372 | ||
|
|
Class A | ||||
Net assets applicable to outstanding shares | $ | 855,390,178 | ||
|
| |||
Shares of beneficial interest outstanding | 92,848,920 | |||
|
| |||
Net asset value per share outstanding | $ | 9.21 | ||
Maximum sales charge (5.50% of offering price) | 0.54 | |||
|
| |||
Maximum offering price per share outstanding | $ | 9.75 | ||
|
| |||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 167,750,967 | ||
|
| |||
Shares of beneficial interest outstanding | 18,396,520 | |||
|
| |||
Net asset value per share outstanding | $ | 9.12 | ||
Maximum sales charge (5.50% of offering price) | 0.53 | |||
|
| |||
Maximum offering price per share outstanding | $ | 9.65 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 34,428,250 | ||
|
| |||
Shares of beneficial interest outstanding | 4,316,474 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 7.98 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 250,817,736 | ||
|
| |||
Shares of beneficial interest outstanding | 31,497,321 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 7.96 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 7,592,670,467 | ||
|
| |||
Shares of beneficial interest outstanding | 776,900,993 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.77 | ||
|
| |||
Class R1 | ||||
Net assets applicable to outstanding shares | $ | 1,652,232,736 | ||
|
| |||
Shares of beneficial interest outstanding | 172,590,087 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.57 | ||
|
| |||
Class R2 | ||||
Net assets applicable to outstanding shares | $ | 323,536,396 | ||
|
| |||
Shares of beneficial interest outstanding | 35,201,064 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.19 | ||
|
| |||
Class R3 | ||||
Net assets applicable to outstanding shares | $ | 79,737,310 | ||
|
| |||
Shares of beneficial interest outstanding | 9,029,496 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 8.83 | ||
|
| |||
Class R6 | ||||
Net assets applicable to outstanding shares | $ | 1,951,852,332 | ||
|
| |||
Shares of beneficial interest outstanding | 198,664,979 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.82 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 13 |
Statement of Operations for the six months ended April 30, 2017 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Dividends | $ | 54,060,428 | ||
Interest | 19,871 | |||
Other income | 8,302 | |||
|
| |||
Total income | 54,088,601 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 40,188,643 | |||
Transfer agent (See Note 3) | 8,022,644 | |||
Distribution/Service—Class A (See Note 3) | 1,036,876 | |||
Distribution/Service—Investor Class (See Note 3) | 207,799 | |||
Distribution/Service—Class B (See Note 3) | 172,270 | |||
Distribution/Service—Class C (See Note 3) | 1,332,809 | |||
Distribution/Service—Class R2 (See Note 3) | 429,189 | |||
Distribution/Service—Class R3 (See Note 3) | 199,552 | |||
Shareholder service (See Note 3) | 1,010,570 | |||
Shareholder communication | 528,878 | |||
Professional fees | 262,192 | |||
Trustees | 175,412 | |||
Registration | 129,953 | |||
Custodian | 39,469 | |||
Miscellaneous | 250,092 | |||
|
| |||
Total expenses before waiver/reimbursement | 53,986,348 | |||
Expense waiver/reimbursement from Manager (See Note 3) | (304,904 | ) | ||
|
| |||
Net expenses | 53,681,444 | |||
|
| |||
Net investment income (loss) | 407,157 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments | 996,847,834 | |||
Net change in unrealized appreciation (depreciation) on investments | 686,408,241 | |||
|
| |||
Net realized and unrealized gain (loss) on investments | 1,683,256,075 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 1,683,663,232 | ||
|
|
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. |
Statements of Changes in Net Assets
for the six months ended April 30, 2017 (Unaudited) and the year ended October 31, 2016
2017 | 2016 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 407,157 | $ | 8,225,492 | ||||
Net realized gain (loss) on investments | 996,847,834 | 1,723,956,661 | ||||||
Net change in unrealized appreciation (depreciation) on investments | 686,408,241 | (2,190,510,484 | ) | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 1,683,663,232 | (458,328,331 | ) | |||||
|
| |||||||
Distributions to shareholders: | ||||||||
From net realized gain on investments: |
| |||||||
Class A | (97,685,398 | ) | (142,419,821 | ) | ||||
Investor Class | (19,310,425 | ) | (22,800,549 | ) | ||||
Class B | (4,699,690 | ) | (6,317,895 | ) | ||||
Class C | (37,641,042 | ) | (53,490,540 | ) | ||||
Class I | (952,688,820 | ) | (1,353,826,295 | ) | ||||
Class R1 | (180,061,866 | ) | (243,267,444 | ) | ||||
Class R2 | (43,793,657 | ) | (77,201,297 | ) | ||||
Class R3 | (10,344,534 | ) | (13,765,123 | ) | ||||
Class R6 | (180,100,150 | ) | (148,689,366 | ) | ||||
|
| |||||||
Total distributions to shareholders | (1,526,325,582 | ) | (2,061,778,330 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 1,397,242,119 | 3,454,173,773 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 1,231,556,385 | 1,630,820,951 | ||||||
Cost of shares redeemed | (4,074,349,253 | ) | (6,409,403,860 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | (1,445,550,749 | ) | (1,324,409,136 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets | (1,288,213,099 | ) | (3,844,515,797 | ) | ||||
Net Assets | ||||||||
Beginning of period | 14,196,629,471 | 18,041,145,268 | ||||||
|
| |||||||
End of period | $ | 12,908,416,372 | $ | 14,196,629,471 | ||||
|
| |||||||
Undistributed net investment income at end of period | $ | 407,157 | $ | — | ||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 15 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Class A | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Net asset value at beginning of period | $ | 9.17 | $ | 10.68 | $ | 10.91 | $ | 9.98 | $ | 7.55 | $ | 7.24 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | (0.01 | ) | (0.01 | ) | (0.02 | ) | (0.02 | ) | 0.01 | (0.02 | ) | |||||||||||||
Net realized and unrealized gain (loss) on investments | 1.11 | (0.23 | ) | 0.85 | 1.45 | 2.42 | 0.49 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 1.10 | (0.24 | ) | 0.83 | 1.43 | 2.43 | 0.47 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||
From net investment income | — | — | — | — | (0.00 | )‡ | — | |||||||||||||||||
From net realized gain on investments | (1.06 | ) | (1.27 | ) | (1.06 | ) | (0.50 | ) | — | (0.16 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total dividends and distributions | (1.06 | ) | (1.27 | ) | (1.06 | ) | (0.50 | ) | (0.00 | )‡ | (0.16 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 9.21 | $ | 9.17 | $ | 10.68 | $ | 10.91 | $ | 9.98 | $ | 7.55 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 13.72 | % | (2.44 | %) | 8.10 | % | 14.95 | % | 32.09 | % | 6.79 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | (0.20 | %)†† | (0.13 | %) | (0.23 | %) | (0.22 | %) | 0.17 | % | (0.20 | %) | ||||||||||||
Net expenses | 1.02 | % †† | 0.99 | % | 0.99 | % | 0.99 | % | 1.02 | % | 1.04 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.03 | % †† | 1.00 | % | 0.99 | % | 0.99 | % | 1.02 | % | 1.04 | % | ||||||||||||
Portfolio turnover rate | 37 | % | 84 | % | 66 | % | 67 | % | 74 | % | 60 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 855,390 | $ | 882,021 | $ | 1,202,852 | $ | 1,304,641 | $ | 1,615,768 | $ | 1,611,374 |
* | 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. For periods of less than one year, total return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Investor Class | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Net asset value at beginning of period | $ | 9.09 | $ | 10.61 | $ | 10.84 | $ | 9.93 | $ | 7.52 | $ | 7.21 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | (0.01 | ) | (0.02 | ) | (0.03 | ) | (0.03 | ) | 0.01 | (0.02 | ) | |||||||||||||
Net realized and unrealized gain (loss) on investments | 1.10 | (0.23 | ) | 0.86 | 1.44 | 2.40 | 0.49 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 1.09 | (0.25 | ) | 0.83 | 1.41 | 2.41 | 0.47 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||
From net investment income | — | — | — | — | (0.00 | )‡ | — | |||||||||||||||||
From net realized gain on investments | (1.06 | ) | (1.27 | ) | (1.06 | ) | (0.50 | ) | — | (0.16 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total dividends and distributions | (1.06 | ) | (1.27 | ) | (1.06 | ) | (0.50 | ) | (0.00 | )‡ | (0.16 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 9.12 | $ | 9.09 | $ | 10.61 | $ | 10.84 | $ | 9.93 | $ | 7.52 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 13.74 | % | (2.57 | %) | 8.16 | % | 14.82 | % | 32.13 | % | 6.68 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | (0.26 | %)†† | (0.19 | %) | (0.28 | %) | (0.28 | %) | 0.09 | % | (0.28 | %) | ||||||||||||
Net expenses | 1.08 | % †† | 1.05 | % | 1.04 | % | 1.04 | % | 1.08 | % | 1.10 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.08 | % †† | 1.06 | % | 1.04 | % | 1.04 | % | 1.08 | % | 1.10 | % | ||||||||||||
Portfolio turnover rate | 37 | % | 84 | % | 66 | % | 67 | % | 74 | % | 60 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 167,751 | $ | 167,631 | $ | 180,154 | $ | 199,826 | $ | 211,111 | $ | 199,156 |
* | 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. For periods of less than one year, total return is not annualized. |
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, | |||||||||||||||||||||||
Class B | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Net asset value at beginning of period | $ | 8.11 | $ | 9.67 | $ | 10.04 | $ | 9.29 | $ | 7.09 | $ | 6.86 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | (0.04 | ) | (0.08 | ) | (0.10 | ) | (0.10 | ) | (0.05 | ) | (0.07 | ) | ||||||||||||
Net realized and unrealized gain (loss) on investments | 0.97 | (0.21 | ) | 0.79 | 1.35 | 2.25 | 0.46 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 0.93 | (0.29 | ) | 0.69 | 1.25 | 2.20 | 0.39 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||
From net investment income | — | — | — | — | (0.00 | )‡ | — | |||||||||||||||||
From net realized gain on investments | (1.06 | ) | (1.27 | ) | (1.06 | ) | (0.50 | ) | — | (0.16 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total dividends and distributions | (1.06 | ) | (1.27 | ) | (1.06 | ) | (0.50 | ) | (0.00 | )‡ | (0.16 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 7.98 | $ | 8.11 | $ | 9.67 | $ | 10.04 | $ | 9.29 | $ | 7.09 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 13.40 | % | (3.32 | %) | 7.34 | % | 14.08 | % | 30.93 | % | 5.98 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | (1.00 | %)†† | (0.94 | %) | (1.03 | %) | (1.02 | %) | (0.65 | %) | (1.01 | %) | ||||||||||||
Net expenses | 1.83 | % †† | 1.80 | % | 1.79 | % | 1.79 | % | 1.83 | % | 1.84 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.83 | % †† | 1.81 | % | 1.79 | % | 1.79 | % | 1.83 | % | 1.85 | % | ||||||||||||
Portfolio turnover rate | 37 | % | 84 | % | 66 | % | 67 | % | 74 | % | 60 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 34,428 | $ | 36,549 | $ | 47,779 | $ | 52,737 | $ | 59,671 | $ | 58,392 |
* | 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. For periods of less than one year, total return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Class C | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Net asset value at beginning of period | $ | 8.10 | $ | 9.66 | $ | 10.03 | $ | 9.29 | $ | 7.09 | $ | 6.85 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | (0.04 | ) | (0.08 | ) | (0.10 | ) | (0.10 | ) | (0.05 | ) | (0.07 | ) | ||||||||||||
Net realized and unrealized gain (loss) on investments | 0.96 | (0.21 | ) | 0.79 | 1.34 | 2.25 | 0.47 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 0.92 | (0.29 | ) | 0.69 | 1.24 | 2.20 | 0.40 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||
From net investment income | — | — | — | — | (0.00 | )‡ | — | |||||||||||||||||
From net realized gain on investments | (1.06 | ) | (1.27 | ) | (1.06 | ) | (0.50 | ) | — | (0.16 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total dividends and distributions | (1.06 | ) | (1.27 | ) | (1.06 | ) | (0.50 | ) | (0.00 | )‡ | (0.16 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 7.96 | $ | 8.10 | $ | 9.66 | $ | 10.03 | $ | 9.29 | $ | 7.09 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 13.27 | % | (3.31 | %) | 7.35 | % | 13.96 | % | 31.12 | % | 5.99 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | (0.99 | %)†† | (0.94 | %) | (1.04 | %) | (1.02 | %) | (0.66 | %) | (1.02 | %) | ||||||||||||
Net expenses | 1.83 | % †† | 1.80 | % | 1.79 | % | 1.79 | % | 1.83 | % | 1.85 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.83 | % †† | 1.81 | % | 1.79 | % | 1.79 | % | 1.83 | % | 1.85 | % | ||||||||||||
Portfolio turnover rate | 37 | % | 84 | % | 66 | % | 67 | % | 74 | % | 60 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 250,818 | $ | 306,409 | $ | 408,078 | $ | 402,714 | $ | 403,968 | $ | 375,521 |
* | 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. For periods of less than one year, total 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. | 17 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Class I | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Net asset value at beginning of period | $ | 9.65 | $ | 11.15 | $ | 11.32 | $ | 10.31 | $ | 7.80 | $ | 7.45 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | 0.00 | ‡ | 0.01 | 0.00 | ‡ | 0.00 | ‡ | 0.03 | 0.00 | ‡ | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.18 | (0.24 | ) | 0.89 | 1.51 | 2.50 | 0.51 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 1.18 | (0.23 | ) | 0.89 | 1.51 | 2.53 | 0.51 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||
From net investment income | — | — | — | — | (0.02 | ) | — | |||||||||||||||||
From net realized gain on investments | (1.06 | ) | (1.27 | ) | (1.06 | ) | (0.50 | ) | — | (0.16 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total dividends and distributions | (1.06 | ) | (1.27 | ) | (1.06 | ) | (0.50 | ) | (0.02 | ) | (0.16 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 9.77 | $ | 9.65 | $ | 11.15 | $ | 11.32 | $ | 10.31 | $ | 7.80 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 13.88 | % | (2.23 | %) | 8.36 | % | 15.26 | % | 32.41 | % | 7.15 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | 0.06 | %†† | 0.12 | % | 0.02 | % | 0.02 | % | 0.38 | % | 0.03 | % | ||||||||||||
Net expenses | 0.77 | %†† | 0.74 | % | 0.74 | % | 0.74 | % | 0.77 | % | 0.79 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 0.77 | %†† | 0.75 | % | 0.74 | % | 0.74 | % | 0.77 | % | 0.79 | % | ||||||||||||
Portfolio turnover rate | 37 | % | 84 | % | 66 | % | 67 | % | 74 | % | 60 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 7,592,670 | $ | 8,994,997 | $ | 12,150,253 | $ | 14,361,006 | $ | 13,254,459 | $ | 11,215,464 |
* | 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. For periods of less than one year, total return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Class R1 | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Net asset value at beginning of period | $ | 9.48 | $ | 10.99 | $ | 11.17 | $ | 10.19 | $ | 7.72 | $ | 7.38 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | (0.00 | )‡ | 0.00 | ‡ | (0.01 | ) | (0.01 | ) | 0.02 | (0.01 | ) | |||||||||||||
Net realized and unrealized gain (loss) on investments | 1.15 | (0.24 | ) | 0.89 | 1.49 | 2.47 | 0.51 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 1.15 | (0.24 | ) | 0.88 | 1.48 | 2.49 | 0.50 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||
From net investment income | — | — | — | — | (0.02 | ) | — | |||||||||||||||||
From net realized gain on investments | (1.06 | ) | (1.27 | ) | (1.06 | ) | (0.50 | ) | — | (0.16 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total dividends and distributions | (1.06 | ) | (1.27 | ) | (1.06 | ) | (0.50 | ) | (0.02 | ) | (0.16 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 9.57 | $ | 9.48 | $ | 10.99 | $ | 11.17 | $ | 10.19 | $ | 7.72 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 13.81 | % | (2.37 | %) | 8.39 | % | 15.14 | % | 32.27 | % | 6.94 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | (0.05 | %)†† | 0.02 | % | (0.08 | %) | (0.08 | %) | 0.28 | % | (0.08 | %) | ||||||||||||
Net expenses | 0.87 | % †† | 0.84 | % | 0.84 | % | 0.84 | % | 0.87 | % | 0.89 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 0.88 | % †† | 0.85 | % | 0.84 | % | 0.84 | % | 0.87 | % | 0.89 | % | ||||||||||||
Portfolio turnover rate | 37 | % | 84 | % | 66 | % | 67 | % | 74 | % | 60 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 1,652,233 | $ | 1,636,560 | $ | 1,952,248 | $ | 2,225,940 | $ | 2,287,242 | $ | 1,950,015 |
* | 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. For periods of less than one year, total return is not annualized. |
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 R2 | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Net asset value at beginning of period | $ | 9.15 | $ | 10.68 | $ | 10.92 | $ | 9.99 | $ | 7.57 | $ | 7.26 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | (0.01 | ) | (0.02 | ) | (0.03 | ) | (0.03 | ) | 0.00 | ‡ | (0.02 | ) | ||||||||||||
Net realized and unrealized gain (loss) on investments | 1.11 | (0.24 | ) | 0.85 | 1.46 | 2.42 | 0.49 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 1.10 | (0.26 | ) | 0.82 | 1.43 | 2.42 | 0.47 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||
From net investment income | — | — | — | — | (0.00 | )‡ | — | |||||||||||||||||
From net realized gain on investments | (1.06 | ) | (1.27 | ) | (1.06 | ) | (0.50 | ) | — | (0.16 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total dividends and distributions | (1.06 | ) | (1.27 | ) | (1.06 | ) | (0.50 | ) | (0.00 | )‡ | (0.16 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 9.19 | $ | 9.15 | $ | 10.68 | $ | 10.92 | $ | 9.99 | $ | 7.57 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 13.76 | % | (2.66 | %) | 8.00 | % | 14.93 | % | 31.88 | % | 6.77 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | (0.28 | %)†† | (0.23 | %) | (0.32 | %) | (0.33 | %) | 0.03 | % | (0.32 | %) | ||||||||||||
Net expenses | 1.12 | % †† | 1.09 | % | 1.09 | % | 1.09 | % | 1.12 | % | 1.14 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.13 | % †† | 1.10 | % | 1.09 | % | 1.09 | % | 1.12 | % | 1.14 | % | ||||||||||||
Portfolio turnover rate | 37 | % | 84 | % | 66 | % | 67 | % | 74 | % | 60 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 323,536 | $ | 391,535 | $ | 674,630 | $ | 984,295 | $ | 1,014,655 | $ | 854,119 |
* | 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. For periods of less than one year, total return is not annualized. |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||
Class R3 | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Net asset value at beginning of period | $ | 8.85 | $ | 10.39 | $ | 10.67 | $ | 9.80 | $ | 7.45 | $ | 7.16 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net investment income (loss) (a) | (0.02 | ) | (0.04 | ) | (0.06 | ) | (0.06 | ) | (0.02 | ) | (0.04 | ) | ||||||||||||
Net realized and unrealized gain (loss) on investments | 1.06 | (0.23 | ) | 0.84 | 1.43 | 2.37 | 0.49 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total from investment operations | 1.04 | (0.27 | ) | 0.78 | 1.37 | 2.35 | 0.45 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||
From net investment income | — | — | — | — | (0.00 | )‡ | — | |||||||||||||||||
From net realized gain on investments | (1.06 | ) | (1.27 | ) | (1.06 | ) | (0.50 | ) | — | (0.16 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total dividends and distributions | (1.06 | ) | (1.27 | ) | (1.06 | ) | (0.50 | ) | (0.00 | )‡ | (0.16 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net asset value at end of period | $ | 8.83 | $ | 8.85 | $ | 10.39 | $ | 10.67 | $ | 9.80 | $ | 7.45 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investment return (b) | 13.52 | % | (2.83 | %) | 7.79 | % | 14.59 | % | 31.63 | % | 6.44 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | (0.54 | %)†† | (0.48 | %) | (0.57 | %) | (0.57 | %) | (0.20 | %) | (0.57 | %) | ||||||||||||
Net expenses | 1.37 | % †† | 1.34 | % | 1.34 | % | 1.34 | % | 1.37 | % | 1.39 | % | ||||||||||||
Expenses (before reimbursement/waiver) | 1.38 | % †† | 1.35 | % | 1.34 | % | 1.34 | % | 1.37 | % | 1.39 | % | ||||||||||||
Portfolio turnover rate | 37 | % | 84 | % | 66 | % | 67 | % | 74 | % | 60 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 79,737 | $ | 87,060 | $ | 114,118 | $ | 158,222 | $ | 219,158 | $ | 205,329 |
* | 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. For periods of less than one year, total 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. | 19 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | June 17, 2013** through October 31, | ||||||||||||||||||
Class R6 | 2017* | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value at beginning of period | $ | 9.69 | $ | 11.18 | $ | 11.33 | $ | 10.31 | $ | 9.02 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.01 | 0.02 | 0.01 | 0.01 | 0.00 | ‡ | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.18 | (0.24 | ) | 0.90 | 1.51 | 1.29 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 1.19 | (0.22 | ) | 0.91 | 1.52 | 1.29 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net realized gain on investments | (1.06 | ) | (1.27 | ) | (1.06 | ) | (0.50 | ) | — | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of period | $ | 9.82 | $ | 9.69 | $ | 11.18 | $ | 11.33 | $ | 10.31 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 13.93 | % | (2.12 | %) | 8.55 | % | 15.36 | % | 14.30 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.18 | %†† | 0.23 | % | 0.11 | % | 0.10 | % | 0.04 | %†† | ||||||||||
Net expenses | 0.63 | %†† | 0.62 | % | 0.62 | % | 0.62 | % | 0.62 | %†† | ||||||||||
Expenses (before waiver/reimbursement) | 0.64 | %†† | 0.63 | % | 0.62 | % | 0.62 | % | 0.62 | %†† | ||||||||||
Portfolio turnover rate | 37 | % | 84 | % | 66 | % | 67 | % | 74 | % | ||||||||||
Net assets at end of period (in 000’s) | $ | 1,951,852 | $ | 1,693,868 | $ | 1,311,034 | $ | 738,186 | $ | 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. For periods of less than one year, total 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. |
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, and is governed by a Declaration of 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, as that term is defined in the 1940 Act, as interpreted or modified by regulatory authorities having jurisdiction, from time to time.
