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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
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)
(Address of principal executive offices) (Zip code)
J. Kevin Gao, Esq.
169 Lackawanna Avenue
Parsippany, New Jersey 07054
(Name and address of agent for service)
169 Lackawanna Avenue
Parsippany, New Jersey 07054
(Name and address of agent for service)
Registrant’s telephone number, including area code: (212) 576-7000
Date of fiscal year end: October 31
Date of reporting period: October 31, 2011
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FORM N-CSR
Item 1. Reports to Stockholders.
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MainStay Common Stock Fund
Message from the President and Annual Report
October 31, 2011
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Message from the President
Volatility was the keynote of the 12 months ended October 31, 2011. U.S. stocks generally advanced, but a variety of domestic and international forces influenced the market.
Early in November 2010, the Federal Open Market Committee (FOMC) announced its intention to extend quantitative easing by purchasing additional longer-term Treasury securities. The stock market reacted positively to this news—and to the midterm elections—and stocks generally advanced through mid-February.
Beginning in December 2010, a wave of protests and civil unrest across North Africa and the Middle East led to a substantial rise in the price of oil. By mid-February, stock prices started to decline. In March, a major earthquake and tsunami in Japan caused manufacturing supply-line interruptions and further setbacks for equity investors. After a sharp decline and a rapid recovery, stocks reached their high point for the 12-month period at the end of April 2011.
Pressed by a weak economy, lackluster employment and widespread concerns about European sovereign debt, the stock market faced wide fluctuations in the coming months. The volatility included a precipitous decline at the end of July into early August. Shortly thereafter, the FOMC expressed its expectation that economic conditions were “likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
After several unsuccessful attempts to recover from their dramatic drop, U.S. stocks reached their low point for the reporting period in early October. Then, buoyed by positive economic data and progress in the European debt situation, the U.S. stock market advanced rapidly in October, to close the reporting period with its best monthly performance in nearly a decade.
International stocks suffered from the turmoil in the Middle East and North Africa, the natural disasters in Japan, the sovereign debt concerns in Europe and the added threat of an economic slowdown in China. For the 12-month period, international stocks declined overall, with particular weakness in Europe.
The bond markets felt the impact of the European debt crisis, and several European nations suffered downgrades. In July, the United States faced a congressional deadlock on raising the debt ceiling and reducing deficit spending. In early August, Standard & Poor’s downgraded the debt of the United States of America to AA+.
Slow progress in resolving the European debt situation led to a flight to quality (or a movement toward securities perceived to carry lower risk). Amid strong demand, U.S. Treasury securities saw prices rise and yields decline, despite the downgrade by Standard & Poor’s. High-grade corporate
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
Throughout the 12-month reporting period, our portfolio managers took note of shifting market forces. But their primary focus was on the investment objectives of their respective Funds and the long-term strategies they were pursuing to achieve them. Some may have sought to capitalize on day-to-day market inefficiencies, but all remained focused on the long-term interests of our shareholders. They sought to apply time-tested investment principles consistently throughout the reporting period.
The information that follows provides specifics about the securities, decisions and market forces that affected your MainStay Fund(s) during the 12 months ended October 31, 2011. Behind the details, we hope you’ll recognize the professionalism and discipline that guided our portfolio managers during this volatile period.
We thank you for investing with MainStay and look forward to serving you for many years to come.
Sincerely,
Stephen P. Fisher
President
President
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Annual Report | ||
Investment and Performance Comparison | 5 | |
Portfolio Management Discussion and Analysis | 9 | |
Portfolio of Investments | 11 | |
Financial Statements | 17 | |
Notes to Financial Statements | 23 | |
Report of Independent Registered Public Accounting Firm | 29 | |
Federal Income Tax Information | 30 | |
Proxy Voting Policies and Procedures and Proxy Voting Record | 30 | |
Shareholder Reports and Quarterly Portfolio Disclosure | 30 | |
Board Members and Officers | 31 | |
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
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Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2011
Gross | ||||||||||||||||||||
Expense | ||||||||||||||||||||
Class | Sales Charge | One Year | Five Years | Ten Years | Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 5.5% Initial Sales Charge | With sales charges | –0 | .33% | –3 | .75% | 0 | .84% | 1 | .63% | ||||||||||
Excluding sales charges | 5 | .47 | –2 | .66 | 1 | .41 | 1 | .63 | ||||||||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges | 0 | .26 | –3 | .38 | 1 | .04 | 0 | .98 | ||||||||||
Excluding sales charges | 6 | .10 | –2 | .28 | 1 | .61 | 0 | .98 | ||||||||||||
Class B Shares | Maximum 5% CDSC | With sales charges | –0 | .25 | –3 | .73 | 0 | .67 | 2 | .38 | ||||||||||
if Redeemed Within the First Six Years of Purchase | Excluding sales charges | 4 | .75 | –3 | .39 | 0 | .67 | 2 | .38 | |||||||||||
Class C Shares | Maximum 1% CDSC | With sales charges | 3 | .75 | –3 | .37 | 0 | .67 | 2 | .38 | ||||||||||
if Redeemed Within One Year of Purchase | Excluding sales charges | 4 | .75 | –3 | .37 | 0 | .67 | 2 | .38 | |||||||||||
Class I Shares4 | No Sales Charge | 6 | .43 | –1 | .89 | 2 | .01 | 0 | .73 | |||||||||||
Class R2 Shares5 | No Sales Charge | 5 | .99 | –2 | .38 | 1 | .51 | 1 | .08 | |||||||||||
1. | The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or Fund-share redemptions. Total returns reflect maximum applicable sales charges as indicated in the table above, change in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Investor Class shares were first offered on February 28, 2008. Performance figures for Investor Class shares include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for the Investor Class shares might have been lower. |
4. | Performance figures for Class I shares, first offered on December 28, 2004, include the historical performance of Class A shares through December 27, 2004, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class I shares might have been lower. |
5. | Performance figures for Class R2 shares, first offered on December 14, 2007, include the historical performance of Class A shares through October 31, 2011, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Class R2 shares might have been lower. As of October 31, 2011, Class R2 shares had yet to commence investment operations. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
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One | Five | Ten | ||||||||||
Benchmark Performance | Year | Years | Years | |||||||||
S&P 500® Index6 | 8 | .09% | 0 | .25% | 3 | .69% | ||||||
Russell 1000® Index7 | 8 | .01 | 0 | .54 | 4 | .17 | ||||||
Average Lipper Large-Cap Core Fund8 | 5 | .37 | –0 | .28 | 3 | .26 | ||||||
6. | “S&P 500®” is a trademark of the McGraw-Hill Companies, Inc. The S&P 500® Index is widely regarded as the standard index for measuring large-cap U.S. stock market performance. The S&P 500® Index is the Fund’s broad-based securities market index for comparison purposes. Results assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
7. | The Russell 1000® Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000® represents approximately 92% of the Russell 3000® Index. The Russell 1000® Index is the Fund’s secondary benchmark. Total returns assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
8. | The average Lipper large-cap core fund is representative of funds that, by portfolio practice, invest at least 75% of their equity assets in companies with market capitalizations (on a three-year weighted basis) above Lipper’s U.S. Diversified Equity large-cap floor. Large-cap core funds have more latitude in the companies in which they invest. These funds typically have an average price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share growth value, 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 Common Stock Fund
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Cost in Dollars of a $1,000 Investment in MainStay Common Stock Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2011, to October 31, 2011, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2011, to October 31, 2011.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2011. 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.
Ending Account | ||||||||||||||||||||||
Ending Account | Value (Based | |||||||||||||||||||||
Value (Based | on Hypothetical | |||||||||||||||||||||
Beginning | on Actual | Expenses | 5% Annualized | Expenses | ||||||||||||||||||
Account | Returns and | Paid | Return and | Paid | ||||||||||||||||||
Value | Expenses) | During | Actual Expenses) | During | ||||||||||||||||||
Share Class | 5/1/11 | 10/31/11 | Period1 | 10/31/11 | Period1 | |||||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 912.20 | $ | 7.37 | $ | 1,017.50 | $ | 7.78 | ||||||||||||
Class A Shares | $ | 1,000.00 | $ | 915.30 | $ | 4.78 | $ | 1,020.20 | $ | 5.04 | ||||||||||||
Class B Shares | $ | 1,000.00 | $ | 909.30 | $ | 10.97 | $ | 1,013.70 | $ | 11.57 | ||||||||||||
Class C Shares | $ | 1,000.00 | $ | 909.30 | $ | 10.97 | $ | 1,013.70 | $ | 11.57 | ||||||||||||
Class I Shares | $ | 1,000.00 | $ | 917.00 | $ | 3.58 | $ | 1,021.50 | $ | 3.77 | ||||||||||||
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.53% for Investor Class, 0.99% for Class A, 2.28% for Class B and Class C and 0.74% for Class I) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the one-half year period). The table above represents the actual expenses incurred during the one-half year period. See page X for more information on Class R2 shares. |
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Industry Composition as of October 31, 2011 (Unaudited)
Oil, Gas & Consumable Fuels | 10.7 | % | ||
IT Services | 5.8 | |||
Pharmaceuticals | 5.2 | |||
Software | 5.2 | |||
Computers & Peripherals | 5.1 | |||
Media | 4.5 | |||
Health Care Providers & Services | 4.4 | |||
Beverages | 3.4 | |||
Commercial Banks | 3.2 | |||
Diversified Financial Services | 3.2 | |||
Diversified Telecommunication Services | 3.1 | |||
Specialty Retail | 2.8 | |||
Industrial Conglomerates | 2.6 | |||
Insurance | 2.4 | |||
Aerospace & Defense | 2.2 | |||
Food & Staples Retailing | 2.2 | |||
Household Products | 2.2 | |||
Road & Rail | 2.2 | |||
Exchange Traded Funds | 2.0 | |||
Biotechnology | 1.9 | |||
Capital Markets | 1.9 | |||
Tobacco | 1.9 | |||
Internet Software & Services | 1.8 | |||
Energy Equipment & Services | 1.7 | |||
Semiconductors & Semiconductor Equipment | 1.5 | |||
Multi-Utilities | 1.4 | |||
Hotels, Restaurants & Leisure | 1.3 | |||
Chemicals | 1.0 | |||
Diversified Consumer Services | 1.0 | |||
Food Products | 1.0 | |||
Communications Equipment | 0.9 | |||
Consumer Finance | 0.9 | |||
Electric Utilities | 0.9 | |||
Internet & Catalog Retail | 0.8 | |||
Metals & Mining | 0.8 | |||
Health Care Equipment & Supplies | 0.7 | |||
Multiline Retail | 0.7 | |||
Machinery | 0.6 | |||
Real Estate Investment Trusts | 0.6 | |||
Commercial Services & Supplies | 0.5 | |||
Leisure Equipment & Products | 0.5 | |||
Construction & Engineering | 0.4 | |||
Life Sciences Tools & Services | 0.4 | |||
Textiles, Apparel & Luxury Goods | 0.4 | |||
Electronic Equipment & Instruments | 0.3 | |||
Paper & Forest Products | 0.3 | |||
Automobiles | 0.2 | |||
Distributors | 0.2 | |||
Household Durables | 0.2 | |||
Air Freight & Logistics | 0.1 | |||
Containers & Packaging | 0.1 | |||
Gas Utilities | 0.1 | |||
Professional Services | 0.1 | |||
Real Estate Management & Development | 0.1 | |||
Thrifts & Mortgage Finance | 0.1 | |||
Trading Companies & Distributors | 0.1 | |||
Wireless Telecommunication Services | 0.1 | |||
Airlines | 0.0 | ‡ | ||
Electrical Equipment | 0.0 | ‡ | ||
Independent Power Producers & Energy Traders | 0.0 | ‡ | ||
Marine | 0.0 | ‡ | ||
Short-Term Investment | 0.1 | |||
Other Assets, Less Liabilities | –0.0 | ‡ | ||
100.0 | % | |||
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
‡ | Less than one-tenth of a percent. |
Top Ten Holdings as of October 31, 2011 (excluding short-term investment)
1. | Apple, Inc. | |
2. | ExxonMobil Corp. | |
3. | International Business Machines Corp. | |
4. | Chevron Corp. | |
5. | Microsoft Corp. | |
6. | S&P 500 Index—SPDR Trust Series 1 | |
7. | Pfizer, Inc. | |
8. | Wells Fargo & Co. | |
9. | AT&T, Inc. | |
10. | JPMorgan Chase & Co. |
8 MainStay Common Stock Fund
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Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Harvey J. Fram, CFA, and Migene Kim, CFA, of Madison Square Investors LLC, the Fund’s Subadvisor.
How did MainStay Common Stock Fund perform relative to its peers and its benchmark during the 12 months ended October 31, 2011?
Excluding all sales charges, MainStay Common Stock Fund returned 5.47% for Investor Class shares, 6.10% for Class
A shares, 4.75% for Class B shares and 4.75% for Class C shares for the 12 months ended October 31, 2011. Over the same period, the Fund’s Class I shares returned 6.43% and Class R2 shares1 returned 5.99%. Investor Class, Class A, Class I and Class R2 shares outperformed—and Class B shares and Class C shares underperformed—the 5.37% return of the average Lipper2 large-cap core fund for the same period. All share classes underperformed the 8.09% return of the S&P 500® Index3 for the 12 months ended October 31, 2011. The S&P 500® Index is the Fund’s broad-based securities-market index. See page 5 for Fund returns with sales charges.
A shares, 4.75% for Class B shares and 4.75% for Class C shares for the 12 months ended October 31, 2011. Over the same period, the Fund’s Class I shares returned 6.43% and Class R2 shares1 returned 5.99%. Investor Class, Class A, Class I and Class R2 shares outperformed—and Class B shares and Class C shares underperformed—the 5.37% return of the average Lipper2 large-cap core fund for the same period. All share classes underperformed the 8.09% return of the S&P 500® Index3 for the 12 months ended October 31, 2011. The S&P 500® Index is the Fund’s broad-based securities-market index. See page 5 for Fund returns with sales charges.
What factors affected the Fund’s relative performance during the reporting period?
During the reporting period, market sentiment grew increasingly defensive and interest rates remained historically low. Investors pursued companies with high dividend yields and rewarded companies that bought back their own shares. Against this backdrop, the Fund had lower exposure than the S&P 500® Index to dividend-yielding companies, which detracted from the Fund’s relative performance. Moreover, persistent market turmoil and the fear of contagion from the European sovereign debt crisis translated to lagging performance of trend-following factors in the Fund’s model, such as price momentum, which detracted from the Fund’s relative performance. On the positive side, the valuation factor in the Fund’s stock-selection model proved effective across the Fund’s entire investment universe
by successfully indentifying expensive stocks to avoid. In many cases, stocks identified by the model as more expensive provided worse performance than stocks that were less expensive according to the model.
by successfully indentifying expensive stocks to avoid. In many cases, stocks identified by the model as more expensive provided worse performance than stocks that were less expensive according to the model.
During the reporting period, which sectors were the strongest positive contributors to the Fund’s relative performance and which sectors were particularly weak?
The sectors that made the strongest positive contributions to the Fund’s performance relative to the S&P 500® Index were health care, materials and financials. (Contributions take weightings and total returns into account.) Health care contributed the most, as managed health care stocks that had become undervalued during last year’s health care legislation debate rebounded strongly in 2011. Having underweight positions in materials and financials also contributed positively to the Fund’s relative performance during the reporting period.
During the reporting period, the weakest sector contributions
to the Fund’s relative performance came from information technology, utilities and industrials. In the information technology sector, our valuation factor had less success, leading the Fund to overweight certain low-priced stocks that became even less expensive, which resulted in negative returns. Although utilities outperformed the S&P 500® Index as investors sought dividend yield in an anemic interest-rate environment, the Fund’s underweight position in the sector hurt relative performance during the reporting period. Unfavorable stock selection in the industrials sector detracted from the Fund’s relative performance. In the industrials sector, overweight positions relative to the benchmark in domestic short-haul carrier Southwest Airlines and truck manufacturer Paccar were particularly disappointing.
to the Fund’s relative performance came from information technology, utilities and industrials. In the information technology sector, our valuation factor had less success, leading the Fund to overweight certain low-priced stocks that became even less expensive, which resulted in negative returns. Although utilities outperformed the S&P 500® Index as investors sought dividend yield in an anemic interest-rate environment, the Fund’s underweight position in the sector hurt relative performance during the reporting period. Unfavorable stock selection in the industrials sector detracted from the Fund’s relative performance. In the industrials sector, overweight positions relative to the benchmark in domestic short-haul carrier Southwest Airlines and truck manufacturer Paccar were particularly disappointing.
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 contributions to the Fund’s absolute performance came from computers & peripherals company Apple, integrated oil & gas company ExxonMobil and IT services company International Business Machines. Apple continued to impress investors with solid earnings and revenues from a suite of products that enjoys a loyal consumer following. ExxonMobil performed well as energy prices rose, especially during the months of unrest in the Middle East. International Business Machines, widely consid-
ered a more stable information technology company than most, weathered uncertain economic prospects well during the reporting period, partly because of continued growth in overseas markets such as China and India.
ered a more stable information technology company than most, weathered uncertain economic prospects well during the reporting period, partly because of continued growth in overseas markets such as China and India.
The stocks that detracted the most from the Fund’s absolute performance were diversified financial services firm Bank of America, computers & peripherals company Hewlett-Packard and communications equipment company Cisco Systems. The fallout from the U.S. mortgage crisis and from the European sovereign debt crisis weighed on Bank of America’s share price during the reporting period. The main lines of business at Hew-lett-Packard (PC/printing) and Cisco Systems (networking) lie in the “old tech” segment of the information technology sector. Both stocks generated negative returns during the reporting period, suffering from the global economic slowdown and the trend away from spending in the “old tech” segment.
Did the Fund make any significant purchases or sales during the reporting period?
We initiated a Fund position in consumer finance company American Express in December 2010, on the basis of positive trends in the stock’s momentum factors. Indeed, from January 1 through October 31, 2011, American Express fared relatively well within the financials sector, as the company was less susceptible to the European sovereign debt situation than were
1. See footnote on page 5 for more information on Class R2 shares.
2. Se e foo tnot e on pa ge 6 fo r mor ei nfo rma tio n on Lip per I nc.
3. Se e foo tnot e on pa ge 6 fo r mor ei nfo rma tio n on the S &P 500 Ind ex.
2. Se e foo tnot e on pa ge 6 fo r mor ei nfo rma tio n on Lip per I nc.
3. Se e foo tnot e on pa ge 6 fo r mor ei nfo rma tio n on the S &P 500 Ind ex.
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global banks. We also established a Fund position in pharmaceuticals company Pfizer during the reporting period on the basis of our model’s earnings quality, valuation and momentum scores.