The Fund currently offers ten 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. Class T shares of the Fund were registered for sale effective as of February 28, 2017. As of the period ended April 30, 2017, Class T shares had no investment operations. Effective February 28, 2017, Class B shares of the MainStay Group of Funds were closed to all new purchases as well as additional investments by existing Class B shareholders. Existing Class B shareholders may continue to reinvest dividends and capital gains distributions, as well as exchange their Class B shares for Class B shares of other Funds as permitted by the current exchange privileges. Class B shareholders continue to be subject to any applicable contingent deferred sales charge at the time of redemption. All other features of the Class B shares, including but not limited to the fees and expenses applicable to Class B shares, remain unchanged. Unless redeemed, Class B shareholders will remain in Class B shares of their respective Fund until the Class B shares are converted to Class A or Investor Class shares pursuant to the applicable conversion schedule.
Class A and Investor Class shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No initial sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Class A and Investor Class shares. Effective August 1, 2017, a contingent deferred sales charge (“CDSC”) of 1.00% may be imposed on certain redemptions of Class A and Investor Class shares made within 18 months of the date of purchase on shares that were purchased without an initial sales charge. For purchases of Class A and Investor Class shares made from January 1, 2017 through July 31, 2017, a CDSC of 1.00% may be imposed on certain redemptions made within 24 months of the date of purchase on shares that were purchased without an initial sales charge. For purchases of Class A and Investor Class shares made prior to January 1, 2017, a CDSC of 1.00% may be imposed on certain redemptions made within one year of the date of purchase on shares that were purchased without an initial sales charge. Class C shares are offered at NAV without an initial sales charge, although a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. When Class B Shares were offered, they were offered at NAV without an initial sales charge, although a CDSC that declines depending on the number of years a shareholder has held its Class B shares may be imposed on redemptions made within six years of the date of purchase of such shares. Class T shares are offered at NAV per share plus an initial sales charge. 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 Class A or Investor Class shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Class A shares may convert to Investor Class shares and Investor Class shares may convert to Class A shares. Under certain circumstances and as may be permitted by the Trust’s multiple class plan under Rule 18f-3 of the 1940 Act, an exchange/conversion may be made from specified share classes of the Fund to one or more other share classes of the Fund as disclosed in the capital share transactions within these Notes. The ten 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 under distribution plans pursuant to Rule 12b-1 under the 1940 Act, that Class B and Class C shares are subject to higher distribution and/or service fee rates than Class A, Investor Class, Class T, Class R2 and Class R3 shares. 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 is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services—Investment Companies. 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 usually valued as of the close of regular trading on the New York Stock Exchange (the “Exchange”) (usually 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 establishing methodologies for the valuation of the Fund’s securities and other assets and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Trust (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 establishing the prices of securities for which market quotations are not readily available or the prices of which are not otherwise readily determinable under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. Subsequently, the Valuation Committee meets 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 the day-to-day valuation of portfolio assets (including fair value measurements for the Fund’s assets and liabilities) 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, Subadvisor or the Fund’s third party service provider, who is subject to oversight by the Manager, regularly compares prior day prices, prices
21 |
Notes to Financial Statements (Unaudited) (continued)
on comparable securities, and the sale prices to the prior and current day prices and challenges prices with changes 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, if appropriate, 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 or other asset is submitted by the Valuation Committee to the Board for its review and ratification, if appropriate, at its next regularly scheduled meeting.
“Fair value” is defined as the price the Fund would reasonably expect to 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 establishes 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 assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities. 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) |
The level of an asset or liability within the fair value hierarchy is based on the lowest level of an input, both individually and in the aggregate, that is significant to the fair value measurement. As of April 30, 2017, the aggregate value by input level of the Fund’s assets and 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:
• Broker/dealer quotes | • Issuer spreads | |
• Two-sided markets | • Benchmark securities | |
• Bids/offers | • Reference data (corporate actions or material event notices) | |
• Industry and economic events | • Monthly payment information | |
• Reported trades |
An asset or liability for which market values cannot be measured using the methodologies described above is valued by methods deemed reasonable 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. Fair value represents a good faith approximation of the value of a security. Fair value determinations involve the consideration of a number of subjective factors, an analysis of applicable facts and circumstances and the exercise of judgment. As a result, it is possible that the fair value for a security determined in good faith in accordance with the Fund’s valuation procedures may differ from valuations for the same security determined by other funds using their own valuation procedures. Although the Fund’s valuation procedures are designed to value a security at the price the Fund may reasonably expect to receive upon its sale in an orderly transaction, there can be no assurance that any fair value determination thereunder would, in fact, approximate the amount that the Fund would actually realize upon the sale of the security or the price at which the security would trade if a reliable market price were readily available. During the six-month period ended April 30, 2017, there were 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, 2017, there were no securities held by the Fund that were fair valued in such a manner.
Equity securities are valued at the last quoted sales prices as of the close of regular trading on the relevant 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. These securities are generally categorized as Level 1 in the hierarchy.
Temporary cash investments acquired in excess of 60 days to maturity at the time of purchase 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 using the amortized cost method of valuation,
22 | MainStay Large Cap Growth Fund |
unless the use of such method would be inappropriate. 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 using the amortized cost method are not valued using quoted prices in an active market and are generally categorized as Level 2 in the hierarchy.
The information above is not intended to reflect an exhaustive list of the methodologies that may be used to value portfolio investments. The valuation procedures permit the use of a variety of valuation methodologies in connection with valuing portfolio investments. The methodology used for a specific type of investment may vary based on the market data available or other considerations. The methodologies summarized above may not represent the specific means by which portfolio investments are valued on any particular business day.
(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 its 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 permitted only to the extent 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.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated pro rata to separate classes of shares 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/or 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 the Fund to the seller secured by the securities transferred to the Fund.
When the Fund enters into 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 (“SEC”). 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 collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund against counterparty risk. The loans will be collateralized by U.S. Treasury securities at least equal at all times to the market value of the securities loaned. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record a realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund bears the risk of any loss on investment of the collateral. The Fund will receive compensation for lending its
23 |
Notes to Financial Statements (Unaudited) (continued)
securities in the form of fees or it will retain a portion of interest on the investment of any cash received as collateral. The Fund will also 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. During the six-month period ended April 30, 2017, the Fund did not have any portfolio securities on loan.
(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 attributable to 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 a Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and Winslow, New York Life Investments pays for the services of the Subadvisor.
Under the Management Agreement, the Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.75% up to $500 million; 0.725% from $500 million to $750 million; 0.71% from $750 million to $1 billion; 0.70% from $1 billion to $2 billion; 0.66% from $2 billion to $3 billion; 0.61% from $3 billion to $7 billion; 0.585% from $7 billion to $9 billion; and 0.575% in excess of $9 billion. New York Life Investments has contractually agreed to waive a portion of its management fee so that the management fee does not exceed 0.55% of the Fund’s average daily net assets from $11 billion to $13 billion; and 0.525% of the Fund’s average daily net assets over $13 billion. This agreement will remain in effect until February 28, 2018, 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 by the Board.
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, 2018, 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. 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. This voluntary waiver or reimbursement may be discontinued at any time without notice.
During the six-month period ended April 30, 2017, the effective management fee rate was 0.62%, exclusive of the management fee waiver.
During the six-month period ended April 30, 2017, New York Life Investments earned fees from the Fund in the amount of $40,188,643 and waived its fees and/or reimbursed expenses in the amount of $304,904.
State Street 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 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 Class A, Investor Class, Class T and Class R2 Plans, the Distributor receives a monthly distribution fee from the Class A, Investor Class, Class T and Class R2 shares, at an annual rate of 0.25% of the average daily net assets of the Class A, Investor Class, Class T 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.
24 | MainStay Large Cap Growth Fund |
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.
During the six-month period ended April 30, 2017, shareholder service fees incurred by the Fund were as follows:
Class R1 | $ | 798,983 | ||
Class R2 | 171,676 | |||
Class R3 | 39,911 |
(C) Sales Charges. During the six-month period ended April 30, 2017, the Fund was advised by the Distributor that the amount of initial sales charges retained on sales of Class A and Investor Class shares were $26,731 and $23,036, respectively.
During the six-month period ended April 30, 2017, the Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Class B and Class C shares of $8,023, $42,807 and $8,375, respectively.
(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. During the six-month period ended April 30, 2017, transfer agent expenses incurred by the Fund were as follows:
Class A | $ | 579,226 | ||
Investor Class | 163,447 | |||
Class B | 33,886 | |||
Class C | 262,628 | |||
Class I | 5,572,268 | |||
Class R1 | 1,115,822 | |||
Class R2 | 239,619 | |||
Class R3 | 55,748 |
(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
During the year ended October 31, 2016, the tax character of distributions paid as reflected in the Statements of Changes in Net Assets was as follows:
2016 | ||||
Distributions paid from: | ||||
Long-Term Capital Gain | $ | 2,061,778,330 |
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 transactions incurred by the Fund.
Note 6–Line of Credit
The Fund and certain other funds managed by New York Life Investments, 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 2, 2016, under an amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $600,000,000 with an additional uncommitted amount of $100,000,000. The commitment fee is an annual rate of 0.15% 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 their respective 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 1, 2017, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 2, 2016, the aggregate commitment amount was $600,000,000 with an additional uncommitted amount of $100,000,000, and the commitment fee was at an annual rate of 0.10% of the average commitment amount. During the six-month period ended April 30, 2017, there were no borrowings made or outstanding with respect to the Fund under the Credit Agreement.
Note 7–Interfund Lending Program
Pursuant to an exemptive order issued by the SEC, the Fund, along with certain other funds managed by New York Life Investments, may participate in an interfund lending program. The interfund lending program provides an alternative credit facility that permits the Fund and certain other funds managed by New York Life Investments to lend or borrow money for temporary purposes directly to or from one another, subject to the conditions of the exemptive order. During the six-month period ended April 30, 2017, there were no interfund loans made or outstanding with respect to the Fund.
Note 8–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2017, purchases and sales of securities, other than short-term securities, were $4,855,367 and $7,676,079, respectively.
25 |
Notes to Financial Statements (Unaudited) (continued)
Note 9–Capital Share Transactions
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 9,310,158 | $ | 80,276,223 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 10,359,228 | 83,081,499 | ||||||
Shares redeemed | (23,176,542 | ) | (200,286,591 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (3,507,156 | ) | (36,928,869 | ) | ||||
Shares converted into Class A (See Note 1) | 779,938 | 6,878,630 | ||||||
Shares converted from Class A (See Note 1) | (626,766 | ) | (5,449,348 | ) | ||||
|
| |||||||
Net increase (decrease) | (3,353,984 | ) | $ | (35,499,587 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 19,646,050 | $ | 180,253,666 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 13,179,543 | 123,228,727 | ||||||
Shares redeemed | (49,582,926 | ) | (450,652,369 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (16,757,333 | ) | (147,169,976 | ) | ||||
Shares converted into Class A (See Note 1) | 912,123 | 8,373,746 | ||||||
Shares converted from Class A (See Note 1) | (540,607 | ) | (4,964,348 | ) | ||||
|
| |||||||
Net increase (decrease) | (16,385,817 | ) | $ | (143,760,578 | ) | |||
|
| |||||||
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 1,028,770 | $ | 8,852,218 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 2,417,745 | 19,196,900 | ||||||
Shares redeemed | (3,137,624 | ) | (27,005,399 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 308,891 | 1,043,719 | ||||||
Shares converted into Investor Class (See Note 1) | 363,734 | 3,087,661 | ||||||
Shares converted from Investor Class (See Note 1) | (720,731 | ) | (6,314,461 | ) | ||||
|
| |||||||
Net increase (decrease) | (48,106 | ) | $ | (2,183,081 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 3,054,848 | $ | 29,040,842 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 2,443,289 | 22,671,507 | ||||||
Shares redeemed | (3,993,991 | ) | (36,160,957 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 1,504,146 | 15,551,392 | ||||||
Shares converted into Investor Class (See Note 1) | 729,663 | 6,486,575 | ||||||
Shares converted from Investor Class (See Note 1) | (775,431 | ) | (7,037,036 | ) | ||||
|
| |||||||
Net increase (decrease) | 1,458,378 | $ | 15,000,931 | |||||
|
| |||||||
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 313,913 | $ | 2,328,592 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 610,723 | 4,250,634 | ||||||
Shares redeemed | (729,853 | ) | (5,492,919 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 194,783 | 1,086,307 | ||||||
Shares converted from Class B (See Note 1) | (384,334 | ) | (2,832,786 | ) | ||||
|
| |||||||
Net increase (decrease) | (189,551 | ) | $ | (1,746,479 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 890,898 | $ | 7,233,362 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 659,856 | 5,503,197 | ||||||
Shares redeemed | (1,331,450 | ) | (10,681,689 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 219,304 | 2,054,870 | ||||||
Shares converted from Class B (See Note 1) | (655,437 | ) | (5,255,731 | ) | ||||
|
| |||||||
Net increase (decrease) | (436,133 | ) | $ | (3,200,861 | ) | |||
|
| |||||||
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 3,573,875 | $ | 25,403,327 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 2,605,366 | 18,107,357 | ||||||
Shares redeemed | (12,511,852 | ) | (93,998,204 | ) | ||||
|
| |||||||
Net increase (decrease) | (6,332,611 | ) | $ | (50,487,520 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 6,466,704 | $ | 53,327,639 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 3,001,163 | 24,969,681 | ||||||
Shares redeemed | (13,880,349 | ) | (112,066,791 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (4,412,482 | ) | (33,769,471 | ) | ||||
Shares converted from Class C (See Note 1) | (19,380 | ) | (187,794 | ) | ||||
|
| |||||||
Net increase (decrease) | (4,431,862 | ) | $ | (33,957,265 | ) | |||
|
| |||||||
26 | MainStay Large Cap Growth Fund |
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 90,620,894 | $ | 816,998,682 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 83,715,426 | 711,581,117 | ||||||
Shares redeemed | (328,511,194 | ) | (2,988,294,150 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (154,174,874 | ) | (1,459,714,351 | ) | ||||
Shares converted into Class I (See Note 1) | 510,506 | 4,691,115 | ||||||
Shares converted from Class I (See Note 1) | (1,561,675 | ) | (13,815,349 | ) | ||||
|
| |||||||
Net increase (decrease) | (155,226,043 | ) | $ | (1,468,838,585 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 191,040,579 | $ | 1,819,498,431 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 101,900,227 | 1,000,660,228 | ||||||
Shares redeemed | (448,840,581 | ) | (4,303,660,859 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (155,899,775 | ) | (1,483,502,200 | ) | ||||
Shares converted into Class I (See Note 1) | 59,930 | 575,114 | ||||||
Shares converted from Class I (See Note 1) | (1,499,308 | ) | (14,935,248 | ) | ||||
|
| |||||||
Net increase (decrease) | (157,339,153 | ) | $ | (1,497,862,334 | ) | |||
|
| |||||||
Class R1 | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 9,328,178 | $ | 84,384,603 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 21,611,091 | 180,020,387 | ||||||
Shares redeemed | (31,007,126 | ) | (277,797,938 | ) | ||||
|
| |||||||
Net increase (decrease) | (67,857 | ) | $ | (13,392,948 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 39,644,707 | $ | 393,845,632 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 25,181,545 | 243,253,726 | ||||||
Shares redeemed | (69,843,936 | ) | (657,384,425 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (5,017,684 | ) | (20,285,067 | ) | ||||
Shares converted from Class R1 (See Note 1) | (28,360 | ) | (272,130 | ) | ||||
|
| |||||||
Net increase (decrease) | (5,046,044 | ) | $ | (20,557,197 | ) | |||
|
| |||||||
Class R2 | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 5,189,378 | $ | 43,423,011 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 3,348,441 | 26,787,527 | ||||||
Shares redeemed | (16,010,561 | ) | (136,012,332 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (7,472,742 | ) | 87,431,066 | |||||
Shares converted from Class R2 (See Note 1) | (97,467 | ) | (792,409 | ) | ||||
|
| |||||||
Net increase (decrease) | (7,570,209 | ) | $ | (66,594,203 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 12,411,385 | $ | 113,556,899 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 5,403,725 | 50,524,831 | ||||||
Shares redeemed | (38,220,678 | ) | (350,766,615 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (20,405,568 | ) | (186,684,885 | ) | ||||
Shares converted from Class R2 (See Note 1) | (1,720 | ) | (18,555 | ) | ||||
|
| |||||||
Net increase (decrease) | (20,407,288 | ) | $ | (186,703,440 | ) | |||
|
| |||||||
Class R3 | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 881,253 | $ | 7,259,010 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,215,950 | 9,362,814 | ||||||
Shares redeemed | (2,908,847 | ) | (23,616,432 | ) | ||||
|
| |||||||
Net increase (decrease) | (811,644 | ) | $ | (6,994,608 | ) | |||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 1,933,053 | $ | 16,989,537 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,377,717 | 12,468,332 | ||||||
Shares redeemed | (4,449,259 | ) | (39,154,792 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (1,138,489 | ) | (9,696,923 | ) | ||||
Shares converted from Class R3 (See Note 1) | (8,312 | ) | (73,440 | ) | ||||
|
| |||||||
Net increase (decrease) | (1,146,801 | ) | $ | (9,770,363 | ) | |||
|
|
27 |
Notes to Financial Statements (Unaudited) (continued)
Class R6 | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 36,165,576 | $ | 328,316,453 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 20,979,877 | 179,168,150 | ||||||
Shares redeemed | (34,931,961 | ) | (321,845,288 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 22,213,492 | 185,639,315 | ||||||
Shares converted into Class R6 (See Note 1) | 1,638,521 | 14,546,947 | ||||||
|
| |||||||
Net increase (decrease) | 23,852,013 | $ | 200,186,262 | |||||
|
| |||||||
Year ended October 31, 2016: | ||||||||
Shares sold | 85,459,078 | $ | 840,427,765 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 14,978,754 | 147,540,722 | ||||||
Shares redeemed | (44,612,772 | ) | (448,875,363 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 55,825,060 | 539,093,124 | ||||||
Shares converted into Class R6 (See Note 1) | 1,730,198 | 17,308,847 | ||||||
|
| |||||||
Net increase (decrease) | 57,555,258 | $ | 556,401,971 | |||||
|
|
Note 10–Litigation
On December 23, 2014, Cynthia Ann Redus-Tarchis and others filed a complaint against New York Life Investments in the United States District Court for the District of New Jersey. The complaint was brought derivatively on behalf of the MainStay Large Cap Growth Fund, the MainStay High Yield Corporate Bond Fund and another fund previously managed by New York Life Investments and alleges that New York Life Investments violated Section 36(b) of the 1940 Act by charging excessive investment management fees. The plaintiffs seek monetary
damages and other relief from New York Life Investments. New York Life Investments believes the case has no merit, and intends to vigorously defend the matter.