During the reporting period, we trimmed the Fund’s overweight position in Hewlett-Packard when our model interpreted the stock’s recent negative price trend as a sign of weakening fundamentals. We also began reducing the Fund’s overweight position in electrical equipment company Emerson Electric at the end of 2010. We sold the position completely in September 2011, mainly because of a deteriorating price trend.
How did the Fund’s sector weightings change during the reporting period?
During the reporting period, the Fund saw its largest sector weighting increases in health care and consumer staples, both of which are traditionally viewed as defensive sectors. Relative to the S&P 500® Index, the Fund went from an underweight to an overweight position in health care. We added to the Fund’s position in the consumer staples sector, which remained underweight—though less so—relative to the S&P 500® Index at the end of reporting period. To position the Fund more defensively, we decreased the Fund’s weightings in economically sensitive sectors such as financials, materials and energy. The Fund’s modestly underweight positions in financials and materials relative to the S&P 500® Index became increasingly more underweight. Over the course of the reporting period, we trimmed the Fund’s overweight energy position relative to the S&P 500® Index to a more neutral position by the end of the reporting period.
How was the Fund positioned at the end of October 2011?
As of October 31, 2011, the Fund’s most substantially overweight sector positions relative to the S&P 500® Index were in consumer discretionary and health care. As of the same date, the Fund’s most substantially underweight sector positions were in industrials and financials.
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
10 MainStay Common Stock Fund
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Portfolio of Investments October 31, 2011
Shares | Value | |||||||
Common Stocks 97.9% † | ||||||||
Aerospace & Defense 2.2% | ||||||||
Boeing Co. (The) | 156 | $ | 10,263 | |||||
General Dynamics Corp. | 12,093 | 776,250 | ||||||
Goodrich Corp. | 1,099 | 134,770 | ||||||
Honeywell International, Inc. | 2,510 | 131,524 | ||||||
ITT Corp. | 19,681 | 897,454 | ||||||
L-3 Communications Holdings, Inc. | 2,442 | 165,519 | ||||||
Lockheed Martin Corp. | 3,471 | 263,449 | ||||||
Northrop Grumman Corp. | 9,891 | 571,205 | ||||||
Textron, Inc. | 3,357 | 65,193 | ||||||
United Technologies Corp. | 1,975 | 154,010 | ||||||
3,169,637 | ||||||||
Air Freight & Logistics 0.1% | ||||||||
FedEx Corp. | 1,845 | 150,976 | ||||||
Airlines 0.0%‡ | ||||||||
Alaska Air Group, Inc. (a) | 472 | 31,402 | ||||||
Southwest Airlines Co. | 3,587 | 30,669 | ||||||
62,071 | ||||||||
Automobiles 0.2% | ||||||||
Ford Motor Co. (a) | 4,210 | 49,173 | ||||||
Harley-Davidson, Inc. | 7,657 | 297,857 | ||||||
347,030 | ||||||||
Beverages 3.4% | ||||||||
Coca-Cola Co. (The) | 26,221 | 1,791,419 | ||||||
Coca-Cola Enterprises, Inc. | 23,974 | 642,983 | ||||||
Constellation Brands, Inc. Class A (a) | 10,626 | 214,858 | ||||||
Dr. Pepper Snapple Group, Inc. | 18,119 | 678,556 | ||||||
PepsiCo., Inc. | 26,248 | 1,652,311 | ||||||
4,980,127 | ||||||||
Biotechnology 1.9% | ||||||||
Amgen, Inc. | 13,308 | 762,149 | ||||||
Biogen Idec, Inc. (a) | 5,933 | 690,364 | ||||||
Gilead Sciences, Inc. (a) | 31,853 | 1,326,996 | ||||||
2,779,509 | ||||||||
Capital Markets 1.9% | ||||||||
Bank of New York Mellon Corp. (The) | 37,759 | 803,511 | ||||||
Charles Schwab Corp. (The) | 34,924 | 428,867 | ||||||
Janus Capital Group, Inc. | 4,181 | 27,427 | ||||||
Northern Trust Corp. | 13,605 | 550,594 | ||||||
State Street Corp. | 23,127 | 934,100 | ||||||
2,744,499 | ||||||||
Chemicals 1.0% | ||||||||
Air Products & Chemicals, Inc. | 575 | 49,531 | ||||||
CF Industries Holdings, Inc. | 3,686 | 598,127 | ||||||
Ecolab, Inc. | 1,672 | 90,020 | ||||||
Monsanto Co. | 6,365 | 463,054 | ||||||
Mosaic Co. (The) | 3,616 | 211,753 | ||||||
1,412,485 | ||||||||
Commercial Banks 3.2% | ||||||||
BB&T Corp. | 15,206 | 354,908 | ||||||
Comerica, Inc. | 5,005 | 127,878 | ||||||
Huntington Bancshares, Inc. | 5,723 | 29,645 | ||||||
KeyCorp | 72,079 | 508,878 | ||||||
PNC Financial Services Group, Inc. | 1,315 | 70,629 | ||||||
Regions Financial Corp. | 101,142 | 397,488 | ||||||
SunTrust Banks, Inc. | 2,966 | 58,519 | ||||||
U.S. Bancorp | 11,666 | 298,533 | ||||||
X Wells Fargo & Co. | 92,968 | 2,408,801 | ||||||
Zions Bancorp | 17,579 | 305,171 | ||||||
4,560,450 | ||||||||
Commercial Services & Supplies 0.5% | ||||||||
Cintas Corp. | 9,463 | 282,849 | ||||||
Clean Harbors, Inc. (a) | 2,066 | 120,386 | ||||||
Republic Services, Inc. | 1,431 | 40,726 | ||||||
Waste Connections, Inc. | 5,471 | 186,288 | ||||||
Waste Management, Inc. | 2,731 | 89,932 | ||||||
720,181 | ||||||||
Communications Equipment 0.9% | ||||||||
Cisco Systems, Inc. | 44,399 | 822,714 | ||||||
Motorola Mobility Holdings, Inc. (a) | 7,163 | 278,497 | ||||||
Motorola Solutions, Inc. | 199 | 9,335 | ||||||
QUALCOMM, Inc. | 3,707 | 191,281 | ||||||
1,301,827 | ||||||||
Computers & Peripherals 5.1% | ||||||||
X Apple, Inc. (a) | 12,700 | 5,140,706 | ||||||
Dell, Inc. (a) | 52,999 | 837,914 | ||||||
Hewlett-Packard Co. | 31,288 | 832,574 | ||||||
Lexmark International, Inc. Class A (a) | 3,556 | 112,725 | ||||||
Western Digital Corp. (a) | 15,008 | 399,813 | ||||||
7,323,732 | ||||||||
Construction & Engineering 0.4% | ||||||||
Fluor Corp. | 5,734 | 325,978 | ||||||
KBR, Inc. | 6,961 | 194,282 | ||||||
URS Corp. (a) | 1,146 | 40,912 | ||||||
561,172 | ||||||||
† | Percentages indicated are based on Fund net assets. |
X | Among the Fund’s 10 largest holdings, as of October 31, 2011, excluding short-term investment. May be subject to change daily. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 11 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Consumer Finance 0.9% | ||||||||
American Express Co. | 22,714 | $ | 1,149,783 | |||||
Capital One Financial Corp. | 1,337 | 61,047 | ||||||
Discover Financial Services | 3,425 | 80,693 | ||||||
1,291,523 | ||||||||
Containers & Packaging 0.1% | ||||||||
Packaging Corp. of America | 3,304 | 86,168 | ||||||
Distributors 0.2% | ||||||||
Genuine Parts Co. | 4,537 | 260,560 | ||||||
Diversified Consumer Services 1.0% | ||||||||
Apollo Group, Inc. Class A (a) | 11,665 | 552,338 | ||||||
DeVry, Inc. | 4,150 | 156,372 | ||||||
H&R Block, Inc. | 39,249 | 600,117 | ||||||
Sotheby’s | 3,852 | 135,667 | ||||||
1,444,494 | ||||||||
Diversified Financial Services 3.2% | ||||||||
Bank of America Corp. | 51,372 | 350,871 | ||||||
Citigroup, Inc. | 16,597 | 524,299 | ||||||
X JPMorgan Chase & Co. | 66,809 | 2,322,281 | ||||||
Moody’s Corp. | 15,613 | 554,105 | ||||||
NASDAQ OMX Group, Inc. (The) (a) | 24,737 | 619,662 | ||||||
NYSE Euronext | 12,366 | 328,565 | ||||||
4,699,783 | ||||||||
Diversified Telecommunication Services 3.1% | ||||||||
X AT&T, Inc. | 79,747 | 2,337,385 | ||||||
Verizon Communications, Inc. | 59,651 | 2,205,894 | ||||||
4,543,279 | ||||||||
Electric Utilities 0.9% | ||||||||
DPL, Inc. | 7,252 | 220,098 | ||||||
FirstEnergy Corp. | 13,635 | 613,030 | ||||||
N.V. Energy, Inc. | 1,547 | 24,814 | ||||||
Northeast Utilities | 3,747 | 129,534 | ||||||
Progress Energy, Inc. | 6,222 | 324,166 | ||||||
1,311,642 | ||||||||
Electrical Equipment 0.0%‡ | ||||||||
Hubbel, Inc. Class B | 62 | 3,707 | ||||||
Electronic Equipment & Instruments 0.3% | ||||||||
Jabil Circuit, Inc. | 17,646 | 362,802 | ||||||
Energy Equipment & Services 1.7% | ||||||||
Baker Hughes, Inc. | 517 | 29,981 | ||||||
Diamond Offshore Drilling, Inc. | 405 | 26,544 | ||||||
Halliburton Co. | 18,239 | 681,409 | ||||||
Helmerich & Payne, Inc. | 2,231 | 118,645 | ||||||
Nabors Industries, Ltd. (a) | 15,983 | 292,968 | ||||||
National-Oilwell Varco, Inc. | 4,380 | 312,425 | ||||||
Oceaneering International, Inc. | 4,404 | 184,219 | ||||||
Patterson-UTI Energy, Inc. | 21,677 | 440,477 | ||||||
Schlumberger, Ltd. | 3,866 | 284,035 | ||||||
Superior Energy Services, Inc. (a) | 2,823 | 79,383 | ||||||
2,450,086 | ||||||||
Food & Staples Retailing 2.2% | ||||||||
Costco Wholesale Corp. | 9,244 | 769,563 | ||||||
CVS Caremark Corp. | 3,036 | 110,207 | ||||||
Kroger Co. (The) | 6,578 | 152,478 | ||||||
Safeway, Inc. | 9,381 | 181,710 | ||||||
SUPERVALU, Inc. | 6,773 | 54,319 | ||||||
Wal-Mart Stores, Inc. | 18,278 | 1,036,728 | ||||||
Walgreen Co. | 23,815 | 790,658 | ||||||
Whole Foods Market, Inc. | 866 | 62,456 | ||||||
3,158,119 | ||||||||
Food Products 1.0% | ||||||||
ConAgra Foods, Inc. | 14,306 | 362,371 | ||||||
Dean Foods Co. (a) | 34,114 | 331,588 | ||||||
Hershey Co. (The) | 19 | 1,087 | ||||||
Hormel Foods Corp. | 1,736 | 51,160 | ||||||
Smithfield Foods, Inc. (a) | 7,465 | 170,650 | ||||||
Tyson Foods, Inc. Class A | 25,828 | 498,481 | ||||||
1,415,337 | ||||||||
Gas Utilities 0.1% | ||||||||
Atmos Energy Corp. | 1,404 | 48,185 | ||||||
Nicor, Inc. | 1,774 | 99,788 | ||||||
ONEOK, Inc. | 276 | 20,990 | ||||||
168,963 | ||||||||
Health Care Equipment & Supplies 0.7% | ||||||||
Baxter International, Inc. | 2,752 | 151,305 | ||||||
C.R. Bard, Inc. | 1,795 | 154,280 | ||||||
Covidien PLC | 4,520 | 212,621 | ||||||
Intuitive Surgical, Inc. (a) | 24 | 10,413 | ||||||
Medtronic, Inc. | 1,868 | 64,894 | ||||||
St. Jude Medical, Inc. | 3,189 | 124,371 | ||||||
Zimmer Holdings, Inc. (a) | 4,362 | 229,572 | ||||||
947,456 | ||||||||
Health Care Providers & Services 4.4% | ||||||||
Aetna, Inc. | 12,045 | 478,909 | ||||||
AmerisourceBergen Corp. | 15,647 | 638,398 | ||||||
Cardinal Health, Inc. | 9,943 | 440,177 | ||||||
CIGNA Corp. | 4,267 | 189,199 | ||||||
Coventry Health Care, Inc. (a) | 11,864 | 377,394 | ||||||
Health Net, Inc. (a) | 308 | 8,559 | ||||||
Humana, Inc. | 8,372 | 710,699 | ||||||
McKesson Corp. | 15,230 | 1,242,006 |
The notes to the financial statements are an integral part of,
12 MainStay Common Stock Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Health Care Providers & Services (continued) | ||||||||
Medco Health Solutions, Inc. (a) | 421 | $ | 23,096 | |||||
Omnicare, Inc. | 4,173 | 124,439 | ||||||
UnitedHealth Group, Inc. | 29,262 | 1,404,283 | ||||||
WellPoint, Inc. | 11,083 | 763,619 | ||||||
6,400,778 | ||||||||
Hotels, Restaurants & Leisure 1.3% | ||||||||
Darden Restaurants, Inc. | 1,788 | 85,610 | ||||||
International Game Technology | 14,095 | 247,931 | ||||||
McDonald’s Corp. | 8,503 | 789,504 | ||||||
Wyndham Worldwide Corp. | 2,173 | 73,165 | ||||||
Wynn Resorts, Ltd. | 4,419 | 586,843 | ||||||
Yum! Brands, Inc. | 2,999 | 160,656 | ||||||
1,943,709 | ||||||||
Household Durables 0.2% | ||||||||
Leggett & Platt, Inc. | 11,419 | 250,076 | ||||||
Household Products 2.2% | ||||||||
Clorox Co. (The) | 996 | 66,672 | ||||||
Colgate-Palmolive Co. | 8,802 | 795,437 | ||||||
Kimberly-Clark Corp. | 7,253 | 505,606 | ||||||
Procter & Gamble Co. (The) | 27,831 | 1,780,906 | ||||||
3,148,621 | ||||||||
Independent Power Producers & Energy Traders 0.0%‡ | ||||||||
Constellation Energy Group, Inc. | 203 | 8,059 | ||||||
NRG Energy, Inc. (a) | 2,848 | 61,004 | ||||||
69,063 | ||||||||
Industrial Conglomerates 2.6% | ||||||||
3M Co. | 12,054 | 952,507 | ||||||
Danaher Corp. | 3,384 | 163,616 | ||||||
General Electric Co. | 94,445 | 1,578,176 | ||||||
Tyco International, Ltd. | 24,741 | 1,126,953 | ||||||
3,821,252 | ||||||||
Insurance 2.4% | ||||||||
ACE, Ltd. | 4,018 | 289,899 | ||||||
Aflac, Inc. | 7,794 | 351,431 | ||||||
American International Group, Inc. (a) | 3,356 | 82,860 | ||||||
Berkshire Hathaway, Inc. Class B (a) | 9,618 | 748,857 | ||||||
Fidelity National Financial, Inc. Class A | 13,799 | 213,056 | ||||||
Hartford Financial Services Group, Inc. (The) | 29,175 | 561,619 | ||||||
Lincoln National Corp. | 5,332 | 101,575 | ||||||
Principal Financial Group, Inc. | 15,930 | 410,675 | ||||||
Prudential Financial, Inc. | 1,243 | 67,371 | ||||||
Travelers Cos., Inc. (The) | 10,574 | 616,993 | ||||||
3,444,336 | ||||||||
Internet & Catalog Retail 0.8% | ||||||||
Amazon.com, Inc. (a) | 2,189 | 467,373 | ||||||
Expedia, Inc. | 23,012 | 604,295 | ||||||
Priceline.com, Inc. (a) | 195 | 99,006 | ||||||
1,170,674 | ||||||||
Internet Software & Services 1.8% | ||||||||
eBay, Inc. (a) | 11,966 | 380,878 | ||||||
Google, Inc. Class A (a) | 3,541 | 2,098,538 | ||||||
Monster Worldwide, Inc. (a) | 11,785 | 108,776 | ||||||
2,588,192 | ||||||||
IT Services 5.8% | ||||||||
Accenture PLC Class A | 17,959 | 1,082,209 | ||||||
Alliance Data Systems Corp. (a) | 8,348 | 855,169 | ||||||
Broadridge Financial Solutions, Inc. | 2,996 | 66,661 | ||||||
Computer Sciences Corp. | 9,651 | 303,621 | ||||||
Fidelity National Information Services, Inc. | 5,902 | 154,514 | ||||||
Fiserv, Inc. (a) | 833 | 49,039 | ||||||
Global Payments, Inc. | 7,911 | 363,273 | ||||||
X International Business Machines Corp. | 19,858 | 3,666,383 | ||||||
MasterCard, Inc. Class A | 574 | 199,316 | ||||||
SAIC, Inc. (a) | 23,556 | 292,801 | ||||||
Total System Services, Inc. | 28,005 | 557,019 | ||||||
Visa, Inc. Class A | 4,305 | 401,484 | ||||||
Western Union Co. (The) | 18,907 | 330,305 | ||||||
8,321,794 | ||||||||
Leisure Equipment & Products 0.5% | ||||||||
Polaris Industries, Inc. | 11,230 | 711,308 | ||||||
Life Sciences Tools & Services 0.4% | ||||||||
Agilent Technologies, Inc. (a) | 1,852 | 68,653 | ||||||
Covance, Inc. (a) | 5,933 | 300,981 | ||||||
Thermo Fisher Scientific, Inc. (a) | 2,858 | 143,672 | ||||||
513,306 | ||||||||
Machinery 0.6% | ||||||||
Caterpillar, Inc. | 1,177 | 111,179 | ||||||
Dover Corp. | 2,009 | 111,560 | ||||||
PACCAR, Inc. | 4,378 | 189,305 | ||||||
Parker Hannifin Corp. | 5,416 | 441,675 | ||||||
853,719 | ||||||||
Marine 0.0%‡ | ||||||||
Kirby Corp. (a) | 370 | 22,770 | ||||||
Media 4.5% | ||||||||
Cablevision Systems Corp. Class A | 2,119 | 30,662 | ||||||
CBS Corp. Class B | 38,095 | 983,232 | ||||||
Comcast Corp. Class A | 73,508 | 1,723,763 | ||||||
DIRECTV Class A (a) | 19,804 | 900,290 | ||||||
Gannett Co., Inc. | 3,800 | 44,422 |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 13 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Media (continued) | ||||||||
McGraw-Hill Cos., Inc. (The) | 13,034 | $ | 553,945 | |||||
News Corp. Class A | 7,689 | 134,711 | ||||||
Time Warner Cable, Inc. | 13,960 | 889,112 | ||||||
Walt Disney Co. (The) | 30,586 | 1,066,840 | ||||||
Washington Post Co. Class B | 613 | 208,518 | ||||||
6,535,495 | ||||||||
Metals & Mining 0.8% | ||||||||
Freeport-McMoRan Copper & Gold, Inc. | 25,791 | 1,038,346 | ||||||
Newmont Mining Corp. | 1,526 | 101,982 | ||||||
United States Steel Corp. | 2,069 | 52,470 | ||||||
1,192,798 | ||||||||
Multi-Utilities 1.4% | ||||||||
Alliant Energy Corp. | 1,631 | 66,512 | ||||||
Ameren Corp. | 3,840 | 122,419 | ||||||
CenterPoint Energy, Inc. | 23,682 | 493,533 | ||||||
Consolidated Edison, Inc. | 11,407 | 660,123 | ||||||
Dominion Resources, Inc. | 1,072 | 55,305 | ||||||
DTE Energy Co. | 4,970 | 258,987 | ||||||
Integrys Energy Group, Inc. | 2,965 | 156,878 | ||||||
NiSource, Inc. | 355 | 7,842 | ||||||
NSTAR | 1,815 | 81,838 | ||||||
Public Service Enterprise Group, Inc. | 4,193 | 141,304 | ||||||
Vectren Corp. | 970 | 27,529 | ||||||
Xcel Energy, Inc. | 344 | 8,892 | ||||||
2,081,162 | ||||||||
Multiline Retail 0.7% | ||||||||
Big Lots, Inc. (a) | 9,371 | 353,193 | ||||||
Dollar Tree, Inc. (a) | 1,029 | 82,279 | ||||||
Macy’s, Inc. | 3,110 | 94,948 | ||||||
Target Corp. | 9,531 | 521,822 | ||||||
1,052,242 | ||||||||
Oil, Gas & Consumable Fuels 10.7% | ||||||||
Alpha Natural Resources, Inc. (a) | 4,855 | 116,714 | ||||||
Anadarko Petroleum Corp. | 2,330 | 182,905 | ||||||
Apache Corp. | 4,867 | 484,899 | ||||||
X Chevron Corp. | 34,001 | 3,571,805 | ||||||
ConocoPhillips | 22,949 | 1,598,398 | ||||||
Denbury Resources, Inc. (a) | 270 | 4,239 | ||||||
Devon Energy Corp. | 743 | 48,258 | ||||||
EOG Resources, Inc. | 767 | 68,593 | ||||||
X ExxonMobil Corp. | 64,827 | 5,062,340 | ||||||
Hess Corp. | 2,055 | 128,561 | ||||||
HollyFrontier Corp. | 15,662 | 480,667 | ||||||
Marathon Oil Corp. | 32,382 | 842,903 | ||||||
Marathon Petroleum Corp. | 20,846 | 748,371 | ||||||
Occidental Petroleum Corp. | 11,082 | 1,029,961 | ||||||
Plains Exploration & Production Co. (a) | 3,411 | 107,447 | ||||||
Tesoro Corp. (a) | 11,304 | 293,226 | ||||||
Valero Energy Corp. | 26,058 | 641,027 | ||||||
15,410,314 | ||||||||
Paper & Forest Products 0.3% | ||||||||
Domtar Corp. | 4,955 | 405,864 | ||||||
Pharmaceuticals 5.2% | ||||||||
Abbott Laboratories | 14,888 | 802,017 | ||||||
Bristol-Myers Squibb Co. | 216 | 6,823 | ||||||
Eli Lilly & Co. | 26,010 | 966,532 | ||||||
Endo Pharmaceuticals Holdings, Inc. (a) | 3,338 | 107,851 | ||||||
Forest Laboratories, Inc. (a) | 4,229 | 132,368 | ||||||
Johnson & Johnson | 26,083 | 1,679,484 | ||||||
Medicis Pharmaceutical Corp. Class A | 8,408 | 321,942 | ||||||
Merck & Co., Inc. | 22,192 | 765,624 | ||||||
X Pfizer, Inc. | 141,103 | 2,717,644 | ||||||
7,500,285 | ||||||||
Professional Services 0.1% | ||||||||
Towers Watson & Co. Class A | 2,131 | 140,007 | ||||||
Real Estate Investment Trusts 0.6% | ||||||||
American Campus Communities, Inc. | 3,026 | 117,802 | ||||||
Apartment Investment & Management Co. Class A | 6,140 | 151,474 | ||||||
Camden Property Trust | 295 | 17,889 | ||||||
Equity Residential | 174 | 10,210 | ||||||
Essex Property Trust, Inc. | 368 | 52,536 | ||||||
Host Hotels & Resorts, Inc. | 196 | 2,797 | ||||||
Public Storage | 769 | 99,240 | ||||||
Rayonier, Inc. | 9,897 | 413,002 | ||||||
Simon Property Group, Inc. | 314 | 40,330 | ||||||
Taubman Centers, Inc. | 515 | 31,533 | ||||||
936,813 | ||||||||
Real Estate Management & Development 0.1% | ||||||||
CBRE Group, Inc. (a) | 5,790 | 102,946 | ||||||
Jones Lang LaSalle, Inc. | 1,368 | 88,400 | ||||||
191,346 | ||||||||
Road & Rail 2.2% | ||||||||
CSX Corp. | 52,379 | 1,163,337 | ||||||
Kansas City Southern (a) | 292 | 18,446 | ||||||
Norfolk Southern Corp. | 12,119 | 896,685 | ||||||
Ryder System, Inc. | 9,630 | 490,552 | ||||||
Union Pacific Corp. | 6,679 | 665,028 | ||||||
3,234,048 | ||||||||
Semiconductors & Semiconductor Equipment 1.5% | ||||||||
Intel Corp. | 60,087 | 1,474,535 | ||||||
LSI Corp. (a) | 23,471 | 146,694 |
The notes to the financial statements are an integral part of,
14 MainStay Common Stock Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Semiconductors & Semiconductor Equipment (continued) | ||||||||
MEMC Electronic Materials, Inc. (a) | 4,948 | $ | 29,638 | |||||
Micron Technology, Inc. (a) | 86,681 | 484,547 | ||||||
Teradyne, Inc. (a) | 1,392 | 19,933 | ||||||
2,155,347 | ||||||||
Software 5.2% | ||||||||
Adobe Systems, Inc. (a) | 741 | 21,793 | ||||||
BMC Software, Inc. (a) | 7,936 | 275,855 | ||||||
CA, Inc. | 11,690 | 253,206 | ||||||
Cadence Design Systems, Inc. (a) | 35,562 | 393,671 | ||||||
Electronic Arts, Inc. (a) | 8,791 | 205,270 | ||||||
X Microsoft Corp. | 125,684 | 3,346,965 | ||||||
Oracle Corp. | 49,809 | 1,632,241 | ||||||
Symantec Corp. (a) | 60,237 | 1,024,631 | ||||||
Synopsys, Inc. (a) | 11,223 | 300,889 | ||||||
7,454,521 | ||||||||
Specialty Retail 2.8% | ||||||||
Advance Auto Parts, Inc. | 1,365 | 88,820 | ||||||
AutoZone, Inc. (a) | 1,177 | 380,865 | ||||||
Bed Bath & Beyond, Inc. (a) | 6,180 | 382,171 | ||||||
Best Buy Co., Inc. | 5,706 | 149,668 | ||||||
Chico’s FAS, Inc. | 10,464 | 129,335 | ||||||
Dick’s Sporting Goods, Inc. (a) | 987 | 38,582 | ||||||
Foot Locker, Inc. | 24,713 | 540,226 | ||||||
GameStop Corp. Class A (a) | 13,722 | 350,871 | ||||||
Gap, Inc. (The) | 8,254 | 156,001 | ||||||
Home Depot, Inc. (The) | 14,061 | 503,384 | ||||||
Limited Brands, Inc. | 1,067 | 45,572 | ||||||
PetSmart, Inc. | 18,137 | 851,532 | ||||||
Staples, Inc. | 3,961 | 59,257 | ||||||
Williams-Sonoma, Inc. | 11,229 | 421,537 | ||||||
4,097,821 | ||||||||
Textiles, Apparel & Luxury Goods 0.4% | ||||||||
Coach, Inc. | 247 | 16,072 | ||||||
NIKE, Inc. Class B | 806 | 77,658 | ||||||
Ralph Lauren Corp. | 684 | 108,613 | ||||||
VF Corp. | 2,660 | 367,665 | ||||||
570,008 | ||||||||
Thrifts & Mortgage Finance 0.1% | ||||||||
Hudson City Bancorp, Inc. | 22,495 | 140,594 | ||||||
Tobacco 1.9% | ||||||||
Lorillard, Inc. | 5,424 | 600,220 | ||||||
Philip Morris International, Inc. | 31,383 | 2,192,730 | ||||||
2,792,950 | ||||||||
Trading Companies & Distributors 0.1% | ||||||||
W.W. Grainger, Inc. | 939 | 160,860 | ||||||
Wireless Telecommunication Services 0.1% | ||||||||
MetroPCS Communications, Inc. (a) | 6,516 | 55,386 | ||||||
Sprint Nextel Corp. (a) | 39,750 | 102,157 | ||||||
157,543 | ||||||||
Total Common Stocks (Cost $137,384,291) | 141,727,231 | |||||||
Exchange Traded Fund 2.0% (b) | ||||||||
X S&P 500 Index—SPDR Trust Series 1 | 22,810 | 2,861,515 | ||||||
Total Exchange Traded Fund (Cost $2,759,080) | 2,861,515 | |||||||
Principal | ||||||||
Amount | ||||||||
Short-Term Investment 0.1% | ||||||||
Repurchase Agreement 0.1% | ||||||||
State Street Bank and Trust Co. 0.01%, dated 10/31/11 due 11/1/11 Proceeds at Maturity $130,507 (Collateralized by a United States Treasury Bond with a rate of 4.625% and a maturity date of 2/15/40, with a Principal Amount of $105,000 and a Market Value of $133,480) | $ | 130,507 | 130,507 | |||||
Total Short-Term Investment (Cost $130,507) | 130,507 | |||||||
Total Investments (Cost $140,273,878) (c) | 100.0 | % | 144,719,253 | |||||
Other Assets, Less Liabilities | (0.0 | )‡ | (8,410 | ) | ||||
Net Assets | 100.0 | % | $ | 144,710,843 | ||||
‡ | Less than one-tenth of a percent. | |
(a) | Non-income producing security. | |
(b) | Exchange Traded Fund—An investment vehicle that represents a basket of securities that is traded on an exchange. | |
(c) | At October 31, 2011, cost is $144,310,908 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 5,404,581 | ||
Gross unrealized depreciation | (4,996,236 | ) | ||
Net unrealized appreciation | $ | 408,345 | ||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 15 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
The following is a summary of the fair valuations according to the inputs used as of October 31, 2011, for valuing the Fund’s assets.
Asset Valuation Inputs
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Common Stocks | $ | 141,727,231 | $ | — | $ | — | $ | 141,727,231 | ||||||||
Exchange Traded Fund | 2,861,515 | — | — | 2,861,515 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 130,507 | — | 130,507 | ||||||||||||
Total Investments in Securities | $ | 144,588,746 | $ | 130,507 | $ | — | $ | 144,719,253 | ||||||||
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended October 31, 2011, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
At October 31, 2011, 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,
16 MainStay Common Stock Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statement of Assets and Liabilities as of October 31, 2011
Assets | ||||
Investment in securities, at value (identified cost $140,273,878) | $ | 144,719,253 | ||
Receivables: | ||||
Investment securities sold | 1,690,766 | |||
Dividends and interest | 187,180 | |||
Fund shares sold | 12,187 | |||
Other assets | 38,888 | |||
Total assets | 146,648,274 | |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 1,761,422 | |||
Manager (See Note 3) | 72,299 | |||
Transfer agent (See Note 3) | 39,016 | |||
Shareholder communication | 27,186 | |||
Professional fees | 11,670 | |||
NYLIFE Distributors (See Note 3) | 11,610 | |||
Fund shares redeemed | 5,648 | |||
Custodian | 3,301 | |||
Trustees | 778 | |||
Accrued expenses | 4,501 | |||
Total liabilities | 1,937,431 | |||
Net assets | $ | 144,710,843 | ||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 127,921 | ||
Additional paid-in capital | 234,832,783 | |||
234,960,704 | ||||
Undistributed net investment income | 2,238,884 | |||
Accumulated net realized gain (loss) on investments | (96,934,120 | ) | ||
Net unrealized appreciation (depreciation) on investments | 4,445,375 | |||
Net assets | $ | 144,710,843 | ||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 13,917,311 | ||
Shares of beneficial interest outstanding | 1,228,949 | |||
Net asset value per share outstanding | $ | 11.32 | ||
Maximum sales charge (5.50% of offering price) | 0.66 | |||
Maximum offering price per share outstanding | $ | 11.98 | ||
Class A | ||||
Net assets applicable to outstanding shares | $ | 10,662,336 | ||
Shares of beneficial interest outstanding | 940,154 | |||
Net asset value per share outstanding | $ | 11.34 | ||
Maximum sales charge (5.50% of offering price) | 0.66 | |||
Maximum offering price per share outstanding | $ | 12.00 | ||
Class B | ||||
Net assets applicable to outstanding shares | $ | 6,761,597 | ||
Shares of beneficial interest outstanding | 648,306 | |||
Net asset value and offering price per share outstanding | $ | 10.43 | ||
Class C | ||||
Net assets applicable to outstanding shares | $ | 1,221,271 | ||
Shares of beneficial interest outstanding | 117,099 | |||
Net asset value and offering price per share outstanding | $ | 10.43 | ||
Class I | ||||
Net assets applicable to outstanding shares | $ | 112,148,328 | ||
Shares of beneficial interest outstanding | 9,857,620 | |||
Net asset value and offering price per share outstanding | $ | 11.38 | ||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 17 |
Table of Contents
Statement of Operations for the year ended October 31, 2011
Investment Income (Loss) | ||||
Income | ||||
Dividends | $ | 4,982,286 | ||
Interest | 70 | |||
Total income | 4,982,356 | |||
Expenses | ||||
Manager (See Note 3) | 1,351,748 | |||
Transfer agent (See Note 3) | 226,932 | |||
Distribution/Service—Investor Class (See Note 3) | 35,479 | |||
Distribution/Service—Class A (See Note 3) | 30,783 | |||
Distribution/Service—Class B (See Note 3) | 80,309 | |||
Distribution/Service—Class C (See Note 3) | 12,780 | |||
Registration | 89,972 | |||
Professional fees | 60,378 | |||
Shareholder communication | 42,341 | |||
Custodian | 31,612 | |||
Trustees | 6,351 | |||
Miscellaneous | 15,018 | |||
Total expenses | 1,983,703 | |||
Net investment income (loss) | 2,998,653 | |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments | 33,497,513 | |||
Net change in unrealized appreciation (depreciation) on investments | (15,466,809 | ) | ||
Net realized and unrealized gain (loss) on investments | 18,030,704 | |||
Net increase (decrease) in net assets resulting from operations | $ | 21,029,357 | ||
The notes to the financial statements are an integral part of,
18 MainStay Common Stock Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statements of Changes in Net Assets
for the years ended October 31, 2011 and October 31, 2010
2011 | 2010 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 2,998,653 | $ | 2,960,040 | ||||
Net realized gain (loss) on investments (a) | 33,497,513 | 24,660,077 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (15,466,809 | ) | 10,187,172 | |||||
Net increase (decrease) in net assets resulting from operations | 21,029,357 | 37,807,289 | ||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (49,796 | ) | (104,752 | ) | ||||
Class A | (117,655 | ) | (154,695 | ) | ||||
Class B | (2,806 | ) | (10,051 | ) | ||||
Class C | (441 | ) | (1,080 | ) | ||||
Class I | (3,037,676 | ) | (4,263,402 | ) | ||||
Total dividends to shareholders | (3,208,374 | ) | (4,533,980 | ) | ||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 51,838,875 | 71,173,115 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 2,990,464 | 4,258,039 | ||||||
Cost of shares redeemed (b) | (193,804,634 | ) | (138,978,262 | ) | ||||
Increase (decrease) in net assets derived from capital share transactions | (138,975,295 | ) | (63,547,108 | ) | ||||
Net increase (decrease) in net assets | (121,154,312 | ) | (30,273,799 | ) | ||||
Net Assets | ||||||||
Beginning of year | 265,865,155 | 296,138,954 | ||||||
End of year | $ | 144,710,843 | $ | 265,865,155 | ||||
Undistributed net investment income at end of year | $ | 2,238,884 | $ | 2,472,620 | ||||
(a) | Includes realized gain of $1,594,834 due to an in-kind redemption during the year ended October 31, 2010. (See Note 9) |
(b) | Includes an in-kind redemption in the amount of $25,592,241 during the year ended October 31, 2010. (See Note 9) |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 19 |
Table of Contents
Financial Highlights selected per share data and ratios
Investor Class | ||||||||||||||||||
February 28, | ||||||||||||||||||
2008** | ||||||||||||||||||
through | ||||||||||||||||||
Year ended October 31, | October 31, | |||||||||||||||||
2011 | 2010 | 2009 | 2008 | |||||||||||||||
Net asset value at beginning of period | $ | 10.77 | $ | 9.69 | $ | 9.27 | $ | 13.17 | ||||||||||
Net investment income (loss) (a) | 0.06 | 0.03 | 0.07 | 0.03 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.53 | 1.13 | 0.40 | (3.93 | ) | |||||||||||||
Total from investment operations | 0.59 | 1.16 | 0.47 | (3.90 | ) | |||||||||||||
Less dividends: | ||||||||||||||||||
From net investment income | (0.04 | ) | (0.08 | ) | (0.05 | ) | — | |||||||||||
Net asset value at end of period | $ | 11.32 | $ | 10.77 | $ | 9.69 | $ | 9.27 | ||||||||||
Total investment return (b) | 5.47 | % | 11.99 | % | 5.12 | % | (29.61 | %)(c) | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||
Net investment income (loss) | 0.56 | % | 0.25 | % | 0.81 | % | 0.41 | % †† | ||||||||||
Net expenses | 1.52 | % | 1.61 | % | 1.46 | % | 1.40 | % †† | ||||||||||
Expenses (before waiver/reimbursement) | 1.52 | % | 1.61 | % | 1.73 | % | 1.58 | % †† | ||||||||||
Portfolio turnover rate | 139 | % | 152 | % | 138 | % | 158 | % | ||||||||||
Net assets at end of period (in 000’s) | $ | 13,917 | $ | 13,661 | $ | 12,752 | $ | 11,811 |
** | 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. | |
(c) | Total investment return is not annualized. |
Class A | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 10.79 | $ | 9.70 | $ | 9.28 | $ | 16.10 | $ | 14.66 | ||||||||||||
Net investment income (loss) (a) | 0.13 | 0.09 | 0.12 | 0.08 | 0.06 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.53 | 1.13 | 0.40 | (5.70 | ) | 1.72 | ||||||||||||||||
Total from investment operations | 0.66 | 1.22 | 0.52 | (5.62 | ) | 1.78 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.11 | ) | (0.13 | ) | (0.10 | ) | (0.06 | ) | (0.06 | ) | ||||||||||||
From net realized gain on investments | — | — | — | (1.14 | ) | (0.28 | ) | |||||||||||||||
Total dividends and distributions | (0.11 | ) | (0.13 | ) | (0.10 | ) | (1.20 | ) | (0.34 | ) | ||||||||||||
Net asset value at end of year | $ | 11.34 | $ | 10.79 | $ | 9.70 | $ | 9.28 | $ | 16.10 | ||||||||||||
Total investment return (b) | 6.10 | % | 12.64 | % | 5.80 | % | (37.22 | %) | 12.24 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 1.12 | % | 0.90 | % | 1.38 | % | 0.65 | % | 0.42 | % | ||||||||||||
Net expenses | 0.97 | % | 0.96 | % | 0.94 | % | 1.15 | % | 1.29 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 0.97 | % | 0.96 | % | 0.98 | % | 1.30 | % | 1.48 | % | ||||||||||||
Portfolio turnover rate | 139 | % | 152 | % | 138 | % | 158 | % | 122 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 10,662 | $ | 12,140 | $ | 11,579 | $ | 12,530 | $ | 44,874 |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of,
20 MainStay Common Stock Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class B | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 9.96 | $ | 8.97 | $ | 8.60 | $ | 15.07 | $ | 13.80 | ||||||||||||
Net investment income (loss) (a) | (0.02 | ) | (0.05 | ) | 0.01 | (0.04 | ) | (0.04 | ) | |||||||||||||
Net realized and unrealized gain (loss) on investments | 0.49 | 1.05 | 0.36 | (5.29 | ) | 1.59 | ||||||||||||||||
Total from investment operations | 0.47 | 1.00 | 0.37 | (5.33 | ) | 1.55 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.00 | )‡ | (0.01 | ) | — | — | — | |||||||||||||||
From net realized gain on investments | — | — | — | (1.14 | ) | (0.28 | ) | |||||||||||||||
Total dividends and distributions | (0.00 | )‡ | (0.01 | ) | — | (1.14 | ) | (0.28 | ) | |||||||||||||
Net asset value at end of year | $ | 10.43 | $ | 9.96 | $ | 8.97 | $ | 8.60 | $ | 15.07 | ||||||||||||
Total investment return (b) | 4.75 | % | 11.14 | % | 4.30 | % | (37.77 | %) | 11.39 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | (0.17 | %) | (0.49 | %) | 0.14 | % | (0.30 | %) | (0.31 | %) | ||||||||||||
Net expenses | 2.27 | % | 2.36 | % | 2.20 | % | 2.10 | % | 2.04 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 2.27 | % | 2.36 | % | 2.49 | % | 2.27 | % | 2.23 | % | ||||||||||||
Portfolio turnover rate | 139 | % | 152 | % | 138 | % | 158 | % | 122 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 6,762 | $ | 8,466 | $ | 10,371 | $ | 13,212 | $ | 33,203 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
Class C | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 9.96 | $ | 8.97 | $ | 8.59 | $ | 15.07 | $ | 13.79 | ||||||||||||
Net investment income (loss) (a) | (0.02 | ) | (0.05 | ) | 0.01 | (0.04 | ) | (0.05 | ) | |||||||||||||
Net realized and unrealized gain (loss) on investments | 0.49 | 1.05 | 0.37 | (5.30 | ) | 1.61 | ||||||||||||||||
Total from investment operations | 0.47 | 1.00 | 0.38 | (5.34 | ) | 1.56 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.00 | )‡ | (0.01 | ) | — | — | — | |||||||||||||||
From net realized gain on investments | — | — | — | (1.14 | ) | (0.28 | ) | |||||||||||||||
Total dividends and distributions | (0.00 | )‡ | (0.01 | ) | — | (1.14 | ) | (0.28 | ) | |||||||||||||
Net asset value at end of year | $ | 10.43 | $ | 9.96 | $ | 8.97 | $ | 8.59 | $ | 15.07 | ||||||||||||
Total investment return (b) | 4.75 | % | 11.12 | % | 4.42 | % | (37.84 | %) | 11.47 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | (0.18 | %) | (0.49 | %) | 0.12 | % | (0.30 | %) | (0.32 | %) | ||||||||||||
Net expenses | 2.27 | % | 2.36 | % | 2.21 | % | 2.10 | % | 2.04 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 2.27 | % | 2.36 | % | 2.49 | % | 2.27 | % | 2.23 | % | ||||||||||||
Portfolio turnover rate | 139 | % | 152 | % | 138 | % | 158 | % | 122 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 1,221 | $ | 1,352 | $ | 1,357 | $ | 1,611 | $ | 3,334 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 21 |
Table of Contents
Financial Highlights selected per share data and ratios
Class I | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 10.82 | $ | 9.72 | $ | 9.32 | $ | 16.19 | $ | 14.73 | ||||||||||||
Net investment income (loss) (a) | 0.16 | 0.12 | 0.15 | 0.15 | 0.16 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.53 | 1.14 | 0.39 | (5.73 | ) | 1.73 | ||||||||||||||||
Total from investment operations | 0.69 | 1.26 | 0.54 | (5.58 | ) | 1.89 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.13 | ) | (0.16 | ) | (0.14 | ) | (0.15 | ) | (0.15 | ) | ||||||||||||
From net realized gain on investments | — | — | — | (1.14 | ) | (0.28 | ) | |||||||||||||||
Total dividends and distributions | (0.13 | ) | (0.16 | ) | (0.14 | ) | (1.29 | ) | (0.43 | ) | ||||||||||||
Net asset value at end of year | $ | 11.38 | $ | 10.82 | $ | 9.72 | $ | 9.32 | $ | 16.19 | ||||||||||||
Total investment return (b) | 6.43 | % | 13.00 | % | 5.99 | % | (36.92 | %) | 13.03 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 1.39 | % | 1.16 | % | 1.69 | % | 1.16 | % | 1.06 | % | ||||||||||||
Net expenses | 0.72 | % | 0.71 | % | 0.65 | % | 0.62 | % | 0.62 | % | ||||||||||||
Expenses (before reimbursement/waiver) | 0.72 | % | 0.71 | % | 0.73 | % | 0.80 | % | 0.87 | % | ||||||||||||
Portfolio turnover rate | 139 | % | 152 | % | 138 | % | 158 | % | 122 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 112,148 | $ | 230,246 | $ | 260,081 | $ | 336,529 | $ | 219,460 |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. |
The notes to the financial statements are an integral part of,
22 MainStay Common Stock Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Notes to Financial Statements
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of fourteen funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay Common Stock Fund (the “Fund”), a diversified fund.
The Fund currently offers six classes of shares. Class A and Class B shares commenced operations on June 1, 1998. Class C shares commenced operations on September 1, 1998. Class I shares commenced operations on December 28, 2004. Class R2 shares were first offered on December 14, 2007. Investor Class shares commenced operations on February 28, 2008. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies on investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I and Class R2 shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The six classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class, Class A and Class R2 shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I shares are not subject to a distribution and/or service fee. Class R2 shares are subject to a shareholder service fee. This is in addition to any fees paid under a distribution plan, where applicable. There were no investment operations for Class R2 during the year ended October 31, 2011.