On May 6, 2015, a second amended complaint was filed which, among other things, added MainStay High Yield Opportunities Fund as an additional Fund on whose behalf the complaint was brought. New York Life Investments filed a motion to dismiss the amended complaint. This motion was denied on October 28, 2015. New York Life Investments filed an answer to the second amended complaint on November 30, 2015. Fact discovery in the case has been completed and expert discovery is ongoing.
Note 11–Recent Accounting Pronouncement
In October 2016, the SEC adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the Fund’s financial statements and related disclosures.
Note 12–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, 2017, events and transactions subsequent to April 30, 2017, 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 of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of trustees initially approve and, following an initial term of up to two years, annually review and approve the fund’s investment advisory agreement(s). At its December 12-14, 2016 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 2016 and December 2016, as well as other relevant information furnished to the Board throughout the year. 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 fee and total expenses. The Board also considered information on the fees charged to any other investment advisory clients of New York Life Investments and Winslow Capital (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 Trustees who are not “interested persons” (as such term is defined under the 1940 Act) of the Fund (the “Independent Trustees”). Information provided to the Board in advance of and during meetings throughout the year included, among other items, information regarding the legal standards applicable to their consideration of the Agreements and 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, risk management, portfolio turnover, and sales and marketing activity. At various meetings, the Independent Trustees also met in executive session with their independent legal counsel, and met with senior management of New York Life Investments without other representatives of New York Life Investments present.
Throughout the year and specifically in connection with its June meeting each year, the Board also received an overview of the Fund’s distribution arrangements. In addition, the Board received information regarding the Fund’s asset levels, share purchase and redemption activity and the payment of Rule 12b-1 distribution and service fees by the Fund. New York Life Investments also provided the Board with information regarding
the revenue sharing payments made to intermediaries that promote the sale, distribution, and/or servicing of Fund shares.
In considering the Agreements, the Trustees comprehensively 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 described in greater detail below and included, among other items: (i) the nature, extent 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 have been realized or may be realized if the Fund grows and the extent to which economies of scale have benefited or may benefit Fund shareholders; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to any similar funds and accounts managed by New York Life Investments and Winslow Capital. Although the Board recognized that the comparisons between the Fund’s fees and expenses and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Board also considered the reasonableness of the Fund’s management fee and overall total ordinary operating expenses as compared to the peer funds identified by Strategic Insight.
While individual Trustees may have weighed certain factors or information differently, the Board’s decision to approve the Agreements was based on a consideration of the information provided to the Trustees throughout the year, as well as information furnished specifically in connection with the contract review process. Throughout the year, the Trustees are also afforded an opportunity to ask questions of and request additional information or materials from New York Life Investments and Winslow Capital. The Board’s conclusions with respect to the Agreements may have been based, in part, on the Board’s knowledge of New York Life Investments and Winslow Capital resulting from, among other things, the Board’s consideration of the MainStay Group of Funds’ advisory 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. The factors that figured prominently in the Board’s decision to approve the Agreements are summarized in more detail below.
Nature, Extent and Quality of Services to Be Provided by New York Life Investments and Winslow Capital
The Board examined the nature, extent and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience and capabilities 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
29 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
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 observed that New York Life Investments devotes significant resources and time to providing advisory and non-advisory services to the Fund, including its extensive oversight of Winslow Capital. The Board also considered the full range of services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and on-going oversight services provided by New York Life Investments’ Fund Administration and Accounting 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; (iv) legal services provided by New York Life Investments’ Office of the General Counsel; and (v) risk management and portfolio trading oversight and analysis by compliance and investment personnel. 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, infrastructure, technology, operational enhancements, cyber security, information security and shareholder privacy resources 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, extent and quality of the investment 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 Winslow Capital’s overall legal and compliance environment. The Board further considered New York Life Investments’ policies, procedures and systems to reasonably assure compliance with applicable laws and regulations. In addition, the Board considered the policies and procedures in place with respect to matters that may involve conflicts of interest between the Fund’s investments and those of other accounts managed by Winslow Capital. 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, extent 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, and in light of market conditions. 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’s Investment Committee that occur regularly, generally 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 primarily considered the profits realized by New York Life Investments and its affiliates with respect to the Fund.
In evaluating the costs of the services provided by New York Life Investments and Winslow Capital and profits realized by 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
30 | MainStay Large Cap Growth Fund |
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 recognized that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds, among other benefits resulting from its relationship with New York Life Investments.
In addition, the Board acknowledged 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. In connection with the annual fund profitability analysis that New York Life Investments presents to the Board, the Board in 2014 engaged Bobroff Consulting, Inc., an independent third-party consultant, to review the methods used to allocate costs to the MainStay Funds, and among individual Funds. As part of this engagement, the consultant analyzed: (i) the various New York Life Investments’ business units and affiliated Subadvisers that provide services to the MainStay Funds; (ii) how costs are allocated to the Fund and other funds managed by New York Life Investments, and to other lines of businesses; and (iii) how New York Life Investments’ cost allocation methods and profitability reports compare to industry practices. The Board noted that the independent consultant had concluded that New York Life Investments’ methods for allocating costs and procedures for estimating overall profitability of the funds in the MainStay Group of Funds, including the Fund, are reasonable, consistent with industry practice and likely to produce reasonable profitability estimates. Although the Board recognized 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 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. In this regard, 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 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 incurred by New York Life Investments from its own resources.
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 Fund and other funds in the MainStay Group of Funds. 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, initially setting relatively low management fees or making additional investments to enhance shareholder services. 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. Additionally, the Board considered New York Life Investments’ assessment of the extent economies of scale existed for Funds that had experienced significant increases of assets during the year.
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, because the fees paid to Winslow Capital are paid by New York Life Investments, not the Fund.
31 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreement (Unaudited) (continued)
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 that follow similar investment strategies 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 registered investment companies 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 further considered the positive overall impact of the breakpoints in the Fund’s management fee schedule, including the additional breakpoint instituted effective February 29, 2016.
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 demonstrating 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 also noted information received from NYLIM Service Company LLC regarding the sub-transfer agency payments it made to intermediaries in connection with the 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 a number of 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 recognized 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) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iii) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (iv) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (v) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vi) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. The Board also considered that NYLIM Service Company LLC had waived its cost of living adjustments in 2015, 2016 and 2017. In addition, the Board acknowledged New York Life Investments’ continued 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 and factors summarized above and the evaluation thereof, the Board as a whole, including the Independent Trustees who are not parties to the Agreements or “interested persons” of any such party voting separately, 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 or proxy voting record 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).
33 |
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MainStay Funds
Equity
U.S. Equity
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay Epoch U.S. Small Cap Fund
MainStay ICAP Equity Fund1
MainStay ICAP Select Equity Fund1
MainStay Large Cap Growth Fund
MainStay MAP Equity Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
International/Global Equity
MainStay Emerging Markets Equity Fund
MainStay Epoch Capital Growth Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Choice Fund
MainStay Epoch International Small Cap Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond
MainStay Emerging Markets Debt Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay Indexed Bond Fund
MainStay Short Duration High Yield Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal/Tax Advantaged Bond
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Advantaged Short Term Bond Fund
MainStay Tax Free Bond Fund
Money Market
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
Alternative
MainStay Absolute Return Multi-Strategy Fund
MainStay Cushing Energy Income Fund
MainStay Cushing MLP Premier Fund
MainStay Cushing Renaissance Advantage 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
MainStay Retirement 2060 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Candriam France S.A.S.4
Paris, France
Cornerstone Capital Management Holdings LLC4
New York, New York
Cushing Asset Management, LP
Dallas, Texas
Epoch Investment Partners, Inc.
New York, New York
MacKay Shields LLC4
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC4
New York, New York
Winslow Capital Management, LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Washington, District of Columbia
Independent Registered Public Accounting Firm
KPMG LLP
Philadelphia, Pennsylvania
1. On May 8, 2017, the Fund merged into MainStay Epoch U.S. Equity Yield Fund. Former shareholders of this Fund can request the Fund’s Semiannual Report by calling 800-MAINSTAY (624-6782).
2. Class A and Class I shares of this Fund are registered for sale in AZ, CA, MI, NV, OR, TX, UT and WA. Class I shares are registered for sale in CO, FL, GA, HI, ID, MA, MD, NH, NJ and NY.
3. This Fund is registered for sale in CA, CT, DE, FL, MA, NJ, NY and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Semiannual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
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. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
©2017 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 |
1737112 MS144-17 | MSLG10-06/17 (NYLIM) NL031 |
MainStay MAP Equity Fund
(Formerly known as MainStay MAP Fund)
Message from the President and Semiannual Report
Unaudited | April 30, 2017
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Message from the President
The six months ended April 30, 2017, proved to be a strong period for many equity investors but presented challenges for some bond investors.
The reporting period began with considerable uncertainty about the outcome of the U.S. election. Once the Republicans gained control of the White House, the Senate and the House of Representatives, however, many investors hoped to see an end to political gridlock; and although debate has continued on a number of issues, the U.S. stock market steadily climbed through the end of the reporting period.
According to FTSE-Russell U.S. market data, stocks at all capitalization levels earned double-digit overall returns during the reporting period. Although growth stocks outperformed value stocks at most capitalization levels, value stocks outperformed growth stocks among micro-cap stocks.
In December 2016 and March 2017, the Federal Reserve announced increases in the target range for the federal funds rate. These moves, which brought the federal funds target range to 0.75% to 1.00%, were felt across the bond market. During the reporting period, yields rose on U.S. Treasury securities of all maturities, with the largest absolute increase on the 5-year U.S. Treasury note. On a percentage basis, however, the largest increases were at the short end of the maturity spectrum, with yields on the 1- and 3-month U.S. Treasury bills more than doubling during the reporting period.
When interest rates rise, bond prices tend to decline (and vice versa). As a result, several broad fixed-income asset classes—including U.S. government and agency bonds, mortgage-backed securities, investment-grade debt and municipal bonds—recorded negative total returns for the reporting period. Convertible securities, high-yield bonds and floating-rate loans, which tend to be less sensitive to interest-rate changes, provided positive total returns.
International stock markets generally advanced during the reporting period, with European stocks providing strong
double-digit returns. The Pacific region and Japan were weaker but provided positive returns in the single digits. Emerging markets also provided solid performance for the reporting period, despite modest commodity prices.
Many short-term political, economic and world events affected the markets during the reporting period. Nevertheless, at MainStay, we believe that the primary concern of our portfolio managers should be the long-term welfare of our shareholders, and we appreciate the discipline our portfolio managers seek to apply in their long-term investment decisions.
Our portfolio managers seek to pursue the investment objectives of their respective MainStay Funds using the various investment strategies outlined in the Fund’s Prospectus. Utilizing their years of professional market experience, they seek to enhance returns when possible, manage risk as necessary and view short-term events in light of long-term investment goals. At MainStay, we believe that shareholders who maintain a long-term perspective may be better able to weather turbulent markets, avoid selling when prices are low and stay focused on their reasons for choosing MainStay Funds.
The report that follows provides more detailed information about the markets, securities and decisions that affected your MainStay Fund during the six months ended April 30, 2017. We invite you to read it carefully and use the information as part of your ongoing portfolio evaluation and review.
Sincerely,
Stephen P. Fisher
President
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, 30 Hudson Street, Jersey City, NJ 07302 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 and other factors, 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, 2017
Class | Sales Charge | Inception Date | Six Months | One Year | Five Years or Since Inception | Ten Years or Since Inception | Gross Expense Ratio2 | |||||||||||||||||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges | | 6/9/1999 | | | 8.25 14.55 | %
| | 11.64 18.14 | %
| | 9.86 11.11 | %
| | 4.96 5.55 | %
| | 1.09 1.09 | %
| ||||||||
Investor Class Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges | | 2/28/2008 | | | 8.17 14.47 |
| | 11.44 17.92 |
| | 9.66 10.91 |
| | 5.75 6.41 |
| | 1.29 1.29 |
| ||||||||
Class B Shares3 | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges | 6/9/1999 | | 9.03 14.03 |
| | 12.02 17.02 |
| | 9.81 10.09 |
| | 4.58 4.58 |
| | 2.04 2.04 |
| ||||||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges | | 6/9/1999 | | | 13.03 14.03 |
| | 16.02 17.02 |
| | 10.09 10.09 |
| | 4.58 4.58 |
| | 2.04 2.04 |
| ||||||||
Class I Shares | No Sales Charge | 1/21/1971 | 14.68 | 18.43 | 11.38 | 5.82 | 0.84 | |||||||||||||||||||||
Class R1 Shares | No Sales Charge | 1/2/2004 | 14.66 | 18.33 | 11.27 | 5.71 | 0.94 | |||||||||||||||||||||
Class R2 Shares | No Sales Charge | 1/2/2004 | 14.50 | 18.04 | 10.99 | 5.46 | 1.20 | |||||||||||||||||||||
Class R3 Shares | No Sales Charge | 4/28/2006 | 14.34 | 17.72 | 10.72 | 5.19 | 1.44 |
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, if any, 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 may 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, if any, 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. | Class B shares are closed to all new purchases as well as additional investments by existing Class B shareholders. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
5 |
Benchmark Performance | Six Months | One Year | Five Years | Ten Years | ||||||||||||
Russell 3000® Index4 | 13.83 | % | 18.58 | % | 13.57 | % | 7.23 | % | ||||||||
S&P 500® Index5 | 13.32 | 17.92 | 13.68 | 7.15 | ||||||||||||
Average Lipper Large-Cap Core Fund6 | 12.59 | 16.28 | 12.13 | 6.30 |
4. | The Russell 3000® Index is the Fund’s primary broad-based securities market index for comparison purposes. 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. Results assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
5. | The S&P 500® Index is the Fund’s secondary benchmark. “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. Results assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
6. | 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 Equity Fund |
Cost in Dollars of a $1,000 Investment in MainStay MAP 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, 2016, to April 30, 2017, 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, 2016, to April 30, 2017.
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, 2017. 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 11/1/16 | Ending Account Value (Based on Actual Returns and Expenses) 4/30/17 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 4/30/17 | Expenses Paid During Period1 | Net Expense Ratio During Period2 | ||||||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,145.50 | $ | 5.85 | $ | 1,019.30 | $ | 5.51 | 1.10% | |||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,144.70 | $ | 6.86 | $ | 1,018.40 | $ | 6.46 | 1.29% | |||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,140.30 | $ | 10.83 | $ | 1,014.70 | $ | 10.19 | 2.04% | |||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,140.30 | $ | 10.88 | $ | 1,014.60 | $ | 10.24 | 2.05% | |||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,146.80 | $ | 4.52 | $ | 1,020.60 | $ | 4.26 | 0.85% | |||||||||||
Class R1 Shares | $ | 1,000.00 | $ | 1,146.60 | $ | 5.06 | $ | 1,020.10 | $ | 4.76 | 0.95% | |||||||||||
Class R2 Shares | $ | 1,000.00 | $ | 1,145.00 | $ | 6.38 | $ | 1,018.80 | $ | 6.01 | 1.20% | |||||||||||
Class R3 Shares | $ | 1,000.00 | $ | 1,143.40 | $ | 7.71 | $ | 1,017.60 | $ | 7.25 | 1.45% |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class 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. |
2. | Expenses are equal to the Fund’s annualized expense ratio to reflect the six-month period. |
7 |
Industry Composition as of April 30, 2017 (Unaudited)
Media | 10.4 | % | ||
Technology Hardware, Storage & Peripherals | 6.1 | |||
Aerospace & Defense | 5.6 | |||
Banks | 5.4 | |||
IT Services | 5.1 | |||
Insurance | 5.1 | |||
Capital Markets | 4.9 | |||
Oil, Gas & Consumable Fuels | 4.7 | |||
Software | 4.5 | |||
Internet Software & Services | 4.1 | |||
Health Care Providers & Services | 3.5 | |||
Specialty Retail | 3.2 | |||
Pharmaceuticals | 3.1 | |||
Chemicals | 2.9 | |||
Health Care Equipment & Supplies | 2.7 | |||
Biotechnology | 2.3 | |||
Food & Staples Retailing | 2.3 | |||
Beverages | 2.2 | |||
Consumer Finance | 2.1 | |||
Road & Rail | 1.8 | |||
Semiconductors & Semiconductor Equipment | 1.7 | |||
Industrial Conglomerates | 1.6 | |||
Electronic Equipment, Instruments & Components | 1.4 | |||
Real Estate Investment Trusts | 1.3 |
Electrical Equipment | 1.1 | % | ||
Machinery | 1.0 | |||
Household Products | 0.9 | |||
Internet & Direct Marketing Retail | 0.9 | |||
Building Products | 0.7 | |||
Construction & Engineering | 0.7 | |||
Hotels, Restaurants & Leisure | 0.7 | |||
Communications Equipment | 0.6 | |||
Construction Materials | 0.5 | |||
Diversified Telecommunication Services | 0.5 | |||
Multi-Utilities | 0.5 | |||
Distributors | 0.4 | |||
Diversified Financial Services | 0.4 | |||
Energy Equipment & Services | 0.4 | |||
Household Durables | 0.4 | |||
Multiline Retail | 0.4 | |||
Electric Utilities | 0.3 | |||
Tobacco | 0.3 | |||
Food Products | 0.2 | |||
Short-Term Investment | 1.1 | |||
Other Assets, Less Liabilities | –0.0 | ‡ | ||
|
| |||
100.0 | % | |||
|
|
See Portfolio of Investments beginning on page 13 for specific holdings within these categories.