The Fund’s investment objective is to seek long-term growth of capital, with income as a secondary consideration.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (usually 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are determined within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish 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 developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in determining the fair value of investments) |
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may utilize some of the following fair value techniques: multi-dimensional relational pricing models, option adjusted spread pricing and estimating the price that would have prevailed in a liquid market for an international equity security given information available at the time of evaluation, when there are significant events after the close of local foreign markets.
The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2011, there have been no changes to the fair value methodologies.
The aggregate value by input level, as of October 31, 2011, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
mainstayinvestments.com 23
Table of Contents
Notes to Financial Statements (continued)
Equity securities and Exchange Traded Funds are valued at the latest quoted sales prices as of the close of regular trading on the Exchange on each valuation date. Securities that are not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Prices normally are taken from the principal market in which each security trades. Investments in other mutual funds are valued at their 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 over 60 days prior to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of the difference between such cost and the value on maturity date. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not obtained from a quoted price in an active market. These securities are all generally categorized as Level 2 in the hierarchy.
Securities for which market quotations are not readily available are valued by methods deemed in good faith by the Fund’s Board to represent fair value. Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security the trading for which 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 the market price of which is not available from an independent pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor (as defined in Note 3(A)) reflect the security’s market value; and (vi) a security where the trading on that security’s principal market is temporarily closed at a time when, under normal conditions, it would be open. These securities are generally categorized as Level 3 in the hierarchy. At October 31, 2011, the Fund did not hold any securities that were fair valued in such a manner.
Certain events may occur between the time that foreign markets close, on which securities held by the Fund principally trade, and the time at which the Fund’s NAV is calculated. These events may include, but are not limited to, situations relating to a single issuer in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. Should the Manager or Subadvisor conclude that such events may have affected the accuracy of the last price reported on the local foreign market, the Manager or Subadvisor may, pursuant to procedures adopted by the Fund’s Board, adjust the value of the local price to reflect the 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, 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 the Fund’s policies and procedures and are generally categorized as Level 2 in the hierarchy. As of October 31, 2011, the Fund did not hold any foreign equity securities.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provision is required.
Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provision for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income and distributions of net realized capital and currency gains, if any, annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(D) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Dividend income is recognized on the ex-dividend date and interest income is accrued as earned using the effective interest rate method. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
(E) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
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(F) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(G) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisor to be creditworthy, pursuant to guidelines established by the Fund’s Board. Repurchase agreements are considered under the 1940 Act to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in such repurchase agreements. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default of 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, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(H) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act, and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund’s cash collateral in accordance with the Lending Agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue to receive interest and dividends on the securities loaned and any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the account of the Fund.
Although the Fund and New York Life Investments (as defined in Note 3(A)) have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund had no portfolio securities on loan as of October 31, 2011.
(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 Investment Management LLC (“New York Life Investments” or the “Manager”), 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, including a portion of the total compensation of the Chief Compliance Officer (“CCO”) of the Fund which is the responsibility of all investment companies for which the CCO serves, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. Madison Square Investors LLC (“MSI” or “Subadvisor”), a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life, serves as Subadvisor to the Fund and is responsible for the day-to-day portfolio management of the Fund. Pursuant to the terms of a Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and MSI, New York Life Investments pays for the services of the Subadvisor.
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.55% up to $500 million; 0.525% from $500 million to $1 billion; and 0.50% in excess of $1 billion, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. The effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.57% for the year ended October 31, 2011, inclusive of a fee for fund accounting services of 0.02% of the Fund’s average daily net assets.
The Manager has voluntarily agreed to waive fees and/or reimburse expenses so that Total Annual Fund Operating Expenses of a class do not exceed the following percentages of average daily net assets: Investor Class, 1.85%; Class B, 2.60%; and Class C, 2.60%. These voluntary waivers or reimbursements may be discontinued at any time. Total Annual Fund Operating Expenses excludes taxes, interest, litigation, extraordinary expenses, brokerage and other transaction expenses relating to the purchase or sale of portfolio investments, and acquired (underlying) fund fees and expenses.
For the year ended October 31, 2011, New York Life Investments earned fees from the Fund in the amount of $1,351,748.
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Notes to Financial Statements (continued)
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution, Service and Shareholder Service Fees. The Trust, on behalf of the Fund, has entered into a Distribution Agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class, Class A and Class R2 Plans, the Distributor receives a monthly distribution fee from the Investor Class, Class A and Class R2 shares at an annual rate of 0.25% of the average daily net assets of the Investor Class, Class A and Class R2 shares for distribution or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average daily net assets of the Class B and Class C shares, along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 1.00%. Class I shares are not subject to a distribution 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 is entitled to a Shareholder Service Fee accrued daily and paid monthly at an annual rate of 0.10% of the average daily net assets attributable to the Class R2 shares. This is in addition to any fees paid under a distribution plan, where applicable.
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $3,249 and $1,148, respectively, for the year ended October 31, 2011. The Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Class B and Class C shares of $273, $14,315 and $72, respectively, for the year ended October 31, 2011.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2011, were as follows:
Investor Class | $ | 84,004 | ||
Class A | 5,268 | |||
Class B | 47,600 | |||
Class C | 7,563 | |||
Class I | 82,497 | |||
(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. At October 31, 2011, New York Life and its affiliates beneficially held shares of the Fund with the following values and percentages of net assets as follows:
Class A | $ | 255 | 0.0 | %‡ | ||||
Class C | 123 | 0.0 | ‡ | |||||
Class I | 2,205 | 0.0 | ‡ | |||||
‡ | Less than one-tenth of a percent. |
(G) Other. Pursuant to a Legal Services Agreement, a portion of the cost of legal services provided to the Fund by the Office of the General Counsel of New York Life Investments was payable directly by the Fund through March 17, 2011. For the year ended October 31, 2011, these fees, which are included in professional fees shown on the Statement of Operations, were $4,255. Effective March 18, 2011, the Legal Services Agreement expired and was not renewed. Therefore, the Fund is no longer directly responsible for any portion of the cost of legal services.
Note 4–Federal Income Tax
As of October 31, 2011, the components of accumulated gain (loss) on a tax basis were as follows:
Accumulated | ||||||||||||||||||
Capital | Other | Unrealized | Total | |||||||||||||||
Ordinary | and Other | Temporary | Appreciation | Accumulated | ||||||||||||||
Income | Gain (Loss) | Differences | (Depreciation) | Gain (Loss) | ||||||||||||||
$ | 2,238,884 | $ | (92,897,090 | ) | $ | — | $ | 408,345 | $ | (90,249,861 | ) | |||||||
The difference between book-basis and tax basis unrealized depreciation is primarily due to wash sale deferrals, real estate investment trust (“REIT”) basis adjustments and basis adjustments due to class action payments.
The following table discloses the current year reclassifications between undistributed net investment income, accumulated net realized income (loss) on investments, and additional paid-in capital arising from permanent differences; net assets at October 31, 2011 were not affected.
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Accumulated | ||||||||||
Undistributed | Net Realized | |||||||||
Net Investment | Gain (Loss) on | Additional | ||||||||
Income (Loss) | Investments | Paid-In Capital | ||||||||
$ | (24,015 | ) | $ | 24,015 | $ | — | ||||
The reclassifications for the Fund is primarily due to return of capital distributions, capital gain distributions from REITs and return of capital distributions from non-REIT securities.
Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
At October 31, 2011, for federal income tax purposes, capital loss carryforwards of $92,897,090 were available as shown in the table below, to the extent provided by the regulations to offset future realized gains of the Fund through the years indicated. To the extent that these capital loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to shareholders. No capital gain distributions shall be made until any capital loss carryforwards have been fully utilized or expired.
Capital Loss | Capital Loss | |||||
Available Through | Amounts (000’s) | |||||
2017 | $ | 92,897 | ||||
The Fund utilized $29,189,813 of capital loss carryforwards during the year ended October 31, 2011.
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 shown in the Statements of Changes in Net Assets was as follows:
2011 | 2010 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 3,208,374 | $ | 4,533,980 | ||||
Note 5–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 6–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 31, 2011, under an amended credit agreement, the aggregate commitment amount is $125,000,000 with an optional maximum amount of $175,000,000. The commitment rate is an annual rate of 0.08% of the average commitment amount, payable quarterly, regardless of usage, to The Bank of New York Mellon, which serves as the agent to the syndicate. The commitment fee is allocated among certain MainStay Funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The amended credit agreement expires on August 29, 2012, although the MainStay Funds and the syndicate of banks may renew the amended credit agreement for an additional year on the same or different terms. Prior to August 31, 2011, the commitment rate was an annual rate of 0.10% of the average commitment amount, plus a 0.02% up-front payment. There were no borrowings made or outstanding with respect to the Fund on the amended credit agreement during the year ended October 31, 2011.
Note 7–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2011, purchases and sales of securities, other than short-term securities, were $328,539 and $467,030, respectively.
Note 8–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 71,504 | $ | 823,904 | |||||
Shares issued to shareholders in reinvestment of dividends | 4,376 | 49,461 | ||||||
Shares redeemed | (210,907 | ) | (2,428,101 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (135,027 | ) | (1,554,736 | ) | ||||
Shares converted into Investor Class (See Note 1) | 126,852 | 1,421,922 | ||||||
Shares converted from Investor Class (See Note 1) | (31,150 | ) | (357,045 | ) | ||||
Net increase (decrease) | (39,325 | ) | $ | (489,859 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 69,122 | $ | 718,903 | |||||
Shares issued to shareholders in reinvestment of dividends | 10,049 | 104,003 | ||||||
Shares redeemed | (231,603 | ) | (2,407,029 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (152,432 | ) | (1,584,123 | ) | ||||
Shares converted into Investor Class (See Note 1) | 144,572 | 1,493,092 | ||||||
Shares converted from Investor Class (See Note 1) | (39,650 | ) | (417,349 | ) | ||||
Net increase (decrease) | (47,510 | ) | $ | (508,380 | ) | |||
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Notes to Financial Statements (continued)
Class A | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 102,427 | $ | 1,167,439 | |||||
Shares issued to shareholders in reinvestment of dividends | 9,773 | 109,994 | ||||||
Shares redeemed | (317,081 | ) | (3,559,161 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (204,881 | ) | (2,281,728 | ) | ||||
Shares converted into Class A (See Note 1) | 47,382 | 541,643 | ||||||
Shares converted from Class A (See Note 1) | (27,252 | ) | (289,757 | ) | ||||
Net increase (decrease) | (184,751 | ) | $ | (2,029,842 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 103,502 | $ | 1,083,518 | |||||
Shares issued to shareholders in reinvestment of dividends | 13,866 | 142,959 | ||||||
Shares redeemed | (263,594 | ) | (2,739,698 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (146,226 | ) | (1,513,221 | ) | ||||
Shares converted into Class A (See Note 1) | 85,585 | 896,175 | ||||||
Shares converted from Class A (See Note 1) | (8,651 | ) | (90,708 | ) | ||||
Net increase (decrease) | (69,292 | ) | $ | (707,754 | ) | |||
Class B | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 77,494 | $ | 821,291 | |||||
Shares issued to shareholders in reinvestment of dividends | 258 | 2,736 | ||||||
Shares redeemed | (154,216 | ) | (1,633,358 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (76,464 | ) | (809,331 | ) | ||||
Shares converted from Class B (See Note 1) | (124,988 | ) | (1,316,763 | ) | ||||
Net increase (decrease) | (201,452 | ) | $ | (2,126,094 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 79,011 | $ | 760,251 | |||||
Shares issued to shareholders in reinvestment of dividends | 1,012 | 9,746 | ||||||
Shares redeemed | (190,139 | ) | (1,821,160 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (110,116 | ) | (1,051,163 | ) | ||||
Shares converted from Class B (See Note 1) | (196,019 | ) | (1,881,210 | ) | ||||
Net increase (decrease) | (306,135 | ) | $ | (2,932,373 | ) | |||
Class C | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 18,058 | $ | 182,243 | |||||
Shares issued to shareholders in reinvestment of dividends | 32 | 337 | ||||||
Shares redeemed | (36,729 | ) | (387,586 | ) | ||||
Net increase (decrease) | (18,639 | ) | $ | (205,006 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 18,405 | $ | 180,846 | |||||
Shares issued to shareholders in reinvestment of dividends | 90 | 866 | ||||||
Shares redeemed | (34,082 | ) | (330,222 | ) | ||||
Net increase (decrease) | (15,587 | ) | $ | (148,510 | ) | |||
Class I | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 4,289,136 | $ | 48,843,998 | |||||
Shares issued to shareholders in reinvestment of dividends | 251,054 | 2,827,936 | ||||||
Shares redeemed | (15,953,505 | ) | (185,796,428 | ) | ||||
Net increase (decrease) | (11,413,315 | ) | $ | (134,124,494 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 6,684,422 | $ | 68,429,597 | |||||
Shares issued to shareholders in reinvestment of dividends | 387,642 | 4,000,465 | ||||||
Shares redeemed (a) | (12,545,659 | ) | (131,680,153 | ) | ||||
Net increase (decrease) | (5,473,595 | ) | $ | (59,250,091 | ) | |||
(a) Includes the redemption of 2,491,893 shares through an in-kind transfer of securities in the amount of $25,592,241. (See Note 9) |
Note 9–In-Kind Transfer of Securities
During the year ended October 31, 2010, the Fund redeemed shares of beneficial interest in exchange for securities. The securities were transferred at their current value on the date of transaction.