‡ | Less than one-tenth of a percent. |
Top Ten Holdings as of April 30, 2017 (excluding short-term investment) (Unaudited)
1. | Apple, Inc. |
2. | Microsoft Corp. |
3. | Alphabet, Inc. |
4. | Boeing Co. |
5. | Liberty SiriusXM Group |
6. | Bank of America Corp. |
7. | Aetna, Inc. |
8. | PepsiCo., Inc. |
9. | E.I. du Pont de Nemours & Co. |
10. | Comcast Corp. Class A |
8 | MainStay MAP Equity Fund |
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Christopher Mullarkey and James Mulvey of Markston International LLC (“Markston International”), a subadvisor to the Fund; portfolio managers Thomas M. Cole, CFA, Andrew P. Starr, CFA, Matthew T. Swanson, CFA, and J. Christian Kirtley, CFA, of Institutional Capital LLC (“ICAP”), a Subadvisor to the Fund until January 9, 2017; and portfolio managers William Priest, CFA, Michael Welhoelter, CFA, David Pearl and J. Christian Kirtley, CFA, (formerly of ICAP) of Epoch Investment Partners, Inc. (“Epoch”), a current Subadvisor to the Fund.
How did MainStay MAP Equity Fund perform relative to its benchmarks and peers during the six months ended April 30, 2017?
Excluding all sales charges, MainStay MAP Equity Fund returned 14.55% for Class A shares, 14.47% for Investor Class shares and 14.03% for Class B and Class C shares for the six months ended April 30, 2017. Over the same period, Class I shares returned 14.68%, Class R1 shares returned 14.66%, Class R2 shares returned 14.50% and Class R3 shares returned 14.34%. For the six months ended April 30, 2017, all share classes outperformed the 13.83% return of the Russell 3000® Index,1 which is the Fund’s primary benchmark; the 13.32% return of the S&P 500® Index,1 which is the Fund’s secondary benchmark; and the 12.59% return of the Average Lipper2 Large-Cap Core Fund. See page 5 for Fund returns with applicable sales charges.
Were there any changes to the Fund during the reporting period?
Effective January 9, 2017, ICAP was replaced as a subadvisor of MainStay MAP Fund with Epoch, a subadvisor on an interim basis. On that same date, the investment process for the portion of the Fund’s portfolio to be subadvised by Epoch was revised. Effective February 28, 2017, the Fund’s name changed from MainStay MAP Fund to MainStay MAP Equity Fund. Effective March 13, 2017, the Fund’s principal investment strategies and principal risks were revised. At a shareholder meeting held on March 31, 2017, shareholders approved a proposal to appoint Epoch as a non-interim subadvisor to the Fund. For more information, please see the prospectus supplement dated January 9, 2017, and the proxy statement dated January 27, 2017.
What factors affected the Fund’s performance during the reporting period?
Markston International
During the reporting period, the portion of the Fund subadvised by Markston International outperformed the Russell 3000® Index. This strong performance was largely driven by strong stock selection, an overweight position in financials and an underweight position in utilities in the Markston International portion of the Fund.
ICAP
From November 1, 2016, through January 9, 2017, the primary factors that affected performance relative to the S&P 500®
Index in the portion of the Fund that ICAP subadvised were stock selection and the sector rotation that resulted from investors’ expectations of increased inflation, which helped drive interest rates higher following the U.S. election.
Epoch
During the portion of the reporting period that Epoch subadvised the Fund, the Epoch portion of the Fund benefited from being well-positioned for a market environment in which rising stock prices were driven by stronger macroeconomic data, an improved outlook for earnings, and policy expectations for the Trump administration (primarily tax cuts, deregulation, and infrastructure spending). The best-performing sectors in the portion of the Fund subadvised by Epoch included information technology, health care and consumer discretionary, sectors in which Epoch maintained exposure that was similar to or greater than that of the Russell 3000® Index. The portion of the Fund subadvised by Epoch had less exposure than the Russell 3000® Index in energy and telecommunication services. This positioning benefited relative performance, as these sectors declined.
During the reporting period, which sectors were the strongest positive contributors to the Fund’s performance and which sectors were particularly weak?
Markston International
In the portion of the Fund subadvised by Markston International, the sectors with the strongest contributions to performance relative to the Russell 3000® Index were industrials, consumer discretionary and information technology. (Contributions take weightings and total returns into account.) The weakest-performing sectors in the portion of the Fund subadvised by Markston International were consumer staples, energy and telecommunication services.
ICAP
During the portion of the reporting period in which ICAP subadvised part of the Fund, the strongest positive contributions relative to the S&P 500® Index in the ICAP portion of the Fund that invested in U.S. equities came from consumer discretionary, financials and utilities. Favorable stock selection was the primary driver in consumer discretionary sector, while the ICAP portion of Fund that invested in U.S. equities benefited from an underweight position in utilities and an overweight position in financials.
1. | See footnote on page 6 for more information on this index. |
2. | See footnote on page 6 for more information on Lipper Inc. |
9 |
During the same portion of the reporting period and in the ICAP portion of the Fund that invested in U.S. equities, the weakest-performing sectors that detracted the most from performance relative to the S&P 500® Index were materials and telecommunication services. Stock selection was the primary driver in the materials sector, while an underweight position relative to the S&P 500® Index in telecommunication services detracted from relative performance.
Over the same portion of the reporting period, the best-performing sectors on an absolute basis in the ICAP portion of the Fund that invested in global equities were financials, energy and information technology. During this portion of the reporting period, the weakest-performing sectors on an absolute basis in the global equity portion of the Fund subadvised by ICAP were consumer staples, telecommunication services and real estate.
Epoch
During the portion of the reporting period in which Epoch subadvised part of the Fund, the strongest contributing sectors to relative performance in the Epoch portion of the Fund were energy, materials and health care. In the Epoch portion of the Fund, performance in the energy sector was helped by holding an underweight position relative to the Russell 3000® Index, as the sector declined more than 10% during the portion of the reporting period in which Epoch served as a subadvisor of part of the Fund. Stock selection also helped performance in the Epoch portion of the Fund. In the health care and materials sectors in the Epoch portion of the Fund, stock selection was the main reason for better-than-benchmark 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?
Markston International
In the portion of the Fund subadvised by Markston International, the stocks that made the strongest contributions to absolute performance were computer and mobile device maker Apple, insurance company Aetna and cable company Liberty Broadband. Apple delivered better-than-expected earnings in the beginning of 2017, and the Fund maintained its position in the company throughout the reporting period. Aetna provided solid performance after the company reported strong earnings and stopped seeking to acquire Humana. During the reporting period, the Fund sold a small portion of its position in Aetna when we felt that the stock price was strong. Shares of Liberty Broadband performed well
after the company reported growth in its subscriber base, which ran counter to the prevailing theory that pay TV was in a systemic decline. The portion of the Fund subadvised by Markston International continued to hold the position.
Detractors from absolute performance in the portion of the Fund subadvised by Markston International were medical device maker Medtronic, property & casualty insurer AIG and drug retailer CVS. Medtronic slightly underperformed after a couple of weak earnings reports, but the Markston International portion of the Fund continued to hold the position. AIG slightly underperformed because of general weakness in the company’s core business. The portion of the Fund subadvised by Markston International added slightly to its position in CVS near the stock’s low point in December 2016, but the stock underperformed during the reporting period because of weakness in the company’s core business.
ICAP
During the portion of the reporting period in which ICAP subadvised part of the Fund, the stocks that made the strongest positive contributions to absolute performance in the ICAP portion of the Fund that invested in U.S. equities were all in the financials sector. M&T Bank, Wells Fargo, and Citigroup were strong performers as interest rates rose and investors increasingly began to expect a more benign regulatory environment.
During the portion of the reporting period in which ICAP subadvised part of the Fund, substantial detractors from absolute performance in the ICAP portion of the Fund that invested in U.S. equities included drug retailer CVS Health, Mexican media company Grupo Televisa and wireless communications infrastructure company American Tower. CVS Health and Grupo Televisa lagged because of weaker-than-expected operating results and a diminished outlook. American Tower underperformed as defensive stocks were sold in favor of cyclical names. All of these detractors were sold during the portion of the reporting period in which ICAP subadvised part of the Fund.
During the same portion of the reporting period, the stocks that made the strongest positive contributions to absolute performance in the ICAP portion of the Fund that invested in global equities were all in the financials sector. M&T Bank, Royal Bank of Scotland and Julius Baer showed strong performance as interest rates rose and investors’ expectations for a more benign regulatory environment increased.
Primary detractors from absolute performance during this portion of the reporting period in the ICAP portion of the Fund that
10 | MainStay MAP Equity Fund |
invested in global equities included medical technology company LivaNova, Mexican media company Grupo Televisa and wireless communications infrastructure company American Tower. LivaNova’s sales growth was disappointing during the portion of the reporting period in which ICAP subadvised part of the Fund.
Epoch
During the portion of the reporting period in which Epoch subadvised part of the Fund, the strongest individual contributors in the Epoch portion of the Fund were computer and mobile device maker Apple, software company Oracle and pharmaceutical company Abbott Laboratories. Apple’s shares rose after the company reported record fiscal first-quarter iPhone unit sales and iPhone average selling prices, boosted by a mix shift toward the higher-priced iPhone 7 Plus. Meanwhile, the company’s services revenue (digital music, Apple Pay, cloud storage and apps) jumped by 18%. In our view, Apple continued to drive software and services innovation that helped the company capture premium pricing on its hardware. Oracle’s fiscal third-quarter results were buoyed by across-the-board strength in the company’s cloud business. The company continued to strike a solid balance between its cloud and legacy on-premises businesses, and management expressed confidence that the cloud business would more than offset declines in the legacy business. This resulted in positive momentum for the company’s performance going forward. Abbott Laboratories topped Wall Street expectations for sales and profits.
Over the same portion of the reporting period, the largest detractors in the part of the Fund subadvised by Epoch were technology provider F5 Networks, diversified financial services company Bank of America and consumer finance company Discover Financial Services. F5 Networks reported disappointing quarterly results. Bank of America declined along with other financial stocks in March as long-term interest rates sagged. The Bank of America position was not held earlier in the reporting period when bank stocks generally rose. During the portion of the reporting period in which Epoch subadvised part of the Fund, Discover Financial Services declined on the perception of increased credit risk.
Did the Fund make any significant purchases or sales during the reporting period?
Markston International
During the reporting period, the portion of the Fund subavised by Markston International purchased a position in credit card services company Visa in December 2016, when the stock approached its low point for the year. Because of the low stock price, Visa met our criteria for alpha3 generation and appeared inexpensive on a free cash flow basis. The Markston International portion of the Fund also purchased travel reservation information system provider Sabre Corp. because the company met our alpha generator criteria and appeared inexpensive on a free cash flow basis.
During the reporting period, the Markson International portion of the Fund sold its position in multiline retailer Wal-Mart because of our view that the company lacked competitive positioning against dominant online retailers. The Markston International portion of the Fund also sold its position in beverage company Coca-Cola because the company continued to experience sluggish sales in the United States.
ICAP
During the portion of the reporting period in which ICAP subadvised part of the Fund, a new position in Total, a large integrated oil & gas company, was initiated in the ICAP portion of the Fund that invested in U.S. equities. ICAP believed that the company’s free cash flow could improve significantly in the coming years from a combination of lower expenses and better growth in production volumes. The domestic equity portion of the Fund that ICAP subadvised also added a position in global payments technology company Visa. ICAP believed that the stock was attractively valued and that it represented a compelling long-term secular growth opportunity.
During the portion of the reporting period in which ICAP subadvised part of the Fund, this portion of the Fund sold positions in multiline industrial company Johnson Controls and air carrier Delta Air Lines in favor of stocks that ICAP believed had greater potential upside and were more attractive on a relative-valuation basis.
During the portion of the reporting period in which ICAP subadvised part of the Fund, there were no significant purchases or sales in the ICAP portion of the Fund that invested in global equities.
3. | Alpha measures the relationship between a stock’s (or a mutual fund’s) return and its beta over a three-year period. Often, alpha is viewed as the excess return (positive or negative) or the value added by the portfolio manager. Beta is a measure of volatility in relation to the market as a whole. A beta higher than 1 indicates that a security or portfolio will tend to exhibit higher volatility than the market. A beta lower than 1 indicates that a security or portfolio will tend to exhibit lower volatility than the market. |
11 |
Epoch
During the portion of the reporting period in which Epoch subadvised a part of the Fund, the largest purchases in the Epoch portion of the Fund were positions in software company Microsoft and financial services provider Bank of America. During the same portion of the reporting period, the largest sales in the Epoch portion of the Fund were positions in health care equipment & supplies company Abbott Laboratories and software company Oracle. These transactions were made to bring the portion of the Fund that Epoch subadvised more closely in line with other portfolios subadvised by Epoch that pursue similar strategies and objectives.
How did the Fund’s sector weightings change during the reporting period?
Markston International
During the reporting period, the portion of the Fund subadvised by Markston International slightly increased its positions in information technology and consumer discretionary stocks relative to the Russell 3000® Index. Over the same period, the portion of the Fund subadvised by Markston International slightly decreased its cash holdings and its weighting relative to the Russell 3000® Index in consumer staples.
ICAP
During the portion of the reporting period in which ICAP subadvised part of the Fund, the ICAP portion of the Fund that invested in U.S. equities increased its exposure relative to the S&P 500® Index in the information technology and energy sectors. Over the same portion of the reporting period, the ICAP portion of the Fund that invested in U.S. equities decreased its sector weightings relative to the Index in industrials and financials.
Over the same portion of the reporting period, sector weights changed only to a small degree in the ICAP portion of the Fund that invested in global equities. This portion of the Fund modestly increased its weighting in the financials sector and modestly decreased its weighting in materials.
Epoch
During the portion of the reporting period in which Epoch subadvised part of the Fund, the Epoch portion of the Fund
increased its weighting in information technology and industrials. Over the same portion of the reporting period, the Epoch portion of the Fund reduced its weightings in the consumer discretionary, health care and energy sectors.
How was the Fund positioned at the end of the reporting period?
Markston International
As of April 30, 2017, the portion of the Fund subadvised by Markston International remained overweight relative to the Russell 3000® Index by a couple of percentage points in the consumer discretionary and financials sectors. As of the same date, the portion of the Fund subadvised by Markston International remained underweight relative to the Index by a couple of percentage points in utilities and telecommunication services.
ICAP
As of January 9, 2017—the last date on which ICAP served as a subadvisor to part of the Fund—the ICAP portion of the Fund that invested in U.S. equities was most significantly overweight relative to the S&P 500® Index in the consumer discretionary and financials sectors. As of the same date, the ICAP portion of the Fund that invested in U.S. equities was most significantly underweight relative to the same Index in the consumer staples and utilities sectors.
In the ICAP portion of the Fund that invested in global equities, the largest weightings as of January 9, 2017, were in the financials and information technology sectors. On the same date, the smallest weightings were in the utilities and energy sectors.