Transaction Date | Shares | Redeemed Value | Gain (Loss) | |||||||||
2/26/10 | 2,491,893 | $ | 25,592,241 | $ | 1,594,834 | |||||||
Note 10–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2011, events and transactions subsequent to October 31, 2011 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.
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Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Common Stock Fund (“the Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Common Stock Fund of The MainStay Funds as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
-s- KPMG LLP
Philadelphia, Pennsylvania
December 22, 2011
December 22, 2011
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Federal Income Tax Information (Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders within 60 days of the Fund’s fiscal year end (October 31, 2011) as to the federal tax status of dividends paid by the Fund during such fiscal years.
For the fiscal year ended October 31, 2011, the Fund designated approximately $4,780,574 under the Internal Revenue Code as qualified dividend income eligible for reduced tax rates.
The dividends paid by the Fund during the fiscal year ended October 31, 2011, should be multiplied by 100.0% to arrive at the amount eligible for the corporate dividends received deduction.
In February 2012, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2011. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2011.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
30 MainStay Common Stock Fund
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Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, Eclipse Funds, Eclipse Funds Inc., MainStay Funds Trust, and MainStay VP Funds Trust) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s). Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation upon reaching age 72. A Board Member reaching the age of 72 may continue for additional one-year periods with the approval of the Board’s Nominating and Governance Committee.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Interested Board Member* | ||||||||
John Y. Kim 9/24/60 | Indefinite; Eclipse Funds: Trustee since 2008 (2 funds); Eclipse Funds Inc.: Director since 2008 (1 fund); The MainStay Funds: Trustee since 2008 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc. since 2008 (21 portfolios). | Member of the Board of Managers (since 2011) of New York Life Enterprises LLC; Chairman (since 2011), Member of the Board of Managers, Chief Executive Officer and President (since 2008) of New York Life Investment Management LLC and New York Life Investment Management Holdings LLC; Executive Vice President (since 2011) of New York Life Foundation; Member of the Board of Managers and Chairman of the Board of Private Advisors, L.L.C. (since 2010); Executive Vice President, New York Life Insurance Company (since 2008); Chairman of the Board (2008-2010) and Member of the Boards of Managers (since 2008) of MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, Madison Square Investors LLC, NYLCAP Manager LLC and McMorgan & Company LLC; Chairman of the Board and Chief Executive Officer, NYLIFE Distributors LLC (2008-2010); Executive Vice President of NYLIFE Insurance Company of Arizona and New York Life Insurance and Annuity Corporation (since 2008); President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 66 | None | ||||
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Susan B. Kerley 8/12/51 | Indefinite; Eclipse Funds: Chairman since 2005, and Trustee since 2000 (2 funds); Eclipse Funds Inc.: Chairman since 2005 and Director since 1990 (1 fund); The MainStay Funds: Chairman and Board Member since 2007 (14 funds); MainStay Funds Trust: Chairman and Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Chairman and Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | President, Strategic Management Advisors LLC (since 1990) | 66 | Trustee, Legg Mason Partners Funds, since 1991 (58 portfolios) | ||||
Alan R. Latshaw 3/27/51 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2006 (14 funds); MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 66 | Trustee, State Farm Associates Funds Trusts since 2005 (4 portfolios); Trustee, State Farm Mutual Fund Trust since 2005 (15 portfolios); Trustee, State Farm Variable Product Trust since 2005 (9 portfolios) | ||||
32 MainStay Common Stock Fund
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Peter Meenan 12/5/41 | Indefinite; Eclipse Funds: Trustee since 2002 (2 funds); Eclipse Funds Inc.: Director since 2002 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Independent Consultant; President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 66 | None | ||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2006 (21 portfolios). | Managing Director, ICC Capital Management; President—Shields/Alliance, Alliance Capital Management (1994 to 2004) | 66 | None | ||||
Richard S. Trutanic 2/13/52 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 1994 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 66 | None | ||||
mainstayinvestments.com 33
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Roman L. Weil 5/22/40 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1994 and Audit Committee Financial Expert since 2003 (21 portfolios). | Visiting Professor, NYU Stem School of Business, New York University (since 2011); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School of Business, University of Chicago (1965-2008) | 66 | None | ||||
John A. Weisser 10/22/41 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1997 (21 portfolios). | Retired. Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 66 | Trustee, Direxion Funds since 2007 (27 portfolios); Direxion Insurance Trust since 2007 (1 portfolio); Trustee, Direxion Shares ETF Trust, since 2008 (50 portfolios) | ||||
34 MainStay Common Stock Fund
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The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.
Positions(s) Held | ||||
Name and | with the Funds | Principal Occupation(s) | ||
Date of Birth | and Length of Service | During Past Five Years | ||
Officers | ||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007); Vice President, Prudential Investments (2000 to 2007); Assistant Treasurer, JennisonDryden Family of Funds, Target Portfolio Trust, The Prudential Series Fund and American Skandia Trust (2006 to 2007); Treasurer and Principal Financial Officer, The Greater China Fund (2007) | ||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance (since 2009), Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Assistant Secretary NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2009); Assistant Secretary, The MainStay Funds and ICAP Funds, Inc. (2006 to 2008); Assistant Secretary, Eclipse Funds, Eclipse Funds, Inc. and MainStay VP Series Fund, Inc. (2005 to 2008) | ||
Stephen P. Fisher 2/22/59 | President, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Director, Senior Vice President, New York Life Insurance and Annuity Corporation (since 2011); Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2007); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007) | ||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2010); Director and Counsel of Credit Suisse, Chief Legal Officer and Secretary of Credit Suisse Asset Management, LLC and Credit Suisse Funds (2003 to 2010) | ||
Scott T. Harrington 2/8/59 | Vice President — Administration, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Director (since 2009), New York Life Trust Company FSB; Vice President—Administration, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2005) | ||
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one-year term. |
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay offerings is listed here, with information about the manager, subadvisors, legal counsel, and independent registered public accounting firm.
Equity Funds
MainStay 130/30 Core Fund
MainStay Common Stock Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Fund
MainStay Equity Index Fund1
MainStay Growth Equity Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Small Cap Fund
Income Funds
MainStay Flexible Bond Opportunities Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Municipal Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Money Market Fund
MainStay Principal Preservation Fund
MainStay Short Term Bond Fund
MainStay Tax Free Bond Fund
Blended Funds
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
International Funds
MainStay 130/30 International Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay Global High Income Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
Asset Allocation Funds
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
Retirement Funds
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC2
Chicago, Illinois
MacKay Shields LLC2
New York, New York
Madison Square Investors LLC2
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management, Inc.
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firm
KPMG LLP
1. | Closed to new investors and new purchases as of January 1, 2002. |
2. | An affiliate of New York Life Investment Management LLC. |
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mainstayinvestments.com
The MainStay Funds are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC,
169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
MainStay Investments is a registered service mark and name under which New York Life Investment Management LLC does business.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment
advisory products and services.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment
advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
© 2012 by NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency | ||||||||
NYLIM-24843 MS284-11 | MSCS11-12/11 |
N21
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MainStay Convertible Fund
Message from the President and Annual Report
October 31, 2011
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Message from the President
Volatility was the keynote of the 12 months ended October 31, 2011. U.S. stocks generally advanced, but a variety of domestic and international forces influenced the market.
Early in November 2010, the Federal Open Market Committee (FOMC) announced its intention to extend quantitative easing by purchasing additional longer-term Treasury securities. The stock market reacted positively to this news—and to the midterm elections—and stocks generally advanced through mid-February.
Beginning in December 2010, a wave of protests and civil unrest across North Africa and the Middle East led to a substantial rise in the price of oil. By mid-February, stock prices started to decline. In March, a major earthquake and tsunami in Japan caused manufacturing supply-line interruptions and further setbacks for equity investors. After a sharp decline and a rapid recovery, stocks reached their high point for the 12-month period at the end of April 2011.
Pressed by a weak economy, lackluster employment and widespread concerns about European sovereign debt, the stock market faced wide fluctuations in the coming months. The volatility included a precipitous decline at the end of July into early August. Shortly thereafter, the FOMC expressed its expectation that economic conditions were “likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
After several unsuccessful attempts to recover from their dramatic drop, U.S. stocks reached their low point for the reporting period in early October. Then, buoyed by positive economic data and progress in the European debt situation, the U.S. stock market advanced rapidly in October, to close the reporting period with its best monthly performance in nearly a decade.
International stocks suffered from the turmoil in the Middle East and North Africa, the natural disasters in Japan, the sovereign debt concerns in Europe and the added threat of an economic slowdown in China. For the 12-month period, international stocks declined overall, with particular weakness in Europe.
The bond markets felt the impact of the European debt crisis, and several European nations suffered downgrades. In July, the United States faced a congressional deadlock on raising the debt ceiling and reducing deficit spending. In early August, Standard & Poor’s downgraded the debt of the United States of America to AA+.
Slow progress in resolving the European debt situation led to a flight to quality (or a movement toward securities perceived to carry lower risk). Amid strong demand, U.S. Treasury securities saw prices rise and yields decline, despite the downgrade by Standard & Poor’s. High-grade corporate
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
Throughout the 12-month reporting period, our portfolio managers took note of shifting market forces. But their primary focus was on the investment objectives of their respective Funds and the long-term strategies they were pursuing to achieve them. Some may have sought to capitalize on day-to-day market inefficiencies, but all remained focused on the long-term interests of our shareholders. They sought to apply time-tested investment principles consistently throughout the reporting period.
The information that follows provides specifics about the securities, decisions and market forces that affected your MainStay Fund(s) during the 12 months ended October 31, 2011. Behind the details, we hope you’ll recognize the professionalism and discipline that guided our portfolio managers during this volatile period.
We thank you for investing with MainStay and look forward to serving you for many years to come.
Sincerely,
Stephen P. Fisher
President
President
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Annual Report | ||
Investment and Performance Comparison | 5 | |
Portfolio Management Discussion and Analysis | 9 | |
Portfolio of Investments | 11 | |
Financial Statements | 17 | |
Notes to Financial Statements | 23 | |
Report of Independent Registered Public Accounting Firm | 30 | |
Federal Income Tax Information | 31 | |
Proxy Voting Policies and Procedures and Proxy Voting Record | 31 | |
Shareholder Reports and Quarterly Portfolio Disclosure | 31 | |
Board Members and Officers | 32 | |
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
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Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2011
Gross | ||||||||||||||||||||
Expense | ||||||||||||||||||||
Class | Sales Charge | One Year | Five Years | Ten Years | Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 5.5% Initial Sales Charge | With sales charges | –3 | .63% | 3 | .30% | 5 | .37% | 1 | .28% | ||||||||||
Excluding sales charges | 1 | .98 | 4 | .48 | 5 | .97 | 1 | .28 | ||||||||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges | –3 | .49 | 3 | .45 | 5 | .45 | 1 | .05 | ||||||||||
Excluding sales charges | 2 | .13 | 4 | .63 | 6 | .04 | 1 | .05 | ||||||||||||
Class B Shares | Maximum 5% CDSC | With sales charges | –3 | .81 | 3 | .36 | 5 | .18 | 2 | .03 | ||||||||||
if Redeemed Within the First Six Years of Purchase | Excluding sales charges | 1 | .19 | 3 | .71 | 5 | .18 | 2 | .03 | |||||||||||
Class C Shares | Maximum 1% CDSC | With sales charges | 0 | .20 | 3 | .71 | 5 | .17 | 2 | .03 | ||||||||||
if Redeemed Within One Year of Purchase | Excluding sales charges | 1 | .20 | 3 | .71 | 5 | .17 | 2 | .03 | |||||||||||
Class I Shares4 | No Sales Charge | 2 | .39 | 4 | .88 | 6 | .30 | 0 | .80 | |||||||||||
1. | The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or Fund-share redemptions. Total returns reflect maximum applicable sales charges as indicated in the table above, change in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Investor Class shares might have been lower. |
4. | Performance figures for Class I shares, first offered on November 28, 2008, include the historical performance of Class B shares through November 27, 2008, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Class I shares might have been lower. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com 5
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One | Five | Ten | ||||||||||
Benchmark Performance | Year | Years | Years | |||||||||
Bank of America Merrill Lynch All U.S. Convertible Index5 | 1 | .03% | 3 | .03% | 5 | .61% | ||||||
Average Lipper Convertible Securities Fund6 | 0 | .53 | 2 | .79 | 5 | .67 | ||||||
5. | The Bank of America Merrill Lynch All 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 and have a market value or original par value of at least $50 million. The Bank of America Merrill Lynch All U.S. Convertible Index is the Fund’s broad-based securities market index for comparison purposes. Total returns assume reinvestment of all income, dividends and capital gains. An investment cannot be made directly in an index. |
6. | The average Lipper convertible securities fund is representative of funds that invest primarily in convertible bonds and/or convertible preferred stock. This benchmark is a product of Lipper Inc. Lipper Inc. is an independent monitor of fund performance. Results are based on average total returns of similar funds with all dividend and capital gain distributions reinvested. |
The footnotes on the preceding page are an integral part of the table and graph and should be carefully read in conjunction with them.
6 MainStay Convertible Fund
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Cost in Dollars of a $1,000 Investment in MainStay Convertible Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2011, to October 31, 2011, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2011, to October 31, 2011.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2011. 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.
Ending Account | ||||||||||||||||||||||
Ending Account | Value (Based | |||||||||||||||||||||
Value (Based | on Hypothetical | |||||||||||||||||||||
Beginning | on Actual | Expenses | 5% Annualized | Expenses | ||||||||||||||||||
Account | Returns and | Paid | Return and | Paid | ||||||||||||||||||
Value | Expenses) | During | Actual Expenses) | During | ||||||||||||||||||
Share Class | 5/1/11 | 10/31/11 | Period1 | 10/31/11 | Period1 | |||||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 882.10 | $ | 5.65 | $ | 1,019.20 | $ | 6.06 | ||||||||||||
Class A Shares | $ | 1,000.00 | $ | 882.50 | $ | 4.74 | $ | 1,020.20 | $ | 5.09 | ||||||||||||
Class B Shares | $ | 1,000.00 | $ | 878.30 | $ | 9.18 | $ | 1,015.40 | $ | 9.86 | ||||||||||||
Class C Shares | $ | 1,000.00 | $ | 878.20 | $ | 9.18 | $ | 1,015.40 | $ | 9.86 | ||||||||||||
Class I Shares | $ | 1,000.00 | $ | 883.80 | $ | 3.56 | $ | 1,021.40 | $ | 3.82 | ||||||||||||
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.19% for Investor Class, 1.00% for Class A, 1.94% for Class B and Class C and 0.75% for Class I) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the one-half year period). The table above represents the actual expenses incurred during the one-half year period. |
mainstayinvestments.com 7
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Portfolio Composition as of October 31, 2011 (Unaudited)
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
‡ | Less than one-tenth of a percent. |
Top Ten Holdings or Issuers Held as of October 31, 2011 (excluding short-term investment)
1. | JPMorgan Chase & Co., 1.50%, due 6/25/15 | |
2. | Apache Corp., 6.00% | |
3. | BioMarin Pharmaceutical, Inc., 1.875%, due 4/23/17 | |
4. | EMC Corp., 1.75%, due 12/1/13 | |
5. | St. Mary Land & Exploration Co., 3.50%, due 4/1/27 | |
6. | Biovail Corp., 5.375%, due 8/1/14 | |
7. | Allegheny Technologies, Inc., 4.25%, due 6/1/14 | |
8. | Core Laboratories N.V. | |
9. | Incyte Corp., Ltd., 4.75%, due 10/1/15 | |
10. | Peabody Energy Corp., 4.75%, due 12/15/66 |
8 MainStay Convertible Fund
Table of Contents
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 peers and its benchmark during the 12 months ended October 31, 2011?
to its peers and its benchmark during the 12 months ended October 31, 2011?
Excluding all sales charges, MainStay Convertible Fund returned 1.98% for Investor Class shares, 2.13% for Class A shares, 1.19% for Class B shares and 1.20% for Class C shares for the 12 months ended October 31, 2011. Over the same period, Class I shares returned 2.39%. All share classes outperformed the 0.53% return of the average Lipper1 convertible securities fund and the 1.03% return of the Bank of America Merrill Lynch All U.S. Convertible Index2 for the 12 months ended October 31, 2011. The Bank of America Merrill Lynch All U.S. Convertible Index is the Fund’s broad-based securities-market index. See page 5 for Fund returns with sales charges.
What factors affected the Fund’s relative performance during the reporting period?
The Fund’s outperformance of the Bank of America Merrill Lynch All U.S. Convertible Index was driven by several biotechnology-related holdings that performed well during the reporting period, despite great market volatility. An overweight position in the strong-performing energy sector also enhanced the Fund’s relative performance.
During the reporting period, which segments were the strongest performers and which segments were weak?
During the reporting period, the industry that provided the strongest absolute performance in the Fund was biotechnology, boosted primarily by strong performance from Biomarin Pharmaceuticals and Viropharma. The second-strongest-performing industry on an absolute basis was energy equipment & services. The industry’s advance was largely driven by the rising price of crude oil and the termination of the deep-water drilling ban in the Gulf of Mexico, factors that we believe will increase demand for drilling equipment and services. Information technology was the Fund’s third-strongest-performing segment. Within the information technology sector, convertible bonds of electronic design automation firm Cadence Design Systems and semiconductor company Microchip Technology were particularly strong performers.
During the reporting period, financials was the worst-performing sector on an absolute basis for the Fund and the convertible market as a whole. The financials sector continued to feel the effects of the real estate collapse and the European sovereign debt crisis. Although the Fund’s exposure to the sector was significantly underweight relative to the benchmark, the sector still detracted from the Fund’s results. The Fund’s second-worst-performing segment was the auto industry, where General Motors was particularly weak. The transportation sector, specifically the airlines industry, was the Fund’s third-worst-performing sector, hurt by the rising cost of crude oil. After labor, jet fuel is the second-largest input cost for airlines. The Fund’s position in convertible bonds of AMR, the parent company of American Airlines, detracted from the Fund’s performance.
During the reporting period, which individual Fund holdings were the strongest absolute performers and which Fund holdings were particularly weak?
A convertible bond position in Biomarin Pharmaceuticals was the Fund’s best-performing holding during the reporting period. In our view, the company continued to benefit from its focus on small, niche-product drugs that have little competition and that can command high prices because they address life-threatening ailments. The Fund’s second-best-performing holding was a convertible bond position in Valeant Pharmaceuticals. The company’s common shares and convertible bonds rose sharply after the company reported four quarters of better-than-expected earnings and increased forward earnings expectations. During the reporting period, Valeant Pharmaceuticals also benefited from realized cost savings following its merger with Biovail. The Fund’s convertible bond position in energy equipment provider Cameron International was also a strong performer. The convertible bonds rose in tandem with the company’s common shares, which advanced after Cameron International reported several quarters of decent earnings. We understand that the company expects its business to advance at a solid pace as long as increased offshore drilling continues to drive demand for drilling and flow products.
On an absolute basis, the Fund’s worst-performing holding was a convertible preferred stock position in auto manufacturer General Motors. The company’s common stock and convertible shares declined as general worries about the health of the global economy weighed on economically-sensitive companies. The Fund’s second-weakest performer was a position in the convertible preferred shares of financial services company Citigroup. During the reporting period, Citigroup continued to be plagued by aftershocks from the mortgage security debacle and by concerns about exposure to European sovereign debt. The convertible bonds of biotechnology company Savient Pharmaceuticals were also weak performers. The company’s common stock and convertible bonds declined, largely because of supply and reimbursement issues surrounding one of the company’s leading products, a treatment for recurring gout.
Did the Fund make any significant purchases and sales during the reporting period?
We purchased convertible bonds of information measurement company Nielsen Holdings following the company’s initial public offering in January 2011. We believe that the company’s business should provide relatively predictable returns without significant macroeconomic risks. During the reporting period, we also initiated a Fund position in convertible bonds of gaming, hospitality and entertainment company MGM Resorts International. We expected results in the company’s core Las Vegas market to track economic growth, even if the pace was slow.
1. See footnote on page 6 for more information about Lipper Inc.
2. See footnote on page 6 for more information on the Bank of America Merrill Lynch All U.S. Convertible Index.
mainstayinvestments.com 9
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Convertible bond positions in scientific instruments manufacturer Thermo Fisher Scientific and energy equipment provider Cameron International were tendered when called by their respective issuers. Both holdings were significant positions and were rated investment-grade by Standard & Poor’s and Moody’s.
Were there any changes in the Fund’s sector or industry weightings during the reporting period?
With the purchase of convertible preferred shares of utility company PPL, the Fund’s weighting in the utilities sector increased relative to the Bank of America Merrill Lynch All U.S. Convertible Index. The Fund’s weighting in the financials sector slightly increased with the purchase of convertible bonds of SL Green Operating Partners, a real estate investment trust, but continued to be underweight relative to the Index. The Fund’s weighting in the health care sector decreased following the redemption of the convertible bonds of Thermo Fisher Scientific.
How was the Fund positioned at the end of the reporting period?
As of October 31, 2011, the Fund was overweight relative to the Bank of America Merrill Lynch All U.S. Convertible Index in the energy and health care sectors. On the same date, the Fund held index-neutral weightings in the information technology, materials and consumer discretionary sectors. As of October 31, 2011, the Fund was underweight relative to its benchmark in financials.
The opinions expressed are those of the portfolio manager as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
10 MainStay Convertible Fund
Table of Contents
Portfolio of Investments October 31, 2011
Principal | ||||||||
Amount | Value | |||||||
Convertible Securities 82.4%† Convertible Bonds 66.6% | ||||||||
Aerospace & Defense 1.4% | ||||||||
GenCorp, Inc. 4.063%, due 12/31/39 | $ | 9,284,000 | $ | 8,297,575 | ||||
Kaman Corp. 3.25%, due 11/15/17 (a) | 3,217,000 | 3,743,784 | ||||||
12,041,359 | ||||||||
Airlines 0.2% | ||||||||
AMR Corp. 6.25%, due 10/15/14 | 3,665,000 | 2,056,981 | ||||||
Apparel 0.3% | ||||||||
Iconix Brand Group, Inc. 2.50%, due 6/1/16 (a) | 2,859,000 | 2,744,640 | ||||||
Auto Manufacturers 0.2% | ||||||||
Ford Motor Co. 4.25%, due 11/15/16 | 1,234,000 | 1,841,745 | ||||||
Auto Parts & Equipment 0.8% | ||||||||
ArvinMeritor, Inc. 4.00%, due 2/15/27 | 9,149,000 | 6,953,240 | ||||||
Banks 3.5% | ||||||||
X JPMorgan Chase & Co. 1.50%, due 6/25/15 (a) | 20,170,427 | 29,218,881 | ||||||
Biotechnology 4.8% | ||||||||
Amgen, Inc. 0.375%, due 2/1/13 | 9,874,000 | 9,812,287 | ||||||
Gilead Sciences, Inc. 1.00%, due 5/1/14 | 12,858,000 | 14,272,380 | ||||||
X Incyte Corp., Ltd. 4.75%, due 10/1/15 | 8,975,000 | 15,751,125 | ||||||
39,835,792 | ||||||||
Coal 2.5% | ||||||||
Alpha Natural Resources, Inc. 2.375%, due 4/15/15 | 5,552,000 | 5,406,260 | ||||||
X Peabody Energy Corp. 4.75%, due 12/15/66 | 13,794,000 | 15,104,430 | ||||||
20,510,690 | ||||||||
Commercial Services 2.3% | ||||||||
Avis Budget Group, Inc. 3.50%, due 10/1/14 | 9,300,000 | 10,729,875 | ||||||
Hertz Global Holdings, Inc. 5.25%, due 6/1/14 | 5,139,000 | 7,978,298 | ||||||
18,708,173 | ||||||||
�� | ||||||||
Computers 4.0% | ||||||||
X EMC Corp. 1.75%, due 12/1/13 | 11,916,000 | 19,020,915 | ||||||
Mentor Graphics Corp. 4.00%, due 4/1/31 (a) | 2,249,000 | 2,111,249 | ||||||
Quantum Corp. 3.50%, due 11/15/15 (a) | 3,555,000 | 3,475,012 | ||||||
SanDisk Corp. 1.50%, due 8/15/17 | 7,139,000 | 8,557,876 | ||||||
33,165,052 | ||||||||
Distribution & Wholesale 0.7% | ||||||||
WESCO International, Inc. 6.00%, due 9/15/29 | 3,093,000 | 5,830,305 | ||||||
Electronics 1.0% | ||||||||
TTM Technologies, Inc. 3.25%, due 5/15/15 | 7,990,000 | 8,559,288 | ||||||
Energy—Alternate Sources 1.3% | ||||||||
Covanta Holding Corp. 3.25%, due 6/1/14 | 9,561,000 | 10,541,003 | ||||||
Entertainment 1.1% | ||||||||
International Game Technology 3.25%, due 5/1/14 | 7,827,000 | 9,402,184 | ||||||
Food 0.7% | ||||||||
Spartan Stores, Inc. 3.375%, due 5/15/27 (a) | 5,749,000 | 5,181,286 | ||||||
3.375%, due 5/15/27 | 462,000 | 416,378 | ||||||
5,597,664 | ||||||||
Health Care—Products 4.5% | ||||||||
China Medical Technologies, Inc. 4.00%, due 8/15/13 | 16,220,000 | 11,597,300 | ||||||
Insulet Corp. 3.75%, due 6/15/16 | 6,497,000 | 6,123,423 | ||||||
Integra LifeSciences Holdings Corp. 1.625%, due 12/15/16 (a) | 10,972,000 | 9,627,930 | ||||||
Teleflex, Inc. 3.875%, due 8/1/17 | 8,299,000 | 9,823,941 | ||||||
37,172,594 | ||||||||
† | Percentages indicated are based on Fund net assets. |
X | Among the Fund’s 10 largest holdings or issuers held, as of October 31, 2011, excluding short-term investment. May be subject to change daily. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 11 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Convertible Bonds (continued) | ||||||||
Insurance 0.5% | ||||||||
American Equity Investment Life Holding Co. 3.50%, due 9/15/15 (a) | $ | 3,647,000 | $ | 3,829,350 | ||||
Internet 1.6% | ||||||||
At Home Corp. 4.75%, due 12/31/49 (b)(c)(d)(e) | 9,147,056 | 915 | ||||||
Equinix, Inc. 3.00%, due 10/15/14 | 3,766,000 | 4,147,307 | ||||||
VeriSign, Inc. 3.25%, due 8/15/37 | 8,332,000 | 9,217,275 | ||||||
13,365,497 | ||||||||
Iron & Steel 3.2% | ||||||||
X Allegheny Technologies, Inc. 4.25%, due 6/1/14 | 12,243,000 | 16,681,087 | ||||||
Steel Dynamics, Inc. 5.125%, due 6/15/14 | 4,894,000 | 5,236,580 | ||||||
United States Steel Corp. 4.00%, due 5/15/14 | 4,193,000 | 4,601,818 | ||||||
26,519,485 | ||||||||
Lodging 1.4% | ||||||||
Home Inns & Hotels Management, Inc. 2.00%, due 12/15/15 (a) | 2,489,000 | 2,236,989 | ||||||
MGM Resorts International 4.25%, due 4/15/15 | 8,974,000 | 8,996,435 | ||||||
11,233,424 | ||||||||
Machinery—Diversified 0.4% | ||||||||
Chart Industries, Inc. 2.00%, due 8/1/18 | 3,292,000 | 3,604,740 | ||||||
Media 0.7% | ||||||||
Central European Media Enterprises, Ltd. 5.00%, due 11/15/15 | 7,352,000 | 5,615,090 | ||||||
Miscellaneous—Manufacturing 0.4% | ||||||||
Ingersoll-Rand Co. 4.50%, due 4/15/12 | 1,797,000 | 3,173,951 | ||||||
Oil & Gas 2.6% | ||||||||
BPZ Resources, Inc. 6.50%, due 3/1/15 | 3,020,000 | 2,661,375 | ||||||
X St. Mary Land & Exploration Co. 3.50%, due 4/1/27 | 11,804,000 | 18,517,525 | ||||||
21,178,900 | ||||||||
Pharmaceuticals 12.0% | ||||||||
Akorn, Inc. 3.50%, due 6/1/16 (a) | 7,339,000 | 9,072,839 | ||||||
X BioMarin Pharmaceutical, Inc. 1.875%, due 4/23/17 | 10,952,000 | 19,330,280 | ||||||
X Biovail Corp. 5.375%, due 8/1/14 (a) | 6,106,000 | 17,333,407 | ||||||
Mylan, Inc. 1.25%, due 3/15/12 | 4,168,000 | 4,209,680 | ||||||
3.75%, due 9/15/15 | 3,621,000 | 5,870,546 | ||||||
Omnicare, Inc. 3.75%, due 12/15/25 | 4,336,000 | 5,414,580 | ||||||
Salix Pharmaceuticals, Ltd. 2.75%, due 5/15/15 | 4,419,000 | 4,606,808 | ||||||
Savient Pharmaceuticals, Inc. 4.75%, due 2/1/18 | 8,364,000 | 5,865,255 | ||||||
Teva Pharmaceutical Finance Co. LLC 0.25%, due 2/1/26 | 13,686,000 | 14,455,837 | ||||||
ViroPharma, Inc. 2.00%, due 3/15/17 | 10,580,000 | 13,634,975 | ||||||
99,794,207 | ||||||||
Real Estate Investment Trusts 1.7% | ||||||||
Host Hotels & Resorts, L.P. 2.50%, due 10/15/29 (a) | 6,278,000 | 7,612,075 | ||||||
SL Green Operating Partnership, L.P. 3.00%, due 10/15/17 (a) | 6,019,000 | 6,350,045 | ||||||
13,962,120 | ||||||||
Retail 1.2% | ||||||||
Coinstar, Inc. 4.00%, due 9/1/14 | 7,050,000 | 9,781,875 | ||||||
Semiconductors 3.7% | ||||||||
Microchip Technology, Inc. 2.125%, due 12/15/37 | 8,145,000 | 10,853,212 | ||||||
Novellus Systems, Inc. 2.625%, due 5/15/41 (a) | 10,549,000 | 10,984,146 | ||||||
ON Semiconductor Corp. 2.625%, due 12/15/26 | 7,966,000 | 8,732,728 | ||||||
30,570,086 | ||||||||
Software 2.7% | ||||||||
Electronic Arts, Inc. 0.75%, due 7/15/16 (a) | 9,843,000 | 10,064,467 | ||||||
SYNNEX Corp. 4.00%, due 5/15/18 | 3,004,000 | 3,439,580 | ||||||
VeriFone Systems, Inc. 1.375%, due 6/15/12 | 7,889,000 | 8,756,790 | ||||||
22,260,837 | ||||||||
Telecommunications 5.2% | ||||||||
Anixter International, Inc. 1.00%, due 2/15/13 | 6,220,000 | 6,958,625 |
The notes to the financial statements are an integral part of,
12 MainStay Convertible Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Convertible Bonds (continued) | ||||||||
Telecommunications (continued) | ||||||||
Ciena Corp. 0.875%, due 6/15/17 | $ | 2,835,000 | $ | 2,119,163 | ||||
4.00%, due 3/15/15 (a) | 5,990,000 | 6,117,287 | ||||||
Interdigital, Inc. 2.50%, due 3/15/16 (a) | 2,500,000 | 2,656,250 | ||||||
Ixia 3.00%, due 12/15/15 (a) | 1,285,000 | 1,265,725 | ||||||
Leap Wireless International, Inc. 4.50%, due 7/15/14 | 2,701,000 | 2,363,375 | ||||||
SBA Communications Corp. 1.875%, due 5/1/13 | 8,077,000 | 8,783,737 | ||||||
Virgin Media, Inc. 6.50%, due 11/15/16 | 8,239,000 | 12,482,085 | ||||||
42,746,247 | ||||||||
Total Convertible Bonds (Cost $517,222,487) | 551,815,400 | |||||||
Shares | ||||||||
Convertible Preferred Stocks 15.8% | ||||||||
Auto Manufacturers 0.5% | ||||||||
General Motors Co. 4.75% | 99,500 | 4,135,220 | ||||||
Auto Parts & Equipment 0.6% | ||||||||
Goodyear Tire & Rubber Co. (The) 5.88% | 103,400 | 5,192,748 | ||||||
Banks 2.8% | ||||||||
Bank of America Corp. 7.25% Series L | 9,800 | 8,388,800 | ||||||
Citigroup, Inc. 0.75% | 152,700 | 14,512,608 | ||||||
22,901,408 | ||||||||
Electric 0.6% | ||||||||
PPL Corp. 9.50% | 92,100 | 5,235,885 | ||||||
Hand & Machine Tools 0.6% | ||||||||
Stanley Black & Decker, Inc. 4.75% | 45,000 | 5,151,150 | ||||||
Insurance 1.8% | ||||||||
Hartford Financial Services Group, Inc. 7.25% | 214,867 | 4,503,612 | ||||||
MetLife, Inc. 5.00% | 157,600 | 10,702,616 | ||||||
15,206,228 | ||||||||
Media 1.0% | ||||||||
Nielsen Holdings N.V. 6.25% | 146,500 | 8,423,750 | ||||||
Oil & Gas 5.7% | ||||||||
X Apache Corp. 6.00% | 472,600 | 26,607,380 | ||||||
Chesapeake Energy Corp. (a) 5.75% | 9,400 | 11,321,642 | ||||||
Energy XXI Bermuda, Ltd. 5.63% | 18,700 | 6,266,782 | ||||||
SandRidge Energy, Inc. (a) 7.00% | 22,400 | 2,680,608 | ||||||
46,876,412 | ||||||||
Pharmaceuticals 0.8% | ||||||||
Omnicare Capital Trust II 4.00% | 153,350 | 6,468,303 | ||||||
Real Estate Investment Trusts 0.3% | ||||||||
Health Care REIT, Inc. 6.50% | 47,800 | 2,411,032 | ||||||
Telecommunications 1.1% | ||||||||
Crown Castle International Corp. 6.25% | 150,000 | 8,700,000 | ||||||
Total Convertible Preferred Stocks (Cost $136,454,550) | 130,702,136 | |||||||
Total Convertible Securities (Cost $653,677,037) | 682,517,536 | |||||||
Common Stocks 13.3% | ||||||||
Aerospace & Defense 0.6% | ||||||||
Triumph Group, Inc. | 80,084 | 4,652,880 | ||||||
Apparel 0.8% | ||||||||
Iconix Brand Group, Inc. (f) | 392,000 | 7,036,400 | ||||||
Auto Manufacturers 0.0%‡ | ||||||||
General Motors Co. (f) | 2,621 | 67,753 | ||||||
General Motors Corp. (Escrow Shares) (b)(e)(f) | 569,200 | 6,966 | ||||||
74,719 | ||||||||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 13 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Auto Parts & Equipment 0.1% | ||||||||
Meritor, Inc. (f) | 59,700 | $ | 568,344 | |||||
Banks 0.2% | ||||||||
Bank of America Corp. | 189,500 | 1,294,285 | ||||||
Morgan Stanley | 34,800 | 613,872 | ||||||
1,908,157 | ||||||||
Commercial Services 0.4% | ||||||||
Avis Budget Group, Inc. (f) | 265,100 | 3,737,910 | ||||||
Computers 1.8% | ||||||||
Hewlett-Packard Co. | 77,300 | 2,056,953 | ||||||
iGate Corp. | 271,700 | 3,662,516 | ||||||
Mentor Graphics Corp. (f) | 143,900 | 1,634,704 | ||||||
Synopsys, Inc. (f) | 282,900 | 7,584,549 | ||||||
14,938,722 | ||||||||
Electronics 0.0%‡ | ||||||||
TTM Technologies, Inc. (f) | 32,000 | 357,440 | ||||||
Insurance 0.2% | ||||||||
Hartford Financial Services Group, Inc. (The) | 83,000 | 1,597,750 | ||||||
Internet 1.4% | ||||||||
Blue Coat Systems, Inc. (f) | 263,200 | 4,237,520 | ||||||
Symantec Corp. (f) | 277,000 | 4,711,770 | ||||||
TeleCommunication Systems, Inc. (f) | 768,040 | 2,534,532 | ||||||
11,483,822 | ||||||||
Oil & Gas 0.4% | ||||||||
Forest Oil Corp. (f) | 83,100 | 968,946 | ||||||
Transocean, Ltd. | 35,100 | 2,005,965 | ||||||
2,974,911 | ||||||||
Oil & Gas Services 4.6% | ||||||||
Baker Hughes, Inc. | 124,900 | 7,242,951 | ||||||
X Core Laboratories N.V. | 147,500 | 15,968,350 | ||||||
Gulf Island Fabrication, Inc. | 16,900 | 470,665 | ||||||
Halliburton Co. | 113,326 | 4,233,859 | ||||||
HollyFrontier Corp. | 180,604 | 5,542,737 | ||||||
ION Geophysical Corp. (f) | 530,100 | 4,039,362 | ||||||
Lone Pine Resources, Inc. (f) | 50,897 | 383,255 | ||||||
37,881,179 | ||||||||
Pharmaceuticals 2.2% | ||||||||
Merck & Co., Inc. | 191,917 | 6,621,137 | ||||||
Salix Pharmaceuticals, Ltd. (f) | 307,900 | 10,547,114 | ||||||
ViroPharma, Inc. (f) | 57,500 | 1,163,800 | ||||||
18,332,051 | ||||||||
Semiconductors 0.2% | ||||||||
Advanced Micro Devices, Inc. (f) | 215,100 | 1,254,033 | ||||||
Transportation 0.4% | ||||||||
Tidewater, Inc. | 65,800 | 3,239,334 | ||||||
Total Common Stocks (Cost $117,793,968) | 110,037,652 | |||||||
Number of | ||||||||
Warrants | ||||||||
Warrants 0.0%‡ | ||||||||
Auto Manufacturers 0.0%‡ | ||||||||
General Motors Co. | ||||||||
Strike Price $10.00 Expires 7/10/16 (f) | 1,016 | 17,221 | ||||||
Strike Price $18.33 Expires 7/10/19 (f) | 1,016 | 11,989 | ||||||
Total Warrants (Cost $1,062) | 29,210 | |||||||
Principal | ||||||||
Amount | ||||||||
Short-Term Investment 3.0% | ||||||||
Repurchase Agreement 3.0% | ||||||||
State Street Bank and Trust Co. 0.01%, dated 10/31/11 due 11/1/11 Proceeds at Maturity $25,222,588 (Collateralized by a Federal Home Loan Bank Corp. security with a rate 0.78% and a maturity date of 9/8/14, with a Principal Amount of $25,715,000 and a Market Value of $25,729,606) | $ | 25,222,581 | 25,222,581 | |||||
Total Short-Term Investment (Cost $25,222,581) | 25,222,581 | |||||||
Total Investments (Cost $796,694,648) (g) | 98.7 | % | 817,806,979 | |||||
Other Assets, Less Liabilities | 1.3 | 11,178,542 | ||||||
Net Assets | 100.0 | % | $ | 828,985,521 | ||||
The notes to the financial statements are an integral part of,
14 MainStay Convertible Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
‡ | 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(2) of the Securities Act of 1933, as amended. | |
(b) | Illiquid security. The total market value of these securities at October 31, 2011 is $7,881, which represents less than one-tenth of a percent of the Fund’s net assets. | |
(c) | Restricted security. | |
(d) | Issue in default. | |
(e) | Fair valued security. The total market value of these securities at October 31, 2011 is $7,881, which represents less than one-tenth of a percent of the Fund’s net assets. | |
(f) | Non-income producing security. | |
(g) | At October 31, 2011, cost is $800,592,013 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 70,187,836 | ||
Gross unrealized depreciation | (52,972,870 | ) | ||
Net unrealized appreciation | $ | 17,214,966 | ||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 15 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
The following is a summary of the fair valuations according to the inputs used as of October 31, 2011, for valuing the Fund’s assets.