Epoch
As of April 30, 2017, the portion of the Fund subadvised by Epoch remained positioned for cyclical economic growth by having more exposure than the Russell 3000® Index to the consumer discretionary, financials and information technology sectors. As of the same date, the Epoch portion of the Fund had less exposure than the Russell 3000® Index to the consumer staples, real estate, utilities and energy 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 forecasts will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
12 | MainStay MAP Equity Fund |
Portfolio of Investments April 30, 2017 (Unaudited)
Shares | Value | |||||||
Common Stocks 98.8%† | ||||||||
Aerospace & Defense 5.6% |
| |||||||
¨Boeing Co. | 159,612 | $ | 29,501,086 | |||||
Hexcel Corp. | 146,680 | 7,590,690 | ||||||
Northrop Grumman Corp. | 27,513 | 6,767,098 | ||||||
Orbital ATK, Inc. | 23,900 | 2,366,100 | ||||||
Raytheon Co. | 112,727 | 17,496,358 | ||||||
Rockwell Collins, Inc. | 43,982 | 4,578,086 | ||||||
United Technologies Corp. | 49,970 | 5,945,930 | ||||||
|
| |||||||
74,245,348 | ||||||||
|
| |||||||
Banks 5.4% |
| |||||||
¨Bank of America Corp. | 1,238,149 | 28,898,398 | ||||||
Citigroup, Inc. | 101,505 | 6,000,976 | ||||||
Citizens Financial Group, Inc. | 232,446 | 8,533,093 | ||||||
JPMorgan Chase & Co. | 117,902 | 10,257,474 | ||||||
U.S. Bancorp | 141,512 | 7,256,735 | ||||||
Wells Fargo & Co. | 208,465 | 11,223,755 | ||||||
|
| |||||||
72,170,431 | ||||||||
|
| |||||||
Beverages 2.2% |
| |||||||
Coca-Cola Co. | 110,745 | 4,778,647 | ||||||
¨PepsiCo., Inc. | 217,742 | 24,665,814 | ||||||
|
| |||||||
29,444,461 | ||||||||
|
| |||||||
Biotechnology 2.3% |
| |||||||
AbbVie, Inc. | 306,030 | 20,179,618 | ||||||
Celgene Corp. (a) | 83,900 | 10,407,795 | ||||||
|
| |||||||
30,587,413 | ||||||||
|
| |||||||
Building Products 0.7% |
| |||||||
Johnson Controls International PLC | 235,035 | 9,770,405 | ||||||
|
| |||||||
Capital Markets 4.9% |
| |||||||
Ameriprise Financial, Inc. | 63,104 | 8,067,846 | ||||||
Bank of New York Mellon Corp. | 78,800 | 3,708,328 | ||||||
BlackRock, Inc. | 18,790 | 7,226,070 | ||||||
CME Group, Inc. | 78,219 | 9,088,266 | ||||||
Goldman Sachs Group, Inc. | 30,359 | 6,794,344 | ||||||
Morgan Stanley | 364,156 | 15,793,446 | ||||||
State Street Corp. | 173,720 | 14,575,108 | ||||||
|
| |||||||
65,253,408 | ||||||||
|
| |||||||
Chemicals 2.9% |
| |||||||
¨E.I. du Pont de Nemours & Co. | 292,354 | 23,315,231 | ||||||
Ecolab, Inc. | 43,400 | 5,602,506 | ||||||
Monsanto Co. | 79,800 | 9,305,478 | ||||||
|
| |||||||
38,223,215 | ||||||||
|
| |||||||
Communications Equipment 0.6% |
| |||||||
F5 Networks, Inc. (a) | 65,672 | 8,480,225 | ||||||
|
|
Shares | Value | |||||||
Construction & Engineering 0.7% |
| |||||||
Jacobs Engineering Group, Inc. | 169,196 | $ | 9,292,244 | |||||
|
| |||||||
Construction Materials 0.5% |
| |||||||
Martin Marietta Materials, Inc. | 29,515 | 6,498,908 | ||||||
|
| |||||||
Consumer Finance 2.1% |
| |||||||
American Express Co. | 243,339 | 19,284,616 | ||||||
Discover Financial Services | 145,172 | 9,086,315 | ||||||
|
| |||||||
28,370,931 | ||||||||
|
| |||||||
Distributors 0.4% |
| |||||||
Genuine Parts Co. | 52,213 | 4,804,640 | ||||||
|
| |||||||
Diversified Financial Services 0.4% |
| |||||||
Berkshire Hathaway, Inc. Class B (a) | 30,689 | 5,070,130 | ||||||
|
| |||||||
Diversified Telecommunication Services 0.5% |
| |||||||
AT&T, Inc. | 111,900 | 4,434,597 | ||||||
Verizon Communications, Inc. | 55,806 | 2,562,053 | ||||||
|
| |||||||
6,996,650 | ||||||||
|
| |||||||
Electric Utilities 0.3% |
| |||||||
PPL Corp. | 116,731 | 4,448,618 | ||||||
|
| |||||||
Electrical Equipment 1.1% |
| |||||||
AMETEK, Inc. | 129,618 | 7,414,150 | ||||||
Rockwell Automation, Inc. | 41,700 | 6,561,495 | ||||||
|
| |||||||
13,975,645 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components 1.4% |
| |||||||
Coherent, Inc. (a) | 13,465 | 2,903,054 | ||||||
TE Connectivity, Ltd. | 98,824 | 7,646,013 | ||||||
Universal Display Corp. | 82,559 | 7,376,647 | ||||||
|
| |||||||
17,925,714 | ||||||||
|
| |||||||
Energy Equipment & Services 0.4% |
| |||||||
Schlumberger, Ltd. | 72,545 | 5,266,042 | ||||||
|
| |||||||
Food & Staples Retailing 2.3% |
| |||||||
CVS Health Corp. | 203,093 | 16,742,987 | ||||||
Walgreens Boots Alliance, Inc. | 151,755 | 13,132,878 | ||||||
|
| |||||||
29,875,865 | ||||||||
|
| |||||||
Food Products 0.2% |
| |||||||
Mondelez International, Inc. Class A | 70,100 | 3,156,603 | ||||||
|
| |||||||
Health Care Equipment & Supplies 2.7% |
| |||||||
Abbott Laboratories | 88,077 | 3,843,680 | ||||||
Baxter International, Inc. | 36,000 | 2,004,480 |
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings, as of April 30, 2017, 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. | 13 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Health Care Equipment & Supplies (continued) |
| |||||||
Danaher Corp. | 79,317 | $ | 6,609,486 | |||||
Dentsply Sirona Inc. | 104,509 | 6,609,149 | ||||||
Medtronic PLC | 198,290 | 16,475,916 | ||||||
|
| |||||||
35,542,711 | ||||||||
|
| |||||||
Health Care Providers & Services 3.5% |
| |||||||
¨Aetna, Inc. | 193,631 | 26,153,739 | ||||||
McKesson Corp. | 59,197 | 8,186,353 | ||||||
UnitedHealth Group, Inc. | 72,999 | 12,766,065 | ||||||
|
| |||||||
47,106,157 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure 0.7% |
| |||||||
Marriott International, Inc. Class A | 52,068 | 4,916,261 | ||||||
McDonald’s Corp. | 29,151 | 4,079,099 | ||||||
|
| |||||||
8,995,360 | ||||||||
|
| |||||||
Household Durables 0.4% |
| |||||||
NVR, Inc. (a) | 2,577 | 5,440,691 | ||||||
|
| |||||||
Household Products 0.9% |
| |||||||
Procter & Gamble Co. | 139,612 | 12,192,316 | ||||||
|
| |||||||
Industrial Conglomerates 1.6% |
| |||||||
General Electric Co. | 467,019 | 13,538,881 | ||||||
Honeywell International, Inc. | 61,700 | 8,091,338 | ||||||
|
| |||||||
21,630,219 | ||||||||
|
| |||||||
Insurance 5.1% |
| |||||||
American International Group, Inc. | 294,572 | 17,942,381 | ||||||
Chubb, Ltd. | 102,622 | 14,084,869 | ||||||
MetLife, Inc. | 252,244 | 13,068,762 | ||||||
Travelers Cos., Inc. | 124,634 | 15,162,972 | ||||||
W.R. Berkley Corp. | 64,583 | 4,390,352 | ||||||
Willis Towers Watson PLC | 26,900 | 3,567,478 | ||||||
|
| |||||||
68,216,814 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail 0.9% |
| |||||||
Liberty Expedia Holdings, Inc. Class A (a) | 15,530 | 750,254 | ||||||
Liberty Interactive Corp. QVC Group Class A (a) | 387,834 | 8,214,324 | ||||||
Liberty TripAdvisor Holdings, Inc. Class A (a) | 45,715 | 672,011 | ||||||
Liberty Ventures Series A (a) | 30,420 | 1,638,117 | ||||||
|
| |||||||
11,274,706 | ||||||||
|
| |||||||
Internet Software & Services 4.1% |
| |||||||
Alibaba Group Holding, Ltd. Sponsored ADR (a) | 10,363 | 1,196,927 | ||||||
¨Alphabet, Inc. (a) | ||||||||
Class A | 12,450 | 11,510,274 | ||||||
Class C | 33,342 | 30,206,518 | ||||||
CommerceHub, Inc. (a) | ||||||||
Series A | 5,070 | 81,120 | ||||||
Series C | 10,140 | 161,429 |
Shares | Value | |||||||
Internet Software & Services (continued) |
| |||||||
eBay, Inc. (a) | 175,556 | $ | 5,865,326 | |||||
VeriSign, Inc. (a) | 56,385 | 5,013,754 | ||||||
|
| |||||||
54,035,348 | ||||||||
|
| |||||||
IT Services 5.1% |
| |||||||
Automatic Data Processing, Inc. | 103,548 | 10,819,730 | ||||||
Fidelity National Information Services, Inc. | 55,882 | 4,704,706 | ||||||
First Data Corp. Class A (a) | 346,866 | 5,418,047 | ||||||
International Business Machines Corp. | 49,464 | 7,928,585 | ||||||
PayPal Holdings, Inc. (a) | 301,681 | 14,396,217 | ||||||
Sabre Corp. | 343,553 | 8,042,576 | ||||||
Visa, Inc. Class A | 177,610 | 16,201,584 | ||||||
|
| |||||||
67,511,445 | ||||||||
|
| |||||||
Machinery 1.0% |
| |||||||
Caterpillar, Inc. | 32,250 | 3,297,885 | ||||||
Ingersoll-Rand PLC | 116,648 | 10,352,510 | ||||||
|
| |||||||
13,650,395 | ||||||||
|
| |||||||
Media 10.4% |
| |||||||
¨Comcast Corp. Class A | 575,718 | 22,562,388 | ||||||
Liberty Broadband Corp. (a) | ||||||||
Class A | 19,379 | 1,742,753 | ||||||
Class C | 122,898 | 11,203,382 | ||||||
Liberty Global PLC LiLAC Class A (a) | 77,949 | 1,673,565 | ||||||
Liberty Media Corp-Liberty Formula One (a) | ||||||||
Class A | 35,339 | 1,198,345 | ||||||
Class C | 138,826 | 4,861,687 | ||||||
¨Liberty SiriusXM Group (a) | ||||||||
Class A | 203,797 | 7,764,666 | ||||||
Class C | 568,006 | 21,578,548 | ||||||
Lions Gate Entertainment Corp. Class B (a) | 55,206 | 1,316,663 | ||||||
Live Nation Entertainment, Inc. (a) | 118,547 | 3,812,472 | ||||||
Madison Square Garden Co. Class A (a) | 51,700 | 10,431,509 | ||||||
MSG Networks, Inc. Class A (a) | 167,209 | 4,171,865 | ||||||
Time Warner, Inc. | 206,233 | 20,472,750 | ||||||
Twenty-First Century Fox, Inc. Class A | 380,000 | 11,605,200 | ||||||
Walt Disney Co. | 118,419 | 13,689,236 | ||||||
|
| |||||||
138,085,029 | ||||||||
|
| |||||||
Multi-Utilities 0.5% |
| |||||||
Vectren Corp. | 104,925 | 6,234,643 | ||||||
|
| |||||||
Multiline Retail 0.4% |
| |||||||
Dollar General Corp. | 80,807 | 5,875,477 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels 4.7% |
| |||||||
Anadarko Petroleum Corp. | 151,084 | 8,614,810 | ||||||
Apache Corp. | 68,963 | 3,354,360 | ||||||
ConocoPhillips | 97,606 | 4,676,303 | ||||||
Devon Energy Corp. | 46,603 | 1,840,352 | ||||||
Enbridge, Inc. | 193,782 | 8,032,264 | ||||||
EOG Resources, Inc. | 51,909 | 4,801,583 |
14 | MainStay MAP Equity 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) | ||||||||
Oil, Gas & Consumable Fuels (continued) |
| |||||||
Hess Corp. | 57,435 | $ | 2,804,551 | |||||
Marathon Oil Corp. | 54,219 | 806,237 | ||||||
Marathon Petroleum Corp. | 266,865 | 13,594,103 | ||||||
Occidental Petroleum Corp. | 102,846 | 6,329,143 | ||||||
Phillips 66 | 67,843 | 5,397,589 | ||||||
Williams Cos., Inc. | 93,500 | 2,863,905 | ||||||
|
| |||||||
63,115,200 | ||||||||
|
| |||||||
Pharmaceuticals 3.0% |
| |||||||
Allergan PLC | 82,545 | 20,129,424 | ||||||
Johnson & Johnson | 70,950 | 8,760,197 | ||||||
Merck & Co., Inc. | 91,840 | 5,724,387 | ||||||
Pfizer, Inc. | 135,114 | 4,583,067 | ||||||
Teva Pharmaceutical Industries, Ltd. Sponsored ADR | 27,249 | 860,523 | ||||||
|
| |||||||
40,057,598 | ||||||||
|
| |||||||
Real Estate Investment Trusts 1.3% |
| |||||||
HCP, Inc. | 207,141 | 6,493,870 | ||||||
UDR, Inc. | 265,500 | 9,913,770 | ||||||
Weyerhaeuser Co. | 37,000 | 1,253,190 | ||||||
|
| |||||||
17,660,830 | ||||||||
|
| |||||||
Road & Rail 1.8% |
| |||||||
CSX Corp. | 151,518 | 7,703,175 | ||||||
Union Pacific Corp. | 148,885 | 16,669,165 | ||||||
|
| |||||||
24,372,340 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment 1.7% |
| |||||||
Applied Materials, Inc. | 263,475 | 10,699,720 | ||||||
Cypress Semiconductor Corp. | 358,423 | 5,021,506 | ||||||
Intel Corp. | 126,101 | 4,558,551 | ||||||
Texas Instruments, Inc. | 30,025 | 2,377,380 | ||||||
|
| |||||||
22,657,157 | ||||||||
|
| |||||||
Software 4.5% |
| |||||||
¨Microsoft Corp. | 651,081 | 44,573,005 | ||||||
Oracle Corp. | 228,625 | 10,278,980 | ||||||
PTC, Inc. (a) | 86,915 | 4,697,756 | ||||||
|
| |||||||
59,549,741 | ||||||||
|
| |||||||
Specialty Retail 3.2% |
| |||||||
Advance Auto Parts, Inc. | 37,663 | 5,353,419 | ||||||
Home Depot, Inc. | 109,583 | 17,105,906 | ||||||
Lowe’s Cos., Inc. | 158,452 | 13,449,406 | ||||||
TJX Cos., Inc. | 85,386 | 6,714,755 | ||||||
|
| |||||||
42,623,486 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals 6.1% |
| |||||||
¨Apple, Inc. | 525,073 | 75,426,737 | ||||||
Seagate Technology PLC | 147,826 | 6,227,909 | ||||||
|
| |||||||
81,654,646 | ||||||||
|
|
Shares | Value | |||||||
Tobacco 0.3% |
| |||||||
Philip Morris International, Inc. | 40,060 | $ | 4,440,250 | |||||
|
| |||||||
Total Common Stocks | 1,315,779,455 | |||||||
|
| |||||||
Convertible Preferred Stocks 0.1% | ||||||||
Pharmaceuticals 0.1% |
| |||||||
Allergan PLC | 2,020 | 1,748,876 | ||||||
|
| |||||||
Total Convertible Preferred Stock | 1,748,876 | |||||||
|
| |||||||
Principal Amount | ||||||||
Short-Term Investment 1.1% | ||||||||
Repurchase Agreement 1.1% |
| |||||||
Fixed Income Clearing Corp. | $ | 14,656,217 | 14,656,217 | |||||
|
| |||||||
Total Short-Term Investment | 14,656,217 | |||||||
|
| |||||||
Total Investments | 100.0 | % | 1,332,184,548 | |||||
Other Assets, Less Liabilities | (0.0 | )‡ | (466,331 | ) | ||||
Net Assets | 100.0 | % | $ | 1,331,718,217 |
‡ | Less than one-tenth of a percent. |
(a) | Non-income producing security. |
(b) | As of April 30, 2017, cost was $945,919,170 for federal income tax purposes and net unrealized appreciation was as follows: |
Gross unrealized appreciation | $ | 426,305,660 | ||
Gross unrealized depreciation | (40,040,282 | ) | ||
|
| |||
Net unrealized appreciation | $ | 386,265,378 | ||
|
|
The following abbreviation is used in the preceding pages:
ADR—American Depositary Receipt
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 15 |
Portfolio of Investments April 30, 2017 (Unaudited) (continued)
The following is a summary of the fair valuations according to the inputs used as of April 30, 2017, for valuing the Fund’s assets.