Asset Valuation Inputs
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Convertible Securities | ||||||||||||||||
Convertible Bonds (b) | $ | — | $ | 551,814,485 | $ | 915 | $ | 551,815,400 | ||||||||
Convertible Preferred Stocks | 130,702,136 | — | — | 130,702,136 | ||||||||||||
Total Convertible Securities | 130,702,136 | 551,814,485 | 915 | 682,517,536 | ||||||||||||
Common Stocks (c) | 110,030,686 | — | 6,966 | 110,037,652 | ||||||||||||
Warrants | 29,210 | — | — | 29,210 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 25,222,581 | — | 25,222,581 | ||||||||||||
Total Investments in Securities | $ | 240,762,032 | $ | 577,037,066 | $ | 7,881 | $ | 817,806,979 | ||||||||
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The Level 3 security valued at $915 is held in Internet within the Convertible Bonds section of the Portfolio of Investments. |
(c) | The Level 3 security valued at $6,966 is held in Auto Manufacturers within the Common Stocks section of the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended October 31, 2011, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
Change in | ||||||||||||||||||||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||||||||||||||||||
Appreciation | ||||||||||||||||||||||||||||||||||||||||
(Depreciation) | ||||||||||||||||||||||||||||||||||||||||
from | ||||||||||||||||||||||||||||||||||||||||
Balance | Change in | Balance | Investments | |||||||||||||||||||||||||||||||||||||
as of | Accrued | Realized | Unrealized | Transfers | Transfers | as of | Still Held at | |||||||||||||||||||||||||||||||||
October 31, | Discounts | Gain | Appreciation | in to | out of | October 31, | October 31, | |||||||||||||||||||||||||||||||||
Investments in Securities | 2010 | (Premiums) | (Loss) | (Depreciation) | Purchases | Sales | Level 3 | Level 3 | 2011 | 2011 (a) | ||||||||||||||||||||||||||||||
Convertible Bonds Internet | $ | 915 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 915 | $ | — | ||||||||||||||||||||
Common Stocks Auto Manufacturers | — | — | — | 6,963 | 20,426 | (b) | (20,423 | )(c) | — | — | 6,966 | 6,963 | ||||||||||||||||||||||||||||
Total | $ | 915 | $ | — | $ | — | $ | 6,963 | $ | 20,426 | $ | (20,423 | ) | $ | — | $ | — | $ | 7,881 | $ | 6,963 | |||||||||||||||||||
(a) | Included in “Net change in unrealized appreciation (depreciation) on investments” in the Statement of Operations. |
(b) | Purchases include securities received from a restructure. |
(c) | Sales include disbursement as a result of a restructure. |
The notes to the financial statements are an integral part of,
16 MainStay Convertible Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statement of Assets and Liabilities as of October 31, 2011
Assets | ||||
Investment in securities, at value (identified cost $796,694,648) | $ | 817,806,979 | ||
Cash | 12,609,912 | |||
Receivables: | ||||
Investment securities sold | 7,792,908 | |||
Dividends and interest | 4,823,485 | |||
Fund shares sold | 998,902 | |||
Other assets | 45,807 | |||
Total assets | 844,077,993 | |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 12,328,653 | |||
Fund shares redeemed | 1,815,093 | |||
Manager (See Note 3) | 402,366 | |||
Transfer agent (See Note 3) | 246,536 | |||
NYLIFE Distributors (See Note 3) | 202,124 | |||
Shareholder communication | 62,000 | |||
Professional fees | 25,355 | |||
Trustees | 4,008 | |||
Custodian | 355 | |||
Accrued expenses | 5,982 | |||
Total liabilities | 15,092,472 | |||
Net assets | $ | 828,985,521 | ||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 548,092 | ||
Additional paid-in capital | 768,230,936 | |||
768,779,028 | ||||
Undistributed net investment income | 1,968,955 | |||
Accumulated net realized gain (loss) on investments | 37,125,207 | |||
Net unrealized appreciation (depreciation) on investments | 21,112,331 | |||
Net assets | $ | 828,985,521 | ||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 85,746,570 | ||
Shares of beneficial interest outstanding | 5,675,045 | |||
Net asset value per share outstanding | $ | 15.11 | ||
Maximum sales charge (5.50% of offering price) | 0.88 | |||
Maximum offering price per share outstanding | $ | 15.99 | ||
Class A | ||||
Net assets applicable to outstanding shares | $ | 367,398,097 | ||
Shares of beneficial interest outstanding | 24,306,784 | |||
Net asset value per share outstanding | $ | 15.12 | ||
Maximum sales charge (5.50% of offering price) | 0.88 | |||
Maximum offering price per share outstanding | $ | 16.00 | ||
Class B | ||||
Net assets applicable to outstanding shares | $ | 43,420,288 | ||
Shares of beneficial interest outstanding | 2,865,369 | |||
Net asset value and offering price per share outstanding | $ | 15.15 | ||
Class C | ||||
Net assets applicable to outstanding shares | $ | 90,273,473 | ||
Shares of beneficial interest outstanding | 5,961,657 | |||
Net asset value and offering price per share outstanding | $ | 15.14 | ||
Class I | ||||
Net assets applicable to outstanding shares | $ | 242,147,093 | ||
Shares of beneficial interest outstanding | 16,000,328 | |||
Net asset value and offering price per share outstanding | $ | 15.13 | ||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 17 |
Table of Contents
Statement of Operations for the year ended October 31, 2011
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 21,723,129 | ||
Dividends (a) | 7,224,894 | |||
Total income | 28,948,023 | |||
Expenses | ||||
Manager (See Note 3) | 5,551,173 | |||
Distribution/Service—Investor Class (See Note 3) | 217,722 | |||
Distribution/Service—Class A (See Note 3) | 1,045,498 | |||
Distribution/Service—Class B (See Note 3) | 528,053 | |||
Distribution/Service—Class C (See Note 3) | 984,273 | |||
Transfer agent (See Note 3) | 1,434,002 | |||
Shareholder communication | 140,101 | |||
Professional fees | 120,029 | |||
Registration | 110,489 | |||
Trustees | 26,713 | |||
Custodian | 17,943 | |||
Miscellaneous | 32,326 | |||
Total expenses | 10,208,322 | |||
Net investment income (loss) | 18,739,701 | |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments | 37,365,006 | |||
Net change in unrealized appreciation (depreciation) on investments | (48,029,038 | ) | ||
Net realized and unrealized gain (loss) on investments | (10,664,032 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | 8,075,669 | ||
(a) | Dividends recorded net of foreign withholding taxes in the amount of $924. |
The notes to the financial statements are an integral part of,
18 MainStay Convertible Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statements of Changes in Net Assets
for the years ended October 31, 2011 and October 31, 2010
2011 | 2010 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 18,739,701 | $ | 16,803,759 | ||||
Net realized gain (loss) on investments | 37,365,006 | 37,675,296 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (48,029,038 | ) | 65,881,876 | |||||
Net increase (decrease) in net assets resulting from operations | 8,075,669 | 120,360,931 | ||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (1,600,042 | ) | (1,855,020 | ) | ||||
Class A | (8,287,054 | ) | (9,144,224 | ) | ||||
Class B | (528,130 | ) | (846,508 | ) | ||||
Class C | (1,019,729 | ) | (1,262,714 | ) | ||||
Class I | (6,486,188 | ) | (3,930,555 | ) | ||||
Total dividends to shareholders | (17,921,143 | ) | (17,039,021 | ) | ||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 383,995,667 | 300,967,545 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 12,573,119 | 12,293,067 | ||||||
Cost of shares redeemed | (363,693,740 | ) | (241,206,770 | ) | ||||
Increase (decrease) in net assets derived from capital share transactions | 32,875,046 | 72,053,842 | ||||||
Net increase (decrease) in net assets | 23,029,572 | 175,375,752 | ||||||
Net Assets | ||||||||
Beginning of year | 805,955,949 | 630,580,197 | ||||||
End of year | $ | 828,985,521 | $ | 805,955,949 | ||||
Undistributed net investment income at end of year | $ | 1,968,955 | $ | 1,150,397 | ||||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 19 |
Table of Contents
Financial Highlights selected per share data and ratios
Investor Class | ||||||||||||||||||||
February 28, | ||||||||||||||||||||
2008** | ||||||||||||||||||||
through | ||||||||||||||||||||
Year ended October 31, | October 31, | |||||||||||||||||||
2011 | 2010 | 2009 | 2008 | |||||||||||||||||
Net asset value at beginning of period | $ | 15.12 | $ | 13.02 | $ | 10.16 | $ | 15.00 | ||||||||||||
Net investment income (loss) (a) | 0.30 | 0.32 | 0.35 | 0.16 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.02 | ) | 2.10 | 2.82 | (4.85 | ) | ||||||||||||||
Total from investment operations | 0.28 | 2.42 | 3.17 | (4.69 | ) | |||||||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.29 | ) | (0.32 | ) | (0.31 | ) | (0.15 | ) | ||||||||||||
Net asset value at end of period | $ | 15.11 | $ | 15.12 | $ | 13.02 | $ | 10.16 | ||||||||||||
Total investment return (b) | 1.98 | % | 18.78 | % | 31.77 | % | (31.51 | %)(c) | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 1.89 | % | 2.25 | % | 3.16 | % | 1.69 | % †† | ||||||||||||
Net expenses | 1.19 | % | 1.28 | % | 1.30 | % | 1.28 | % †† | ||||||||||||
Expenses (before waiver/reimbursement) | 1.19 | % | 1.28 | % | 1.43 | % | 1.34 | % †† | ||||||||||||
Portfolio turnover rate | 80 | % | 80 | % | 68 | % | 103 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 85,747 | $ | 86,301 | $ | 78,734 | $ | 61,439 |
** | 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. | |
(c) | Total investment return is not annualized. |
Class A | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 15.13 | $ | 13.03 | $ | 10.16 | $ | 17.18 | $ | 14.51 | ||||||||||||
Net investment income (loss) (a) | 0.33 | 0.35 | 0.38 | 0.23 | 0.16 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.02 | ) | 2.10 | 2.82 | (5.74 | ) | 2.74 | |||||||||||||||
Total from investment operations | 0.31 | 2.45 | 3.20 | (5.51 | ) | 2.90 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.32 | ) | (0.35 | ) | (0.33 | ) | (0.23 | ) | (0.23 | ) | ||||||||||||
From net realized gain on investments | — | — | — | (1.28 | ) | — | ||||||||||||||||
Total dividends and distributions | (0.32 | ) | (0.35 | ) | (0.33 | ) | (1.51 | ) | (0.23 | ) | ||||||||||||
Net asset value at end of year | $ | 15.12 | $ | 15.13 | $ | 13.03 | $ | 10.16 | $ | 17.18 | ||||||||||||
Total investment return (b) | 2.13 | % | 19.05 | % | 32.11 | % | (35.00 | %) | 20.10 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 2.08 | % | 2.48 | % | 3.34 | % | 1.57 | % | 1.05 | % | ||||||||||||
Net expenses | 0.99 | % | 1.05 | % | 1.10 | % | 1.13 | % | 1.19 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 0.99 | % | 1.05 | % | 1.15 | % | 1.13 | % | 1.29 | % | ||||||||||||
Portfolio turnover rate | 80 | % | 80 | % | 68 | % | 103 | % | 113 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 367,398 | $ | 367,972 | $ | 355,311 | $ | 217,028 | $ | 379,148 |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of,
20 MainStay Convertible Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class B | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 15.16 | $ | 13.05 | $ | 10.18 | $ | 17.21 | $ | 14.54 | ||||||||||||
Net investment income (loss) (a) | 0.18 | 0.21 | 0.27 | 0.11 | 0.05 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.02 | ) | 2.11 | 2.83 | (5.75 | ) | 2.73 | |||||||||||||||
Total from investment operations | 0.16 | 2.32 | 3.10 | (5.64 | ) | 2.78 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.17 | ) | (0.21 | ) | (0.23 | ) | (0.11 | ) | (0.11 | ) | ||||||||||||
From net realized gain on investments | — | — | — | (1.28 | ) | — | ||||||||||||||||
Total dividends and distributions | (0.17 | ) | (0.21 | ) | (0.23 | ) | (1.39 | ) | (0.11 | ) | ||||||||||||
Net asset value at end of year | $ | 15.15 | $ | 15.16 | $ | 13.05 | $ | 10.18 | $ | 17.21 | ||||||||||||
Total investment return (b) | 1.19 | % | 17.93 | % | 30.83 | % | (35.55 | %) | 19.25 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 1.13 | % | 1.51 | % | 2.42 | % | 0.72 | % | 0.31 | % | ||||||||||||
Net expenses | 1.94 | % | 2.03 | % | 2.05 | % | 1.98 | % | 1.94 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.94 | % | 2.03 | % | 2.19 | % | 2.01 | % | 2.04 | % | ||||||||||||
Portfolio turnover rate | 80 | % | 80 | % | 68 | % | 103 | % | 113 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 43,420 | $ | 54,646 | $ | 59,041 | $ | 59,071 | $ | 116,937 |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
Class C | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 15.15 | $ | 13.04 | $ | 10.18 | $ | 17.20 | $ | 14.53 | ||||||||||||
Net investment income (loss) (a) | 0.18 | 0.21 | 0.27 | 0.11 | 0.05 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.02 | ) | 2.11 | 2.82 | (5.74 | ) | 2.73 | |||||||||||||||
Total from investment operations | 0.16 | 2.32 | 3.09 | (5.63 | ) | 2.78 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.17 | ) | (0.21 | ) | (0.23 | ) | (0.11 | ) | (0.11 | ) | ||||||||||||
From net realized gain on investments | — | — | — | (1.28 | ) | — | ||||||||||||||||
Total dividends and distributions | (0.17 | ) | (0.21 | ) | (0.23 | ) | (1.39 | ) | (0.11 | ) | ||||||||||||
Net asset value at end of year | $ | 15.14 | $ | 15.15 | $ | 13.04 | $ | 10.18 | $ | 17.20 | ||||||||||||
Total investment return (b) | 1.20 | % | 17.94 | % | 30.73 | % | (35.51 | %) | 19.27 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 1.13 | % | 1.49 | % | 2.39 | % | 0.75 | % | 0.30 | % | ||||||||||||
Net expenses | 1.94 | % | 2.03 | % | 2.05 | % | 2.00 | % | 1.94 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.94 | % | 2.03 | % | 2.18 | % | 2.04 | % | 2.04 | % | ||||||||||||
Portfolio turnover rate | 80 | % | 80 | % | 68 | % | 103 | % | 113 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 90,273 | $ | 90,474 | $ | 72,563 | $ | 40,498 | $ | 31,158 |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 21 |
Table of Contents
Financial Highlights selected per share data and ratios
Class I | ||||||||||||
November 28, | ||||||||||||
2008** | ||||||||||||
through | ||||||||||||
Year ended October 31, | October 31, | |||||||||||
2011 | 2010 | 2009 | ||||||||||
Net asset value at beginning of period | $ | 15.15 | $ | 13.04 | $ | 9.55 | ||||||
Net investment income (loss) (a) | 0.38 | 0.38 | 0.38 | |||||||||
Net realized and unrealized gain (loss) on investments | (0.04 | ) | 2.12 | 3.44 | ||||||||
Total from investment operations | 0.34 | 2.50 | 3.82 | |||||||||
Less dividends: | ||||||||||||
From net investment income | (0.36 | ) | (0.39 | ) | (0.33 | ) | ||||||
Net asset value at end of period | $ | 15.13 | $ | 15.15 | $ | 13.04 | ||||||
Total investment return (b) | 2.39 | % | 19.41 | % | 40.46 | % (c)(d) | ||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||
Net investment income (loss) | 2.33 | % | 2.66 | % | 3.33 | %†† | ||||||
Net expenses | 0.74 | % | 0.80 | % | 0.86 | %†† | ||||||
Expenses (before reimbursement/waiver) | 0.74 | % | 0.80 | % | 0.89 | %†† | ||||||
Portfolio turnover rate | 80 | % | 80 | % | 68 | % | ||||||
Net assets at end of period (in 000’s) | $ | 242,147 | $ | 206,563 | $ | 64,931 |
** | Commencement of operations. | |
†† | Annualized. | |
(a) | Per share data based on average shares outstanding during the period. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. | |
(c) | Total investment return is not annualized. | |
(d) | Total investment returns may reflect adjustments to conform to generally accepted accounting principles. |
The notes to the financial statements are an integral part of,
22 MainStay Convertible Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Notes to Financial Statements
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of fourteen funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay Convertible Fund (the “Fund”), a diversified fund.