Asset Valuation Inputs
Description | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Common Stocks | $ | 1,315,779,455 | $ | — | $ | — | $ | 1,315,779,455 | ||||||||
Convertible Preferred Stocks | 1,748,876 | — | — | 1,748,876 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 14,656,217 | — | 14,656,217 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | 1,317,528,331 | $ | 14,656,217 | $ | — | $ | 1,332,184,548 | ||||||||
|
|
|
|
|
|
|
|
(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, 2017, the Fund did not have any transfers among levels. (See Note 2)
As of April 30, 2017, the Fund did not hold any investments with significant unobservable inputs (Level 3). (See Note 2)
16 | MainStay MAP 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, 2017 (Unaudited)
Assets | ||||
Investment in securities, at value | $ | 1,332,184,548 | ||
Cash | 5,599 | |||
Receivables: | ||||
Dividends and interest | 1,470,742 | |||
Investment securities sold | 1,429,420 | |||
Fund shares sold | 232,425 | |||
Other assets | 65,789 | |||
|
| |||
Total assets | 1,335,388,523 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Fund shares redeemed | 1,256,056 | |||
Investment securities purchased | 1,027,364 | |||
Manager (See Note 3) | 812,910 | |||
Transfer agent (See Note 3) | 236,885 | |||
NYLIFE Distributors (See Note 3) | 198,768 | |||
Shareholder communication | 55,021 | |||
Professional fees | 46,936 | |||
Custodian | 23,522 | |||
Trustees | 3,044 | |||
Accrued expenses | 9,800 | |||
|
| |||
Total liabilities | 3,670,306 | |||
|
| |||
Net assets | $ | 1,331,718,217 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 329,826 | ||
Additional paid-in capital | 853,571,827 | |||
|
| |||
853,901,653 | ||||
Undistributed net investment income | 2,791,852 | |||
Accumulated net realized gain (loss) on investments and foreign currency transactions | 75,035,678 | |||
Net unrealized appreciation (depreciation) on investments | 399,992,335 | |||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies | (3,301 | ) | ||
|
| |||
Net assets | $ | 1,331,718,217 | ||
|
|
Class A | ||||
Net assets applicable to outstanding shares | $ | 305,645,273 | ||
|
| |||
Shares of beneficial interest outstanding | 7,604,741 | |||
|
| |||
Net asset value per share outstanding | $ | 40.19 | ||
Maximum sales charge (5.50% of offering price) | 2.34 | |||
|
| |||
Maximum offering price per share outstanding | $ | 42.53 | ||
|
| |||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 149,018,511 | ||
|
| |||
Shares of beneficial interest outstanding | 3,710,682 | |||
|
| |||
Net asset value per share outstanding | $ | 40.16 | ||
Maximum sales charge (5.50% of offering price) | 2.34 | |||
|
| |||
Maximum offering price per share outstanding | $ | 42.50 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 38,731,146 | ||
|
| |||
Shares of beneficial interest outstanding | 1,064,351 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 36.39 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 89,895,617 | ||
|
| |||
Shares of beneficial interest outstanding | 2,470,357 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 36.39 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 741,997,749 | ||
|
| |||
Shares of beneficial interest outstanding | 17,973,193 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 41.28 | ||
|
| |||
Class R1 | ||||
Net assets applicable to outstanding shares | $ | 2,855,871 | ||
|
| |||
Shares of beneficial interest outstanding | 70,610 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 40.45 | ||
|
| |||
Class R2 | ||||
Net assets applicable to outstanding shares | $ | 2,686,761 | ||
|
| |||
Shares of beneficial interest outstanding | 66,553 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 40.37 | ||
|
| |||
Class R3 | ||||
Net assets applicable to outstanding shares | $ | 887,289 | ||
|
| |||
Shares of beneficial interest outstanding | 22,065 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 40.21 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 17 |
Statement of Operations for the six months ended April 30, 2017 (Unaudited)
Investment Income (Loss) | ||||
Income | ||||
Dividends (a) | $ | 13,141,428 | ||
Interest | 12,761 | |||
Other income | 852 | |||
|
| |||
Total income | 13,155,041 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 5,001,195 | |||
Distribution/Service—Class A (See Note 3) | 371,290 | |||
Distribution/Service—Investor Class (See Note 3) | 182,760 | |||
Distribution/Service—Class B (See Note 3) | 202,280 | |||
Distribution/Service—Class C (See Note 3) | 455,804 | |||
Distribution/Service—Class R2 (See Note 3) | 4,236 | |||
Distribution/Service—Class R3 (See Note 3) | 2,234 | |||
Transfer agent (See Note 3) | 673,683 | |||
Shareholder communication | 75,987 | |||
Professional fees | 56,141 | |||
Registration | 54,548 | |||
Custodian | 25,792 | |||
Trustees | 17,364 | |||
Interest expense (See Note 6) | 9,815 | |||
Shareholder service (See Note 3) | 3,506 | |||
Miscellaneous | 35,892 | |||
|
| |||
Total expenses | 7,172,527 | |||
|
| |||
Net investment income (loss) | 5,982,514 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 87,300,771 | |||
Foreign currency transactions | 51,117 | |||
|
| |||
Net realized gain (loss) on investments and foreign currency transactions | 87,351,888 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 91,027,338 | |||
Translation of other assets and liabilities in foreign currencies | 6,754 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions | 91,034,092 | |||
|
| |||
Net realized and unrealized gain (loss) on investments and foreign currency transactions | 178,385,980 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 184,368,494 | ||
|
|
(a) | Dividends recorded net of foreign withholding taxes in the amount of $126,666. |
18 | MainStay MAP 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, 2017 (Unaudited) and the year ended October 31, 2016
2017 | 2016 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 5,982,514 | $ | 14,569,809 | ||||
Net realized gain (loss) on investments and foreign currency transactions | 87,351,888 | 13,228,981 | ||||||
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions | 91,034,092 | (53,839,648 | ) | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 184,368,494 | (26,040,858 | ) | |||||
|
| |||||||
Dividends and distributions to shareholders: | ||||||||
From net investment income: | ||||||||
Class A | (3,734,528 | ) | (3,061,205 | ) | ||||
Investor Class | (1,571,638 | ) | (1,189,702 | ) | ||||
Class B | (170,344 | ) | (17,692 | ) | ||||
Class C | (373,608 | ) | (46,546 | ) | ||||
Class I | (11,063,508 | ) | (12,582,733 | ) | ||||
Class R1 | (36,693 | ) | (38,388 | ) | ||||
Class R2 | (41,865 | ) | (79,075 | ) | ||||
Class R3 | (7,952 | ) | (5,958 | ) | ||||
|
| |||||||
(17,000,136 | ) | (17,021,299 | ) | |||||
|
| |||||||
From net realized gain on investments: | ||||||||
Class A | (3,062,641 | ) | (51,337,913 | ) | ||||
Investor Class | (1,519,616 | ) | (23,271,135 | ) | ||||
Class B | (493,374 | ) | (9,123,617 | ) | ||||
Class C | (1,082,445 | ) | (20,855,020 | ) | ||||
Class I | (7,599,967 | ) | (164,507,595 | ) | ||||
Class R1 | (27,325 | ) | (559,032 | ) | ||||
Class R2 | (37,835 | ) | (1,526,398 | ) | ||||
Class R3 | (9,188 | ) | (175,776 | ) | ||||
|
| |||||||
(13,832,391 | ) | (271,356,486 | ) | |||||
|
| |||||||
Total dividends and distributions to shareholders | (30,832,527 | ) | (288,377,785 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 42,816,230 | 109,406,231 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 30,118,024 | 280,617,480 | ||||||
Cost of shares redeemed | (267,920,205 | ) | (505,441,284 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | (194,985,951 | ) | (115,417,573 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets | (41,449,984 | ) | (429,836,216 | ) | ||||
Net Assets | ||||||||
Beginning of period | 1,373,168,201 | 1,803,004,417 | ||||||
|
| |||||||
End of period | $ | 1,331,718,217 | $ | 1,373,168,201 | ||||
|
| |||||||
Undistributed net investment income at end of period | $ | 2,791,852 | $ | 13,809,474 | ||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 19 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class A | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 35.92 | $ | 43.32 | $ | 46.81 | $ | 43.28 | $ | 34.07 | $ | 30.47 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.16 | 0.33 | 0.38 | 0.67 | 0.41 | 0.40 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 4.98 | (0.63 | ) | 0.50 | 4.21 | 9.19 | 3.56 | |||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions ‡ | 0.00 | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 5.14 | (0.30 | ) | 0.88 | 4.88 | 9.60 | 3.96 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.48 | ) | (0.40 | ) | (0.67 | ) | (0.45 | ) | (0.39 | ) | (0.36 | ) | ||||||||||||||||
From net realized gain on investments | (0.39 | ) | (6.70 | ) | (3.70 | ) | (0.90 | ) | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.87 | ) | (7.10 | ) | (4.37 | ) | (1.35 | ) | (0.39 | ) | (0.36 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 40.19 | $ | 35.92 | $ | 43.32 | $ | 46.81 | $ | 43.28 | $ | 34.07 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 14.55 | % | (0.57 | %) | 1.80 | % | 11.55 | % | 28.47 | % | 13.14 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 0.85 | %†† | 0.92 | % | 0.85 | % | 1.49 | % | 1.07 | % | 1.24 | % | ||||||||||||||||
Net expenses | 1.10 | %††(c) | 1.09 | % (c) | 1.11 | % | 1.11 | % | 1.11 | % | 1.14 | % | ||||||||||||||||
Portfolio turnover rate | 39 | % | 42 | % | 51 | % | 32 | % | 29 | % | 40 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 305,645 | $ | 285,431 | $ | 336,812 | $ | 364,162 | $ | 356,657 | $ | 294,247 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Net of interest expense which is less than one-tenth of a percent. (See Note 6) |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Investor Class | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 35.85 | $ | 43.27 | $ | 46.77 | $ | 43.24 | $ | 34.04 | $ | 30.44 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.12 | 0.25 | 0.31 | 0.60 | 0.34 | 0.34 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 4.99 | (0.63 | ) | 0.50 | 4.21 | 9.18 | 3.55 | |||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions ‡ | 0.00 | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 5.11 | (0.38 | ) | 0.81 | 4.81 | 9.52 | 3.89 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.41 | ) | (0.34 | ) | (0.61 | ) | (0.38 | ) | (0.32 | ) | (0.29 | ) | ||||||||||||||||
From net realized gain on investments | (0.39 | ) | (6.70 | ) | (3.70 | ) | (0.90 | ) | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.80 | ) | (7.04 | ) | (4.31 | ) | (1.28 | ) | (0.32 | ) | (0.29 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 40.16 | $ | 35.85 | $ | 43.27 | $ | 46.77 | $ | 43.24 | $ | 34.04 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 14.47 | % | (0.79 | %) | 1.63 | % | 11.38 | % | 28.26 | % | 12.88 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 0.65 | %†† | 0.71 | % | 0.71 | % | 1.34 | % | 0.88 | % | 1.04 | % | ||||||||||||||||
Net expenses | 1.29 | %††(c) | 1.29 | % (c) | 1.25 | % | 1.26 | % | 1.30 | % | 1.34 | % | ||||||||||||||||
Portfolio turnover rate | 39 | % | 42 | % | 51 | % | 32 | % | 29 | % | 40 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 149,018 | $ | 139,775 | $ | 151,582 | $ | 152,202 | $ | 144,892 | $ | 120,771 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Net of interest expense which is less than one-tenth of a percent. (See Note 6) |
20 | MainStay MAP 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 B | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 32.42 | $ | 39.74 | $ | 43.25 | $ | 40.08 | $ | 31.55 | $ | 28.21 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | (0.01 | ) | (0.01 | ) | (0.01 | ) | 0.26 | 0.06 | 0.10 | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 4.51 | (0.60 | ) | 0.48 | 3.89 | 8.54 | 3.29 | |||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions ‡ | 0.00 | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 4.50 | (0.61 | ) | 0.47 | 4.15 | 8.60 | 3.39 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.14 | ) | (0.01 | ) | (0.28 | ) | (0.08 | ) | (0.07 | ) | (0.05 | ) | ||||||||||||||||
From net realized gain on investments | (0.39 | ) | (6.70 | ) | (3.70 | ) | (0.90 | ) | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.53 | ) | (6.71 | ) | (3.98 | ) | (0.98 | ) | (0.07 | ) | (0.05 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 36.39 | $ | 32.42 | $ | 39.74 | $ | 43.25 | $ | 40.08 | $ | 31.55 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 14.03 | % | (1.52 | %) | 0.89 | % | 10.55 | % | 27.30 | % | 12.04 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | (0.07 | %)†† | (0.03 | %) | (0.03 | %) | 0.63 | % | 0.16 | % | 0.33 | % | ||||||||||||||||
Net expenses | 2.04 | % ††(c) | 2.04 | % (c) | 2.00 | % | 2.01 | % | 2.05 | % | 2.09 | % | ||||||||||||||||
Portfolio turnover rate | 39 | % | 42 | % | 51 | % | 32 | % | 29 | % | 40 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 38,731 | $ | 40,977 | $ | 54,423 | $ | 71,195 | $ | 82,695 | $ | 86,613 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Net of interest expense which is less than one-tenth of a percent. (See Note 6) |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class C | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 32.42 | $ | 39.73 | $ | 43.25 | $ | 40.08 | $ | 31.56 | $ | 28.21 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | (0.01 | ) | (0.01 | ) | (0.02 | ) | 0.25 | 0.05 | 0.09 | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 4.51 | (0.59 | ) | 0.48 | 3.90 | 8.54 | 3.31 | |||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions ‡ | 0.00 | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 4.50 | (0.60 | ) | 0.46 | 4.15 | 8.59 | 3.40 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.14 | ) | (0.01 | ) | (0.28 | ) | (0.08 | ) | (0.07 | ) | (0.05 | ) | ||||||||||||||||
From net realized gain on investments | (0.39 | ) | (6.70 | ) | (3.70 | ) | (0.90 | ) | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.53 | ) | (6.71 | ) | (3.98 | ) | (0.98 | ) | (0.07 | ) | (0.05 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 36.39 | $ | 32.42 | $ | 39.73 | $ | 43.25 | $ | 40.08 | $ | 31.56 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 14.03 | % | (1.52 | %) | 0.89 | % | 10.55 | % | 27.26 | % | 12.07 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | (0.08 | %)†† | (0.03 | %) | (0.04 | %) | 0.60 | % | 0.14 | % | 0.31 | % | ||||||||||||||||
Net expenses | 2.05 | % ††(c) | 2.04 | % (c) | 2.00 | % | 2.01 | % | 2.05 | % | 2.09 | % | ||||||||||||||||
Portfolio turnover rate | 39 | % | 42 | % | 51 | % | 32 | % | 29 | % | 40 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 89,896 | $ | 92,457 | $ | 125,642 | $ | 143,427 | $ | 141,628 | $ | 125,700 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Net of interest expense which is less than one-tenth of a percent. (See Note 6) |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 21 |
Financial Highlights selected per share data and ratios
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class I | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 36.92 | $ | 44.35 | $ | 47.82 | $ | 44.18 | $ | 34.77 | $ | 31.10 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.22 | 0.43 | 0.50 | 0.80 | 0.52 | 0.49 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 5.10 | (0.65 | ) | 0.52 | 4.29 | 9.37 | 3.62 | |||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions ‡ | 0.00 | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 5.32 | (0.22 | ) | 1.02 | 5.09 | 9.89 | 4.11 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.57 | ) | (0.51 | ) | (0.79 | ) | (0.55 | ) | (0.48 | ) | (0.44 | ) | ||||||||||||||||
From net realized gain on investments | (0.39 | ) | (6.70 | ) | (3.70 | ) | (0.90 | ) | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.96 | ) | (7.21 | ) | (4.49 | ) | (1.45 | ) | (0.48 | ) | (0.44 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 41.28 | $ | 36.92 | $ | 44.35 | $ | 47.82 | $ | 44.18 | $ | 34.77 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 14.68 | % | (0.33 | %) | 2.06 | % | 11.82 | % | 28.79 | % | 13.40 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 1.13 | %†† | 1.17 | % | 1.10 | % | 1.76 | % | 1.33 | % | 1.48 | % | ||||||||||||||||
Net expenses | 0.85 | %††(c) | 0.84 | % (c) | 0.86 | % | 0.86 | % | 0.86 | % | 0.89 | % | ||||||||||||||||
Portfolio turnover rate | 39 | % | 42 | % | 51 | % | 32 | % | 29 | % | 40 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 741,998 | $ | 807,694 | $ | 1,119,884 | $ | 1,506,564 | $ | 1,417,814 | $ | 1,358,999 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Net of interest expense which is less than one-tenth of a percent. (See Note 6) |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class R1 | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 36.16 | $ | 43.57 | $ | 47.05 | $ | 43.49 | $ | 34.23 | $ | 30.63 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.19 | 0.38 | 0.45 | 0.73 | 0.54 | 0.44 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 5.02 | (0.63 | ) | 0.50 | 4.24 | 9.14 | 3.58 | |||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions ‡ | 0.00 | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 5.21 | (0.25 | ) | 0.95 | 4.97 | 9.68 | 4.02 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.53 | ) | (0.46 | ) | (0.73 | ) | (0.51 | ) | (0.42 | ) | (0.42 | ) | ||||||||||||||||
From net realized gain on investments | (0.39 | ) | (6.70 | ) | (3.70 | ) | (0.90 | ) | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.92 | ) | (7.16 | ) | (4.43 | ) | (1.41 | ) | (0.42 | ) | (0.42 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 40.45 | $ | 36.16 | $ | 43.57 | $ | 47.05 | $ | 43.49 | $ | 34.23 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 14.66 | % | (0.43 | %) | 1.94 | % | 11.71 | % | 28.63 | % | 13.26 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 0.99 | %†† | 1.06 | % | 1.02 | % | 1.63 | % | 1.43 | % | 1.37 | % | ||||||||||||||||
Net expenses | 0.95 | %††(c) | 0.94 | % (c) | 0.96 | % | 0.96 | % | 0.96 | % | 0.99 | % | ||||||||||||||||
Portfolio turnover rate | 39 | % | 42 | % | 51 | % | 32 | % | 29 | % | 40 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 2,856 | $ | 2,500 | $ | 3,607 | $ | 7,368 | $ | 6,737 | $ | 21,761 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Net of interest expense which is less than one-tenth of a percent. (See Note 6) |
22 | MainStay MAP 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 R2 | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 36.05 | $ | 43.44 | $ | 46.92 | $ | 43.38 | $ | 34.12 | $ | 30.53 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.15 | 0.29 | 0.34 | 0.63 | 0.38 | 0.38 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 4.99 | (0.63 | ) | 0.49 | 4.22 | 9.21 | 3.54 | |||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions ‡ | 0.00 | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 5.14 | (0.34 | ) | 0.83 | 4.85 | 9.59 | 3.92 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.43 | ) | (0.35 | ) | (0.61 | ) | (0.41 | ) | (0.33 | ) | (0.33 | ) | ||||||||||||||||
From net realized gain on investments | (0.39 | ) | (6.70 | ) | (3.70 | ) | (0.90 | ) | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.82 | ) | (7.05 | ) | (4.31 | ) | (1.31 | ) | (0.33 | ) | (0.33 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 40.37 | $ | 36.05 | $ | 43.44 | $ | 46.92 | $ | 43.38 | $ | 34.12 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 14.50 | % | (0.68 | %) | 1.68 | % | 11.43 | % | 28.36 | % | 12.99 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 0.78 | %†† | 0.80 | % | 0.76 | % | 1.42 | % | 0.98 | % | 1.16 | % | ||||||||||||||||
Net expenses | 1.20 | %††(c) | 1.20 | % (c) | 1.21 | % | 1.21 | % | 1.21 | % | 1.24 | % | ||||||||||||||||
Portfolio turnover rate | 39 | % | 42 | % | 51 | % | 32 | % | 29 | % | 40 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 2,687 | $ | 3,528 | $ | 9,993 | $ | 15,956 | $ | 20,140 | $ | 19,072 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Net of interest expense which is less than one-tenth of a percent. (See Note 6) |
Six months ended April 30, | Year ended October 31, | |||||||||||||||||||||||||||
Class R3 | 2017* | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net asset value at beginning of period | $ | 35.87 | $ | 43.22 | $ | 46.68 | $ | 43.16 | $ | 33.94 | $ | 30.38 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net investment income (loss) (a) | 0.09 | 0.20 | 0.22 | 0.54 | 0.29 | 0.30 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 4.98 | (0.62 | ) | 0.51 | 4.17 | 9.16 | 3.53 | |||||||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions ‡ | 0.00 | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total from investment operations | 5.07 | (0.42 | ) | 0.73 | 4.71 | 9.45 | 3.83 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||||||
From net investment income | (0.34 | ) | (0.23 | ) | (0.49 | ) | (0.29 | ) | (0.23 | ) | (0.27 | ) | ||||||||||||||||
From net realized gain on investments | (0.39 | ) | (6.70 | ) | (3.70 | ) | (0.90 | ) | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total dividends and distributions | (0.73 | ) | (6.93 | ) | (4.19 | ) | (1.19 | ) | (0.23 | ) | (0.27 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net asset value at end of period | $ | 40.21 | $ | 35.87 | $ | 43.22 | $ | 46.68 | $ | 43.16 | $ | 33.94 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total investment return (b) | 14.34 | % | (0.91 | %) | 1.42 | % | 11.18 | % | 28.03 | % | 12.72 | % | ||||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||||||
Net investment income (loss) | 0.49 | %†† | 0.57 | % | 0.51 | % | 1.20 | % | 0.74 | % | 0.94 | % | ||||||||||||||||
Net expenses | 1.45 | %††(c) | 1.44 | % (c) | 1.46 | % | 1.46 | % | 1.46 | % | 1.49 | % | ||||||||||||||||
Portfolio turnover rate | 39 | % | 42 | % | 51 | % | 32 | % | 29 | % | 40 | % | ||||||||||||||||
Net assets at end of period (in 000’s) | $ | 887 | $ | 806 | $ | 1,062 | $ | 1,400 | $ | 1,696 | $ | 1,809 |
* | 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. For periods of less than one year, total return is not annualized. |
(c) | Net of interest expense which is less than one-tenth of a percent. (See Note 6) |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | 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, and is governed by a Declaration of 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 Equity Fund (formerly known as MainStay MAP Fund) (the “Fund”), a “diversified” fund, as that term is defined in the 1940 Act, as interpreted or modified by regulatory authorities having jurisdiction, from time to time.
The Fund currently offers ten 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. Class R6 and Class T shares of the Fund were registered for sale effective as of February 28, 2017. As of the period ended April 30, 2017, Class R6 and Class T shares had no investment operations. Investor Class shares commenced operations on February 28, 2008. Effective February 28, 2017, Class B shares of the MainStay Group of Funds were closed to all new purchases as well as additional investments by existing Class B shareholders. Existing Class B shareholders may continue to reinvest dividends and capital gains distributions, as well as exchange their Class B shares for Class B shares of other Funds as permitted by the current exchange privileges. Class B shareholders continue to be subject to any applicable contingent deferred sales charge at the time of redemption. All other features of the Class B shares, including but not limited to the fees and expenses applicable to Class B shares, remain unchanged. Unless redeemed, Class B shareholders will remain in Class B shares of their respective Fund until the Class B shares are converted to Class A or Investor Class shares pursuant to the applicable conversion schedule.
Class A and Investor Class shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No initial sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Class A and Investor Class shares. Effective August 1, 2017, a contingent deferred sales charge (“CDSC”) of 1.00% may be imposed on certain redemptions of Class A and Investor shares made within 18 months of the date of purchase on shares that were purchased without an initial sales charge. For purchases of Class A and Investor Class shares made from January 1, 2017, through July 31, 2017, a CDSC of 1.00% may be imposed on certain redemptions made within 24 months of the date of purchase on shares that were purchased without an initial sales charge. For purchases of Class A and Investor Class shares made prior to January 1, 2017, a CDSC of 1.00% may be imposed on certain redemptions made within one year of the date of purchase on shares that were purchased without an initial sales charge. Class C shares are offered at NAV without an initial sales charge, although a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. When Class B shares were offered, they were offered at NAV without an initial sales charge, although a CDSC that declines depending on the number of years a shareholder has held its Class B shares may be imposed on redemptions made within six
years of the date of purchase of such shares. Class T shares are offered at NAV per share plus an initial sales charge. 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 Class A or Investor Class shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Class A shares may convert to Investor Class shares and Investor Class shares may convert to Class A shares. Under certain circumstances and as may be permitted by the Trust’s multiple class plan under Rule 18f-3 of the 1940 Act, an exchange/conversion may be made from specified share classes of the Fund to one or more other share classes of the Fund as disclosed in the capital share transactions within these Notes. The ten 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 under distribution plans pursuant to Rule 12b-1 under the 1940 Act, Class B and Class C shares are subject to higher distribution and/or service fee rates than Class A, Investor Class, Class T, Class R2 and Class R3 shares. 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 appreciation of capital.
Note 2–Significant Accounting Policies
The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services—Investment Companies. 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 usually valued as of the close of regular trading on the New York Stock Exchange (the “Exchange”) (usually 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 establishing methodologies for the valuation of the Fund’s securities and other assets and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Trust (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 establishing the prices of securities for which market quotations are not readily available or the prices of which are not otherwise readily determinable under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. Subsequently, the Valuation Committee meets 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 the day-to-day valuation of portfolio assets (including fair value measurements for the Fund’s assets and liabilities) rests with New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), aided to whatever
24 | MainStay MAP Equity Fund |
extent necessary by the Subadvisors (as defined in Note 3(A)) to the Fund.
To assess the appropriateness of security valuations, the Manager, Subadvisors 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 with changes 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, if appropriate, 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 or other asset is submitted by the Valuation Committee to the Board for its review and ratification, if appropriate, at its next regularly scheduled meeting.
“Fair value” is defined as the price the Fund would reasonably expect to 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 establishes 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 assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities. 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) |
The level of an asset or liability within the fair value hierarchy is based on the lowest level of an input, both individually and in the aggregate, that is significant to the fair value measurement. As of April 30, 2017, the aggregate value by input level of the Fund’s assets and 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:
• Broker/dealer quotes | • Benchmark securities | |
• Two-sided markets | • Reference data (corporate actions or material event notices) | |
• Bids/offers | • Monthly payment information | |
• Industry and economic events | • Reported trades |
An asset or liability for which market values cannot be measured using the methodologies described above is valued by methods deemed reasonable 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. Fair value represents a good faith approximation of the value of a security. Fair value determinations involve the consideration of a number of subjective factors, an analysis of applicable facts and circumstances and the exercise of judgment. As a result, it is possible that the fair value for a security determined in good faith in accordance with the Fund’s valuation procedures may differ from valuations for the same security determined by other funds using their own valuation procedures. Although the Fund’s valuation procedures are designed to value a security at the price the Fund may reasonably expect to receive upon its sale in an orderly transaction, there can be no assurance that any fair value determination thereunder would, in fact, approximate the amount that the Fund would actually realize upon the sale of the security or the price at which the security would trade if a reliable market price were readily available. During the six-month period ended April 30, 2017, there were 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 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, 2017, there were no securities held by the Fund 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 the foreign markets close and the time at which the Fund’s NAVs are calculated. These events may include, but are not limited to, situations relating to a single issuer
25 |
Notes to Financial Statements (Unaudited) (continued)
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 certain thresholds. In such cases, the securities are fair valued by applying factors provided by a third party vendor in accordance with valuation procedures adopted by the Board and are generally categorized as Level 2 in the hierarchy. As of April 30, 2017, no foreign equity securities held by the Fund were fair valued in such a manner.
Equity securities are valued at the last quoted sales prices as of the close of regular trading on the relevant 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 mutual funds, including money market 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 at the time of purchase 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 using the amortized cost method of valuation, unless the use of such method would be inappropriate. 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 using the amortized cost method are not valued using quoted prices in an active market and are generally categorized as Level 2 in the hierarchy.
The information above is not intended to reflect an exhaustive list of the methodologies that may be used to value portfolio investments. The valuation procedures permit the use of a variety of valuation methodologies in connection with valuing portfolio investments. The methodology used for a specific type of investment may vary based on the market data available or other considerations. The methodologies summarized above may not represent the specific means by which portfolio investments are valued on any particular business day.
A Fund security or other asset may be determined to be illiquid under procedures approved by the Board. Illiquidity of a security 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 the 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 materially 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 determine 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 are often valued in accordance with methods deemed by the Board in good faith to be reasonable and appropriate to accurately reflect their fair value. The liquidity of the Fund’s investments, as shown in the Portfolio of Investments, was determined as of April 30, 2017 and can change at any time in response to, among other relevant factors, market conditions or events or developments with respect to an individual issuer or instrument. As of April 30, 2017, the Fund did not hold any securities deemed to be illiquid under procedures approved by the Board.
(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 its 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 permitted only to the extent 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 it invests. A portion of the taxes on gains on investments or currency purchases/repatriation may be reclaimable. The Fund will accrue such taxes and reclaims 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
26 | MainStay MAP Equity Fund |
the six-month period ended April 30, 2017, 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. 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 accreted daily based on the effective interest method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated pro rata to separate classes of shares 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/or 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 (i.e., buy a security from another party with the agreement that it be sold back in the future) to earn income. The Fund may enter into repurchase agreements only with counterparties, usually 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 the Fund to the counterparty secured by the securities transferred to the Fund.
Repurchase agreements are subject to counterparty risk, meaning the Fund could lose money by the counterparty’s failure to perform under the terms of the agreement. The Fund mitigates this risk by ensuring the repurchase agreement is collateralized by cash, U.S. government securities, fixed income securities and/or other securities. The collateral is held by the Fund’s custodian 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 counterparty’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, realization and/or retention of the collateral may be limited or subject to delay, 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. 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, 2017, 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 (“SEC”). 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 collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund against counterparty risk. The loans will be collateralized by U.S. Treasury securities at least equal at all times to the market value of the securities loaned. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record a realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund bears the risk of any loss on investment of the collateral. The Fund will receive compensation for lending its securities in the form of fees or it will retain a portion of interest on the investment of any cash received as collateral. The Fund will also 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. During
27 |
Notes to Financial Statements (Unaudited) (continued)
the six-month period ended April 30, 2017, the Fund did not have any portfolio securities on loan.
(K) Foreign Currency Transactions. The Fund’s books and records are maintained 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) Foreign Securities Risk. The Fund may invest in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic securities. 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.
(M) 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 attributable to the Fund. Markston International LLC (“Markston” or “Subadvisor”) and, effective January 29, 2017, Epoch Investment Parnters, Inc. (“Epoch” 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. 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 Interim Subadvisory Agreement between New York Life Investments and Epoch, 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. Prior to January 9, 2017, Institutional Capital LLC served as a Subadvisor to the Fund.
Under the Management Agreement, 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.
During the six-month period ended April 30, 2017, the effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.75% inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets.
During the six-month period ended April 30, 2017, New York Life Investments earned fees from the Fund in the amount of $5,001,195.
State Street 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 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 Class A, Investor Class and Class R2 Plans, the Distributor receives a monthly distribution fee from the Class A, Investor Class
28 | MainStay MAP Equity Fund |
and Class R2 shares at an annual rate of 0.25% of the average daily net assets of the Class A, Investor Class, Class T 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.
During the six-month period ended April 30, 2017, shareholder service fees incurred by the Fund were as follows:
Class R1 | $ | 1,365 | ||
Class R2 | 1,694 | |||
Class R3 | 447 |
(C) Sales Charges. During the six-month period ended April 30, 2017, the Fund was advised by the Distributor that the amount of initial sales charges retained on sales of Class A and Investor Class shares were $11,667 and $20,450, respectively.
During the six-month period ended April 30, 2017, the Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Investor Class, Class B and Class C shares of $2,575, $2, $34,984 and $1,110, respectively.
(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. During the six-month period
ended April 30, 2017, transfer agent expenses incurred by the Fund were as follows:
Class A | $ | 89,791 | ||
Investor Class | 185,868 | |||
Class B | 51,480 | |||
Class C | 116,029 | |||
Class I | 228,390 | |||
Class R1 | 824 | |||
Class R2 | 1,032 | |||
Class R3 | 269 |
(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, 2017, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class I | $ | 6,060,145 | 0.8 | % |
Note 4–Federal Income Tax
During the year ended October 31, 2016, the tax character of distributions paid as reflected in the Statements of Changes in Net Assets was as follows:
2016 | ||||
Distributions paid from: | ||||
Ordinary Income | $ | 39,745,053 | ||
Long-Term Capital Gain | 248,632,732 | |||
Total | $ | 288,377,785 |
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 transactions incurred by the Fund.
Note 6–Line of Credit
The Fund and certain other funds managed by New York Life Investments, 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 2, 2016, under an amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $600,000,000 with an additional uncommitted amount of $100,000,000. The commitment fee is an annual rate of 0.15% 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
29 |
Notes to Financial Statements (Unaudited) (continued)
commitment fee is allocated among the Fund and certain affiliated funds based upon their respective 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 1, 2017, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 2, 2016, the aggregate commitment amount was $600,000,000 with an additional uncommitted amount of $100,000,000, and the commitment fee was at an annual rate of 0.10% of the average commitment amount. During the six-month period ended April 30, 2017, the Fund utilized the line of credit for five days, maintained an average daily balance of $51,024,333 at a weighted average interest rate of 1.4077% and incurred interest expense in the amount of $9,815. As of April 30, 2017, there were no borrowings outstanding.
Note 7–Interfund Lending Program
Pursuant to an exemptive order issued by the SEC, the Fund, along with certain other funds managed by New York Life Investments, may participate in an interfund lending program. This program provides an alternative credit facility that permits the Fund and certain other funds managed by New York Life Investments to loan or borrow money for temporary purposes directly to or from one another, subject to the conditions of the exemptive order. During the six-month period ended April 30, 2017, there were no interfund loans made or outstanding with respect to the Fund.
Note 8–Purchases and Sales of Securities (in 000’s)
During the six-month period ended April 30, 2017, purchases and sales of securities, other than short-term securities, were $510,443 and $711,351, respectively.
Note 9–Capital Share Transactions
Class A | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 218,879 | $ | 8,382,565 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 179,775 | 6,572,571 | ||||||
Shares redeemed | (987,395 | ) | (37,801,543 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (588,741 | ) | (22,846,407 | ) | ||||
Shares converted into Class A (See Note 1) | 278,210 | 10,822,408 | ||||||
Shares converted from Class A (See Note 1) | (31,363 | ) | (1,230,257 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (341,894 | ) | $ | (13,254,256 | ) | |||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 362,850 | $ | 12,838,848 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,473,310 | 52,494,049 | ||||||
Shares redeemed | (1,857,101 | ) | (66,067,001 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (20,941 | ) | (734,104 | ) | ||||
Shares converted into Class A (See Note 1) | 239,631 | 8,456,352 | ||||||
Shares converted from Class A (See Note 1) | (46,690 | ) | (1,643,409 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 172,000 | $ | 6,078,839 | |||||
|
|
|
|
Investor Class | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 113,505 | $ | 4,367,658 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 84,371 | 3,084,607 | ||||||
Shares redeemed | (246,562 | ) | (9,479,633 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (48,686 | ) | (2,027,368 | ) | ||||
Shares converted into Investor Class (See Note 1) | 115,289 | 4,457,320 | ||||||
Shares converted from Investor Class (See Note 1) | (254,289 | ) | (9,889,427 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (187,686 | ) | $ | (7,459,475 | ) | |||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 180,779 | $ | 6,371,079 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 685,316 | 24,417,822 | ||||||
Shares redeemed | (499,592 | ) | (17,764,615 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 366,503 | 13,024,286 | ||||||
Shares converted into Investor Class (See Note 1) | 228,134 | 8,005,153 | ||||||
Shares converted from Investor Class (See Note 1) | (199,147 | ) | (7,035,547 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 395,490 | $ | 13,993,892 | |||||
|
|
|
| |||||
Class B | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 43,464 | $ | 1,499,170 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 19,649 | 652,938 | ||||||
Shares redeemed | (133,849 | ) | (4,666,233 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (70,736 | ) | (2,514,125 | ) | ||||
Shares converted from Class B (See Note 1) | (128,848 | ) | (4,513,197 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (199,584 | ) | $ | (7,027,322 | ) | |||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 141,309 | $ | 4,536,887 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 275,209 | 8,927,759 | ||||||
Shares redeemed | (276,365 | ) | (8,916,909 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 140,153 | 4,547,737 | ||||||
Shares converted from Class B (See Note 1) | (245,858 | ) | (7,821,715 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (105,705 | ) | $ | (3,273,978 | ) | |||
|
|
|
|
30 | MainStay MAP Equity Fund |
Class C | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 59,087 | $ | 2,025,853 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 36,839 | 1,224,153 | ||||||
Shares redeemed | (477,359 | ) | (16,476,767 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (381,433 | ) | $ | (13,226,761 | ) | |||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 186,119 | $ | 6,047,511 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 526,965 | 17,094,739 | ||||||
Shares redeemed | (1,023,378 | ) | (32,804,609 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (310,294 | ) | (9,662,359 | ) | ||||
Shares converted from Class C (See Note 1) | (90 | ) | (2,648 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (310,384 | ) | $ | (9,665,007 | ) | |||
|
|
|
| |||||
Class I | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 659,089 | $ | 25,912,659 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 491,140 | 18,427,571 | ||||||
Shares redeemed | (5,064,871 | ) | (197,505,997 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (3,914,642 | ) | (153,165,767 | ) | ||||
Shares converted into Class I (See Note 1) | 8,803 | 353,153 | ||||||
|
|
|
| |||||
Net increase (decrease) | (3,905,839 | ) | $ | (152,812,614 | ) | |||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 2,153,901 | $ | 77,929,229 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 4,802,003 | 175,417,157 | ||||||
Shares redeemed | (10,330,996 | ) | (371,051,100 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (3,375,092 | ) | (117,704,714 | ) | ||||
Shares converted into Class I (See Note 1) | 1,153 | 41,814 | ||||||
|
|
|
| |||||
Net increase (decrease) | (3,373,939 | ) | $ | (117,662,900 | ) | |||
|
|
|
| |||||
Class R1 | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 7,113 | $ | 274,055 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,741 | 64,018 | ||||||
Shares redeemed | (7,375 | ) | (286,712 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 1,479 | $ | 51,361 | |||||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 17,200 | $ | 614,851 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 16,678 | 597,420 | ||||||
Shares redeemed | (47,520 | ) | (1,667,148 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (13,642 | ) | $ | (454,877 | ) | |||
|
|
|
|
Class R2 | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 6,726 | $ | 260,531 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 2,062 | 75,772 | ||||||
Shares redeemed | (40,112 | ) | (1,572,120 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (31,324 | ) | $ | (1,235,817 | ) | |||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 23,607 | $ | 846,159 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 41,542 | 1,486,800 | ||||||
Shares redeemed | (197,299 | ) | (6,705,795 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (132,150 | ) | $ | (4,372,836 | ) | |||
|
|
|
| |||||
Class R3 | Shares | Amount | ||||||
Six-month period ended April 30, 2017: | ||||||||
Shares sold | 2,484 | $ | 93,739 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 448 | 16,394 | ||||||
Shares redeemed | (3,345 | ) | (131,200 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (413 | ) | $ | (21,067 | ) | |||
|
|
|
| |||||
Year ended October 31, 2016: | ||||||||
Shares sold | 5,978 | $ | 221,667 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 5,092 | 181,734 | ||||||
Shares redeemed | (13,173 | ) | (464,107 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (2,103 | ) | $ | (60,706 | ) | |||
|
|
|
|
Note 10–Other Matters
At the meetings held on January 3 and 6, 2017, the Board considered and approved submitting the following proposal (“Proposal”) to shareholders of the Fund at a special meeting held on March 31, 2017 (with any postponements or adjournments, “Special Meeting”):
1. | To approve a new subadvisory agreement (“Subadvisory Agreement”) between New York Life Investment Management LLC and Epoch Investment Partners, Inc. |
Epoch served as the subadvisor to the Fund on an interim basis pursuant to the terms of an interim subadvisory agreement dated January 9, 2017. The Interim Subadvisory Agreement will terminate by its terms on June 8, 2017. The Board also approved the longer-term appointment of Epoch as the subadvisor to the Fund and the adoption of a new Subadvisory Agreement. Shareholders were asked to approve the new Subadvisory Agreement so that Epoch may continue to serve as the subadvisor to the Fund on a non-interim basis.
On or about February 3, 2017, shareholders of record of the Fund as of the close of business on January 20, 2017 were sent a proxy statement containing further information regarding the Proposal. The proxy statement also included information about the Special Meeting, at which shareholders of the Fund were, asked to consider and approve the Proposal. In addition, the proxy statement included information about voting on the Proposal and options shareholders had to either attend the
31 |
Notes to Financial Statements (Unaudited) (continued)
Special Meeting in person or by proxy to authorize and instruct New York Life Investment Management LLC how to vote their respective shares.
The result of the proposal was as follows:
To approve a new subadvisory agreement between New York Life Investments and Epoch:
Votes For | Votes Against | Abstentions | Total | |||
18,776,287 | 34,646 | 93,803 | 18,904,736 |
The Proposal passed. Effective April 1, 2017, Epoch serves as a subadvisor to the Fund on a non-interim basis.
Note 11–Recent Accounting Pronouncement
In October 2016, the SEC adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and
disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the Fund’s financial statements and related disclosures.
Note 12–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, 2017, events and transactions subsequent to April 30, 2017, 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 MAP Equity Fund |
Board Consideration and Approval of 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, review and approve the fund’s investment advisory agreements. At an in-person meeting held on January 6, 2017, the Board of Trustees (“Board” or “Trustees”) of the The MainStay Funds (“Trust”), including a majority of the Trustees who are not “interested persons” (as that term is defined in the 1940 Act), of the Trust (“Independent Trustees”), approved a repositioning of the MainStay MAP Equity Fund, formerly known as the MainStay MAP Fund (the “Fund”), which resulted in modifying the Fund’s principal investment strategies (the “Repositioning”), and the appointment of Epoch Investment Partners, Inc. (“Epoch”) on an interim basis to replace Institutional Capital LLC (“ICAP”) as a subadvisor to the Fund. Epoch was appointed pursuant to an Interim Subadvisory Agreement, which was approved by the Board at the January 6, 2017 meeting, as permitted by Rule 15a-4 under the 1940 Act. At the January 6, 2017 meeting, the Board also approved the longer-term appointment of Epoch as a subadvisor to the Fund and the adoption of the proposed new subadvisory agreement between New York Life Investment Management LLC (“New York Life Investments”) and Epoch (“Proposed New Subadvisory Agreement”) with respect to the Fund, subject to shareholder approval.
In reaching its decision to approve the Repositioning, the Interim Subadvisory Agreement and the Proposed New Subadvisory Agreement, the Board considered information furnished by New York Life Investments and Epoch in connection with the Repositioning, as well as other relevant information furnished to the Board throughout the year. The Board also requested and received responses from Epoch to a series of questions encompassing a variety of topics prepared on behalf of the Board by independent legal counsel to the Independent Trustees. In addition, the Board considered information provided by New York Life Investments on the fees charged to other investment advisory clients that follow investment strategies similar to those proposed for the Fund and the rationale for any differences in the Fund’s subadvisory fees and the fees charged to those other investment advisory clients.
In considering the Repositioning, the Interim Subadvisory Agreement and the Proposed New Subadvisory Agreement, the Trustees reviewed and evaluated 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 things: (i) the nature, extent, and quality of the services to be provided to the Fund by Epoch; (ii) the investment performance of the Fund and the historical investment performance of similar funds managed or subadvised by Epoch; (iii) the anticipated costs of the services to be provided, and expected profits to be realized, by Epoch, from its 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 proposed fees, including the subadvisory fees to be paid to Epoch, particularly as compared to similar funds and accounts managed or subadvised by Epoch, and third-party “peer funds” identified by New York Life Investments.
While individual Trustees may have weighed certain factors or information differently, the Board’s decisions to approve the Repositioning, the Interim Subadvisory Agreement and the Proposed New Subadvisory Agreement were based on a consideration of all the information provided to the Board in connection with its consideration of the Repositioning, as well as other relevant information provided to the Trustees throughout the year. The Board took note of New York Life Investments’ belief that Epoch, with its resources and historical investment performance track records, is well qualified to serve as the Fund’s subadvisor. A summary of the factors that figured prominently in the Board’s decision to approve the Repositioning, the Interim Subadvisory Agreement and the Proposed New Subadvisory Agreement is provided immediately below.
Nature, Extent and Quality of Services to be Provided by Epoch
In considering the approval of the Repositioning, the Interim Subadvisory Agreement and the Proposed New Subadvisory Agreement, the Board considered New York Life Investments’ responsibilities as manager of the Fund, noting that New York Life Investments has supervisory responsibility for the Fund’s subadvisor. The Board also examined the nature, extent and quality of the services that Epoch proposes to provide to the Fund. Further, the Board evaluated and/or examined the following with regard to Epoch:
• | experience in providing investment advisory services; |
• | experience in serving as subadvisory to other similar funds, including other MainStay Funds; |
• | experience of investment advisory, senior management and administrative personnel; |
• | overall legal and compliance environment; |
• | willingness to invest in personnel who may benefit the Portfolio; |
• | portfolio construction and risk management processes; |
• | experience of the Portfolio’s proposed portfolio managers, the number of accounts managed by each portfolio manager and Epoch’s methods for compensating portfolio managers; and |
• | overall reputation, financial condition and assets under management. |
Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Repositioning, the Interim Subadvisory Agreement and the Proposed New Subadvisory Agreement, that the Fund is likely to benefit from appointing Epoch as a subadvisor to the Fund.
Investment Performance
In connection with the Board’s consideration of the Repositioning, the Interim Subadvisory Agreement and the Proposed New Subadvisory Agreement, the Board considered its ongoing concerns and discussions with New York Life Investments regarding the Fund’s recent investment performance and remediation efforts undertaken by New York Life Investments, and other alternatives to the Repositioning considered by New York Life Investments. The Board also considered steps taken to seek to improve the Fund’s investment performance and the Board’s
33 |
Board Consideration and Approval of Subadvisory Agreements (Unaudited) (continued)
long-standing experience with Epoch as subadvisor to other MainStay Funds and its resulting confidence in Epoch’s investment process. The Board further considered that shareholders may benefit from Epoch’s portfolio construction and risk management processes. The Board further noted that the Repositioning had not yet been implemented so an investment performance track record for the Fund as repositioned was not available.
The Board discussed with management and the Fund’s proposed portfolio management team the Fund’s proposed investment process, strategies and risks. The Board considered the historical performance of other investment portfolios with similar investment strategies that are or have been managed by the proposed portfolio managers for the Fund. The Board noted that Epoch currently manages a portfolio with investment strategies similar to those proposed for its portion of the Fund, as repositioned. Based on these considerations, the Board concluded that the Fund was likely to be managed responsibly and capably by Epoch.
Also based on these considerations, the Board concluded, within the context of its overall determinations regarding the Repositioning, the Interim Subadvisory Agreement and the Proposed New Subadvisory Agreement, that the selection of Epoch as a subadvisor to the Fund is likely to benefit the Fund’s long-term investment performance.
Costs of the Services to be Provided, and Profits to be Realized, by Epoch
The Board considered the estimated costs of the services to be provided by Epoch under the Interim Subadvisory Agreement and the Proposed New Subadvisory Agreement and the anticipated profitability of New York Life Investments, its affiliates and Epoch, due to their relationships with the Fund. Although the Board did not receive specific profitability information from Epoch, the Board considered representations from Epoch and New York Life Investments that the subadvisory fee to be paid by New York Life Investments to Epoch for services provided to the Fund is the result of arm’s-length negotiations.
The Board also considered Epoch’s investments in personnel, systems, equipment and other resources necessary to manage the Fund. The Board acknowledged that Epoch must be in a position to pay and retain experienced professional personnel to provide services to the Fund and that Epoch’s ability to maintain strong financial positions is important in order for Epoch to provide high-quality services to the Fund. The Board requested and received information from New York Life Investments estimating the impact that the engagement of Epoch would have on the overall profitability of the Fund to New York Life Investments and its affiliates.
In considering the anticipated costs and profitability of the Fund, the Board also considered certain fall-out benefits that may be realized by Epoch due to its relationship with the Fund. The Board recognized, for example, the benefits to Epoch from legally permitted “soft-dollar” arrangements by which brokers may provide research and other services to Epoch in exchange for commissions paid by the Fund with respect to trades in the Fund’s portfolio securities.
The Board took into account the fact that the Fund would undergo changes to its principal investment strategies in connection with the Repositioning, including replacing the two ICAP sleeves with a single sleeve subadvised by Epoch. The Board noted estimates from New York
Life Investments and Epoch that a significant amount of the holdings of the sleeves of the Fund subadvised by Epoch would be sold to align the sleeves’ holdings to the strategy that would be pursued by Epoch for the single sleeve. The Board noted that New York Life Investments had agreed to bear 100% of the direct portfolio transition costs associated with the Repositioning and that J. Christian Kirtley, CFA would remain as a portfolio manager to the Fund until the Repositioning was complete. Additionally, the Board considered New York Life Investments’ representation that Epoch will seek to minimize potential indirect costs, such as market impact and costs associated with repositioning the Fund, and also considered steps that New York Life Investments and Epoch would undertake to minimize adverse tax consequences for shareholders in connection with the Repositioning.
The Board considered that New York Life Investments was subject to a potential conflict of interest in making its recommendation to the Board. In this regard, the Board received information regarding the terms of an asset purchase agreement entered into between and among Epoch, ICAP and New York Life Investment Management Holdings LLC, the parent company of ICAP and New York Life Investments. Epoch, ICAP and New York Life Investment Management Holdings LLC, the parent company of ICAP and New York Life Investments, have entered into an asset purchase agreement (the “Asset Purchase Agreement”), pursuant to which Epoch acquired certain assets of ICAP’s investment management business. Pursuant to the Asset Purchase Agreement, Epoch acquired these assets and assumed certain liabilities of ICAP associated with the acquired assets and paid a purchase price on the closing date of the Asset Purchase Agreement. The Asset Purchase Agreement provides, among other things, for New York Life Investments to recommend to the Board the appointment of Epoch as interim subadvisor to the Fund and as a subadvisor on a longer term basis. As set forth in the Asset Purchase Agreement, Epoch and New York Life Investments intend to maintain an ongoing relationship between the parties with regard to the Fund and certain other funds wherein, among other things, New York Life Investments agrees to recommend to the Board that Epoch continue to serve as subadvisor for the Fund for the five years following the closing date of the Asset Purchase Agreement, subject to Board approval and other conditions, insofar as such recommendation is consistent with New York Life Investments’ fiduciary duties.
After evaluating the information presented to the Board, the Board concluded, within the context of its overall determinations regarding the Repositioning, the Interim Subadvisory Agreement and the Proposed New Subadvisory Agreement, that any profits expected to be realized by New York Life Investments and its affiliates due to their relationships with the Fund, were consistent with New York Life Investments and its affiliates’ profitability with respect to other Funds and supported the Board’s decision to approve the Repositioning, the Interim Subadvisory Agreement and the Proposed New Subadvisory Agreement.
Extent to Which Economies of Scale May be Realized as the Fund Grows
In addition, the Board considered whether the Fund’s proposed expense structure will permit economies of scale to be shared with Fund investors. The Board also considered a report previously provided by New York Life Investments, prepared at the request of the Board, that
34 | MainStay MAP Equity Fund |
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 Fund and the other funds within the MainStay Funds Complex. 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 and how it hypothetically would compare with fees paid for similar services by peer funds at varying asset levels. While recognizing the difficulty of determining future 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 Repositioning, the Interim Subadvisory Agreement and the Proposed New Subadvisory 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 fee and expense structure as the Fund grows over time.
Reasonableness of Fees
The Board evaluated the reasonableness of the fees to be paid under the Interim Subadvisory Agreement and the Proposed New Subadvisory Agreement. The Board considered the Fund’s contractual management and subadvisory fee schedules. The Board considered information provided by Epoch concerning the fees charged to other investment advisory clients, including institutional separate accounts and other funds with similar investment objectives as the Fund. The Board observed that New York Life Investments and Epoch had agreed to a different subadvisory fee schedule to be paid to Epoch, as compared to the subadvisory fee paid to ICAP. The Board considered that depending on the amount of assets managed by the subadvisor, this adjusted subadvisory fee schedule could result in either a reduction in the subadvisory fee, which would result in New York Life Investments retaining a slightly larger portion of the management fee, or an increase in the subadvisory fee, which would result in New York Life Investments retaining a smaller portion of the management fee, but that it would not impact the fees paid by the Fund or its shareholders. The Board noted, however, that Epoch’s fees as subadvisor are paid by New York Life Investments, and not the Fund. Accordingly, the Board principally focused on the reasonableness of the fees paid by the Fund to New York Life Investments and its affiliates in determining to approve the Repositioning, the Interim Subadvisory Agreement and Proposed New Subadvisory Agreement.
After considering the factors above, the Board concluded that the Fund’s overall fees were within a range that is competitive and, within the context of the Board’s overall conclusions regarding the Repositioning, that the Interim Subadvisory Agreement and the Proposed New Subadvisory Agreement support the conclusion that these fees are reasonable.
Conclusion
On the basis of the information and factors summarized above and the evaluation thereof, the Board as a whole, including the Independent Trustees who are not parties to the Agreements or “interested persons” of any such party voting separately, unanimously voted to approve the Agreements.
35 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreements (Unaudited)
Section 15 of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of trustees initially approve and, following an initial term of up to two years, annually review and approve the fund’s investment advisory agreement(s). At its December 12-14, 2016 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 2016 and December 2016, as well as other relevant information furnished to the Board throughout the year. 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 fee and total expenses. The Board also considered information on the fees charged to any other investment advisory clients of New York Life Investments, ICAP and Markston (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 Trustees who are not “interested persons” (as such term is defined under the 1940 Act) of the Fund (the “Independent Trustees”). Information provided to the Board in advance of and during meetings throughout the year included, among other items, information regarding the legal standards applicable to their consideration of the Agreements and 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, risk management, portfolio turnover, and sales and marketing activity. At various meetings, the Independent Trustees also met in executive session with their independent legal counsel, and met with senior management of New York Life Investments without other representatives of New York Life Investments present.
Throughout the year and specifically in connection with its June meeting each year, the Board also received an overview of the Funds’ distribution arrangements. In addition, the Board received information regarding the Fund’s asset levels, share purchase and redemption activity and the payment of Rule 12b-1 distribution and service fees by the Fund. New York Life Investments also provided the Board with
information regarding the revenue sharing payments made to intermediaries that promote the sale, distribution, and/or servicing of Fund shares.
In considering the Agreements, the Trustees comprehensively 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 described in greater detail below and included, among other items: (i) the nature, extent 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 have been realized or may be realized if the Fund grows and the extent to which economies of scale have benefited or may benefit Fund shareholders; and (v) the reasonableness of the Fund’s management and subadvisory fees and overall total ordinary operating expenses, particularly as compared to any similar funds and accounts managed by New York Life Investments, ICAP and Markston. Although the Board recognized that the comparisons between the Fund’s fees and expenses and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Board also considered the reasonableness of the Fund’s management fee and overall total ordinary operating expenses as compared to the peer funds identified by Strategic Insight.
While individual Trustees may have weighed certain factors or information differently, the Board’s decision to approve the Agreements was based on a consideration of the information provided to the Trustees throughout the year, as well as information furnished specifically in connection with the contract review process. Throughout the year, the Trustees are also afforded an opportunity to ask questions of and request additional information or materials from New York Life Investments, ICAP and Markston. The Board’s conclusions with respect to the Agreements may have been based, in part, on the Board’s knowledge of New York Life Investments, ICAP and Markston resulting from, among other things, the Board’s consideration of the MainStay Group of Funds’ advisory 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. The factors that figured prominently in the Board’s decision to approve the Agreements are summarized in more detail below.
Nature, Extent and Quality of Services to Be Provided by New York Life Investments, ICAP and Markston
The Board examined the nature, extent and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience and capabilities 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
36 | MainStay MAP Equity Fund |
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 observed that New York Life Investments devotes significant resources and time to providing advisory and non-advisory services to the Fund, including its extensive oversight of ICAP and Markston. The Board also considered the full range of services that New York Life Investments supplies to the Fund under the terms of the Management Agreement, including: (i) fund accounting and on-going oversight services provided by New York Life Investments’ Fund Administration and Accounting 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; (iv) legal services provided by New York Life Investments’ Office of the General Counsel; and (v) risk management and portfolio trading oversight and analysis by compliance and investment personnel. 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, infrastructure, technology, operational enhancements, cyber security, information security and shareholder privacy resources 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, extent and quality of the investment 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 further considered New York Life Investments’ policies, procedures and systems to reasonably assure compliance with applicable laws and regulations. In addition, the Board considered the policies and procedures in place with respect to matters that may involve conflicts of interest between the Fund’s investments and those of other accounts managed by ICAP and Markston. 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 methods 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, extent 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, and in light of market conditions. 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’s Investment Committee that occur regularly, generally on an annual basis. In addition, the Board considered any specific actions that New York Life Investments, ICAP or Markston had taken, or had agreed with the Board to take, to enhance Fund investment performance and the results of those actions. The Board noted that the Fund had underperformed relative to peers in various periods and considered its discussions with representatives from New York Life Investments regarding this underperformance. The Board noted the remediation efforts undertaken by New York Life Investments with respect to the Fund. In particular, the Board considered New York Life Investments’ representation that it would propose at a future meeting that Epoch Investment Partners, Inc. replace ICAP as the subadvisor to the two sleeves of the Fund managed by ICAP. The Board further noted that New York Life Investments had adjusted the allocation of the Fund’s inflows and outflows between the Fund’s Subadvisers in an effort to improve performance.
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
37 |
Board Consideration and Approval of Management Agreement and
Subadvisory Agreements (Unaudited) (continued)
in the aggregate. Although the Board did not receive specific profitability information from Markston, the Board considered representations from Markston and New York Life Investments that the subadvisory fee paid by New York Life Investments to Markston for services provided to the Fund was the result of arm’s-length negotiations.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 primarily considered the profits realized by New York Life Investments and its affiliates with respect to the Fund.
In evaluating the costs of the services provided by New York Life Investments, ICAP and Markston and profits realized by 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 recognized that the Fund benefits from the allocation of certain fixed costs across the MainStay Group of Funds, among other benefits resulting from its relationships with New York Life Investments.
In addition, the Board acknowledged 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. In connection with the annual fund profitability analysis that New York Life Investments presents to the Board, the Board in 2014 engaged Bobroff Consulting, Inc., an independent third-party consultant, to review the methods used to allocate costs to the MainStay Funds, and among individual Funds. As part of this engagement, the consultant analyzed: (i) the various New York Life Investments’ business units and affiliated Subadvisers that provide services to the MainStay Funds; (ii) how costs are allocated to the Fund and other funds managed by New York Life Investments, and to other lines of businesses; and (iii) how New York Life Investments’ cost allocation methods and profitability reports compare to industry practices. The Board noted that the independent consultant had concluded that New York Life Investments’ methods for allocating costs and procedures for estimating overall profitability of the funds in the MainStay Group of Funds, including the Fund, are reasonable, consistent with industry practice and likely to produce reasonable profitability estimates. Although the Board recognized 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 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. In this regard, 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 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’ relationships with the Fund on a pre-tax basis and without regard to distribution expenses incurred by New York Life Investments from its own resources.
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 relationships 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 Fund and other funds in the MainStay Group of Funds. 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, initially setting relatively low management fees or making additional investments to enhance shareholder services. 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. Additionally, the Board considered New York Life Investments’ assessment of the
38 | MainStay MAP Equity Fund |
extent economies of scale existed for Funds that had experienced significant increases of assets during the year.
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, because 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 that follow similar investment strategies 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 registered investment companies 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 demonstrating 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 also noted information received from NYLIM Service Company LLC regarding the sub-transfer agency payments it made to intermediaries in connection with the 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 a number of 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 recognized 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) introducing Investor Class shares for certain MainStay Funds in early 2008 to consolidate smaller account investors; (iii) closing small accounts with balances below $250 in Investor Class shares or $750 in all other classes of shares; (iv) eliminating an exception with no minimum investment amount with respect to AutoInvest accounts with subsequent monthly purchases of $100; (v) since 2007, charging an annual $20.00 small account fee on certain accounts with balances below $1,000; and (vi) modifying the approach for billing transfer agent expenses to reduce the degree of subsidization by large accounts of smaller accounts. The Board also considered that NYLIM Service Company LLC had waived its cost of living adjustments in 2015, 2016 and 2017. In addition, the Board acknowledged New York Life Investments’ continued 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 and factors summarized above and the evaluation thereof, the Board as a whole, including the Independent Trustees who are not parties to the Agreements or “interested persons” of any such party voting separately, unanimously voted to approve the Agreements.
39 |
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 or proxy voting record 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).
40 | MainStay MAP Equity Fund |
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MainStay Funds
Equity
U.S. Equity
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay Epoch U.S. Small Cap Fund
MainStay ICAP Equity Fund1
MainStay ICAP Select Equity Fund1
MainStay Large Cap Growth Fund
MainStay MAP Equity Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
International/Global Equity
MainStay Emerging Markets Equity Fund
MainStay Epoch Capital Growth Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Choice Fund
MainStay Epoch International Small Cap Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond
MainStay Emerging Markets Debt Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay Indexed Bond Fund
MainStay Short Duration High Yield Fund
MainStay Total Return Bond Fund
MainStay Unconstrained Bond Fund
Municipal/Tax Advantaged Bond
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Advantaged Short Term Bond Fund
MainStay Tax Free Bond Fund
Money Market
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
Alternative
MainStay Absolute Return Multi-Strategy Fund
MainStay Cushing Energy Income Fund
MainStay Cushing MLP Premier Fund
MainStay Cushing Renaissance Advantage 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
MainStay Retirement 2060 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Candriam France S.A.S.4
Paris, France
Cornerstone Capital Management Holdings LLC4
New York, New York
Cushing Asset Management, LP
Dallas, Texas
Epoch Investment Partners, Inc.
New York, New York
MacKay Shields LLC4
New York, New York
Markston International LLC
White Plains, New York
NYL Investors LLC4
New York, New York
Winslow Capital Management, LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Washington, District of Columbia
Independent Registered Public Accounting Firm
KPMG LLP
Philadelphia, Pennsylvania
1. On May 8, 2017, the Fund merged into MainStay Epoch U.S. Equity Yield Fund. Former shareholders of this Fund can request the Fund’s Semiannual Report by calling 800-MAINSTAY (624-6782).
2. Class A and Class I shares of this Fund are registered for sale in AZ, CA, MI, NV, OR, TX, UT and WA. Class I shares are registered for sale in CO, FL, GA, HI, ID, MA, MD, NH, NJ and NY.
3. This Fund is registered for sale in CA, CT, DE, FL, MA, NJ, NY and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Semiannual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
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. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
©2017 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 |
1738973 MS144-17 | MSMP10-06/17 (NYLIM) 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 5, 2017
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 5, 2017
By: | /s/ Jack R. Benintende | |
Jack R. Benintende | ||
Treasurer and Principal Financial and Accounting Officer |
Date: July 5, 2017
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. |