The Fund currently offers five classes of shares. Class A shares commenced operations on January 3, 1995. Class B shares commenced operations on May 1, 1986. Class C shares commenced operations on September 1, 1998. Investor Class shares commenced operations on February 28, 2008. Class I shares commenced operations on November 28, 2008. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies on investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The five classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class and Class A shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I shares are not subject to a distribution and/or service fee.
The Fund’s investment objective is to seek capital appreciation together with current income.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (usually 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are determined within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish 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 developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in determining the fair value of investments) |
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may utilize some of the following fair value techniques: multi-dimensional relational pricing models, option adjusted spread pricing and estimating the price that would have prevailed in a liquid market for an international equity security given information available at the time of evaluation, when there are significant events after the close of local foreign markets.
The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2011, there have been no changes to the fair value methodologies.
The aggregate value by input level, as of October 31, 2011, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
Equity securities and Exchange Traded Funds are valued at the latest quoted sales prices as of the close of regular trading on the Exchange on each valuation date. Securities that are not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices.
mainstayinvestments.com 23
Table of Contents
Notes to Financial Statements (continued)
Prices normally are taken from the principal market in which each security trades. Investments in other mutual funds are valued at their 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 are valued at the evaluated bid prices supplied by a pricing agent or brokers selected by the Fund’s Manager (as defined in Note 3(A)) in consultation with the Fund’s Subadvisor (as defined in Note 3(A)) whose prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Fund’s Manager, in consultation with the Fund’s Subadvisor, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities, including corporate bonds, U.S. government & federal agency bonds, municipal bonds, foreign bonds, Yankee bonds, convertible bonds, asset-backed securities, and mortgage-backed securities, are generally categorized as Level 2 in the hierarchy.
Temporary cash investments acquired over 60 days prior to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of the difference between such cost and the value on maturity date. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not obtained from a quoted price in an active market. These securities are all generally categorized as Level 2 in the hierarchy.
Securities for which market quotations are not readily available are valued by methods deemed in good faith by the Fund’s Board to represent fair value. Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security the trading for which 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 the market price of which is not available from an independent pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor reflect the security’s market value; and (vi) a security where the trading on that security’s principal market is temporarily closed at a time when, under normal conditions, it would be open. These securities are generally categorized as Level 3 in the hierarchy. At October 31, 2011, the Fund held securities with a value of $7,881 that were fair valued in such a manner.
Certain events may occur between the time that foreign markets close, on which securities held by the Fund principally trade, and the time at which the Fund’s NAV is calculated. These events may include, but are not limited to, situations relating to a single issuer in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. Should the Manager or Subadvisor conclude that such events may have affected the accuracy of the last price reported on the local foreign market, the Manager or Subadvisor may, pursuant to procedures adopted by the Fund’s Board, adjust the value of the local price to reflect the 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, 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 the Fund’s policies and procedures and are generally categorized as Level 2 in the hierarchy. As of October 31, 2011, the Fund did not hold any foreign equity securities.
Generally, a security is considered illiquid if it cannot be sold or disposed of in the ordinary course of business at approximately the price at which it is valued. Its illiquidity might prevent the sale of such security at a time when the Manager or Subadvisor might wish to sell, and these securities could have the effect of decreasing the overall level of a Fund’s liquidity. Further, the lack of an established secondary market may make it more difficult to value illiquid securities, requiring the Fund to rely on judgments that may be somewhat subjective in determining value, which could vary from the amount that the Fund could realize upon disposition. Difficulty in selling illiquid securities may result in a loss or may be costly to the Fund. Under the supervision of the Board, the Manager or Subadvisor 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 generally will be valued in such manner as the Board in good faith deems appropriate to reflect their fair market value.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provision is required.
Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provision for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income, if any, quarterly and distributions of net realized capital and currency gains, if
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any, annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(D) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Dividend income is recognized on the ex-dividend date and interest income is accrued as earned using the effective interest rate method. Discounts and premiums on securities purchased, other than Short-Term Investments, for the Fund are accreted and amortized, respectively, on the effective interest rate method over the life of the respective securities or, in the case of a callable security, over the period to the first date of call. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method. Income from payment-in-kind securities is recorded daily based on the effective interest method of accrual.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
(E) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(F) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(G) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisor to be creditworthy, pursuant to guidelines established by the Fund’s Board. Repurchase agreements are considered under the 1940 Act to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in such repurchase agreements. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default of 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, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(H) Rights and Warrants. A right is a certificate that permits the holder to purchase a certain number of shares, or a fractional share, of a new stock from the issuer at a specific price. A warrant is an instrument that entitles the holder to buy an equity security at a specific price for a specific period of time. The Fund generally enters into rights and warrants when securities are acquired through a corporate action. With respect to warrants in international markets, the securities are only purchased when the underlying security cannot be purchased due to the many restrictions an industry and/or country might place on foreign investors. 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 the warrant is not exercised by the date of its expiration. The securities are sold as soon as the opportunity becomes available. The Fund is exposed to risk until each sale is completed. At October 31, 2011, the Fund did not hold any rights.
(I) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act, and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund’s cash collateral in accordance with the Lending Agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue to receive interest and dividends on the securities loaned and any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the account of the Fund.
Although the Fund and New York Life Investments (as defined in Note 3(A)) have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund had no portfolio securities on loan as of October 31, 2011.
(J) Restricted Securities. A restricted security is a security which has been purchased through a private offering and cannot be resold to the general public without prior registration under the Securities Act of 1933, as amended. The Fund may not have the right to demand that such securities be registered. Disposal of these securities may involve time-consuming negotiations and expenses and it may be difficult to obtain a prompt sale at an acceptable price. (See Note 5)
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Notes to Financial Statements (continued)
(K) Concentration of Risk. The Fund invests in high-yield securities (sometimes called ”junk bonds”), which are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities pay investors a premium—a high interest rate or yield—because of the increased risk of loss. These securities can also be subject to greater price volatility.
The Fund invests in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic instruments. These risks include those resulting from currency fluctuations, future adverse political and economic developments and possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. These risks are likely to be greater in emerging markets than in developed markets. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic or political developments in a specific country, industry or region.
(L) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
(M) Quantitative Disclosure of Derivative Holdings. The following tables show additional disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial positions, performance and cash flows. These derivatives are not accounted for as hedging instruments.
Fair value of derivatives as of October 31, 2011:
Asset Derivatives
Statement of | ||||||||||||
Assets and | Equity | |||||||||||
Liabilities | Contracts | |||||||||||
Location | Risk | Total | ||||||||||
Warrants | Investments in securities, at value | $ | 29,210 | $ | 29,210 | |||||||
Total Value | $ | 29,210 | $ | 29,210 | ||||||||
The effect of derivative instruments on the Statement of Operations for the year ended October 31, 2011:
Realized Gain (Loss)
Statement of | Equity | |||||||||||
Operations | Contracts | |||||||||||
Location | Risk | Total | ||||||||||
Warrants | Net realized gain (loss) on investments | $ | (1,247,757 | ) | $ | (1,247,757 | ) | |||||
Total Realized Gain (Loss) | $ | (1,247,757 | ) | $ | (1,247,757 | ) | ||||||
Change in Appreciation (Depreciation)
Statement of | Equity | |||||||||||
Operations | Contracts | |||||||||||
Location | Risk | Total | ||||||||||
Warrants | Net change in unrealized appreciation (depreciation) on investments | $ | 28,148 | $ | 28,148 | |||||||
Total Change in Appreciation (Depreciation) | $ | 28,148 | $ | 28,148 | ||||||||
Number of Contracts, Notional Amounts or Shares/Units (1)
Equity | ||||||||
Contracts | ||||||||
Risk | Total | |||||||
Warrants (2) | 87,290 | 87,290 | ||||||
(1) | Amount disclosed represents the weighted average held during the year ended October 31, 2011. |
(2) | Amount(s) represent(s) number of contracts or number of shares/units. |
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), 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, including a portion of the total compensation of the Chief Compliance Officer (“CCO”) of the Fund which is the responsibility of all investment companies for which the CCO serves, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. MacKay Shields LLC (“MacKay Shields” or the “Subadvisor”), a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life, serves as Subadvisor to the Fund and is responsible for the day-to-day portfolio management of the Fund. Pursuant to the terms of an Amended and Restated Subadvisory Agreement (“Subadvisory Agreement”)
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between New York Life Investments and MacKay Shields, New York Life Investments pays for the services of the Subadvisor.
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.60% up to $500 million; 0.55% from $500 million to $1 billion; and 0.50% in excess of $1 billion, plus a fee for fund accounting services, previously provided by New York Life Investments under a separate fund accounting agreement, furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. The effective management fee rate was 0.59% for the year ended October 31, 2011, inclusive of a fee for effective fund accounting services of 0.01% of the Fund’s average daily net assets.
For the year ended October 31, 2011, New York Life Investments earned fees from the Fund in the amount of $5,551,173.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution and Service Fees. The Trust, on behalf of the Fund, has entered into a Distribution Agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class and Class A Plans, the Distributor receives a monthly distribution fee from the Investor Class and Class A shares at an annual rate of 0.25% of the average daily net assets of the Investor Class and Class A shares for distribution or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average daily net assets of the Class B and Class C shares along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 1.00%. Class I shares are not subject to a distribution or service fee.
The Plans provide that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund’s shares and service activities.
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $29,394 and $117,469, respectively, for the year ended October 31, 2011. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $4, $6,598, $65,932, and $12,608, respectively, for the year ended October 31, 2011.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2011, were as follows:
Investor Class | $ | 266,166 | ||
Class A | 419,306 | |||
Class B | 161,292 | |||
Class C | 300,773 | |||
Class I | 286,465 | |||
(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. At October 31, 2011, New York Life and its affiliates beneficially held shares of the Fund with the following values and percentages of net assets as follows:
Class A | $ | 262 | 0.0 | %‡ | ||||
Class C | 151 | 0.0 | ‡ | |||||
Class I | 42,932 | 0.0 | ‡ | |||||
‡ | Less than one-tenth of a percent. |
(G) Other. Pursuant to a Legal Services Agreement, a portion of the cost of legal services provided to the Fund by the Office of the General Counsel of New York Life Investments was payable directly by the Fund through March 17, 2011. For the year ended October 31, 2011, these fees, which are included in professional fees shown on the Statement of Operations, were $15,819. Effective March 18, 2011, the Legal Services Agreement expired and was not renewed. Therefore, the Fund is no longer directly responsible for any portion of the cost of legal services.
Note 4–Federal Income Tax
As of October 31, 2011, the components of accumulated gain (loss) on a tax basis were as follows:
Accumulated | ||||||||||||||||||
Capital | Other | Unrealized | Total | |||||||||||||||
Ordinary | and Other | Temporary | Appreciation | Accumulated | ||||||||||||||
Income | Gain (Loss) | Differences | (Depreciation) | Gain (Loss) | ||||||||||||||
$ | 11,301,474 | $ | 31,848,312 | $ | (158,259 | ) | $ | 17,214,966 | $ | 60,206,493 | ||||||||
The difference between book-basis and tax basis unrealized appreciation (depreciation) is primarily due to wash sales deferrals. The other temporary differences are primarily due to interest income on defaulted securities.
Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited
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Notes to Financial Statements (continued)
period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
The Fund utilized $241,683 of capital loss carryforwards during the year ended October 31, 2011.
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 shown in the Statements of Changes in Net Assets was as follows:
2011 | 2010 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 17,921,143 | $ | 17,039,021 | ||||
Note 5–Restricted Securities
As of October 31, 2011, the Fund held the following restricted security:
Date of | Principal | 10/31/11 | Percentage of | |||||||||||||||||
Security | Acquisition | Amount | Cost | Value | Net Assets | |||||||||||||||
At Home Corp. Convertible Bond 4.75%, due 12/31/49 | 07/25/01 | $ | 9,147,056 | $ | 674,023 | $ | 915 | 0.0 | %‡ | |||||||||||
‡ | Less than one-tenth of a percent. |
Note 6–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 7–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 31, 2011, under an amended credit agreement, the aggregate commitment amount is $125,000,000 with an optional maximum amount of $175,000,000. The commitment rate is an annual rate of 0.08% of the average commitment amount, payable quarterly, regardless of usage, to The Bank of New York Mellon, which serves as the agent to the syndicate. The commitment fee is allocated among certain MainStay Funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The amended credit agreement expires on August 29, 2012, although the MainStay Funds and the syndicate of banks may renew the amended credit agreement for an additional year on the same or different terms. Prior to August 31, 2011, the commitment rate was an annual rate of 0.10% of the average commitment amount, plus a 0.02% up-front payment. There were no borrowings made or outstanding with respect to the Fund on the amended credit agreement during the year ended October 31, 2011.
Note 8–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2011, purchases and sales of securities, other than short-term securities, were $761,486 and $719,069, respectively.
Note 9–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 465,923 | $ | 7,551,313 | |||||
Shares issued to shareholders in reinvestment of dividends | 100,782 | 1,584,776 | ||||||
Shares redeemed | (757,343 | ) | (12,084,811 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (190,638 | ) | (2,948,722 | ) | ||||
Shares converted into Investor Class (See Note 1) | 730,964 | 11,038,661 | ||||||
Shares converted from Investor Class (See Note 1) | (572,490 | ) | (9,273,397 | ) | ||||
Net increase (decrease) | (32,164 | ) | $ | (1,183,458 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 417,765 | $ | 5,911,854 | |||||
Shares issued to shareholders in reinvestment of dividends | 130,423 | 1,834,207 | ||||||
Shares redeemed | (792,321 | ) | (11,171,986 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (244,133 | ) | (3,425,925 | ) | ||||
Shares converted into Investor Class (See Note 1) | 426,571 | 6,033,494 | ||||||
Shares converted from Investor Class (See Note 1) | (522,362 | ) | (7,460,031 | ) | ||||
Net increase (decrease) | (339,924 | ) | $ | (4,852,462 | ) | |||
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Class A | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 8,664,883 | $ | 141,118,764 | |||||
Shares issued to shareholders in reinvestment of dividends | 444,595 | 7,025,686 | ||||||
Shares redeemed | (9,625,354 | ) | (153,223,379 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (515,876 | ) | (5,078,929 | ) | ||||
Shares converted into Class A (See Note 1) | 900,197 | 14,526,215 | ||||||
Shares converted from Class A (See Note 1) | (402,213 | ) | (5,786,759 | ) | ||||
Net increase (decrease) | (17,892 | ) | $ | 3,660,527 | ||||
Year ended October 31, 2010: | ||||||||
Shares sold | 6,759,032 | $ | 95,814,997 | |||||
Shares issued to shareholders in reinvestment of dividends | 551,531 | 7,757,414 | ||||||
Shares redeemed | (9,769,724 | ) | (137,788,175 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (2,459,161 | ) | (34,215,764 | ) | ||||
Shares converted into Class A (See Note 1) | 941,155 | 13,401,042 | ||||||
Shares converted from Class A (See Note 1) | (91,343 | ) | (1,337,331 | ) | ||||
Shares converted from Class A (a) | (1,343,100 | ) | (18,709,381 | ) | ||||
Net increase (decrease) | (2,952,449 | ) | $ | (40,861,434 | ) | |||
Class B | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 449,232 | $ | 7,311,371 | |||||
Shares issued to shareholders in reinvestment of dividends | 28,300 | 447,511 | ||||||
Shares redeemed | (560,699 | ) | (8,976,981 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (83,167 | ) | (1,218,099 | ) | ||||
Shares converted from Class B (See Note 1) | (655,790 | ) | (10,504,720 | ) | ||||
Net increase (decrease) | (738,957 | ) | $ | (11,722,819 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 495,225 | $ | 7,022,583 | |||||
Shares issued to shareholders in reinvestment of dividends | 52,723 | 743,905 | ||||||
Shares redeemed | (713,434 | ) | (10,080,766 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (165,486 | ) | (2,314,278 | ) | ||||
Shares converted from Class B (See Note 1) | (753,246 | ) | (10,637,174 | ) | ||||
Net increase (decrease) | (918,732 | ) | $ | (12,951,452 | ) | |||
Class C | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 1,626,122 | $ | 26,300,062 | |||||
Shares issued to shareholders in reinvestment of dividends | 43,443 | 683,259 | ||||||
Shares redeemed | (1,679,437 | ) | (26,508,376 | ) | ||||
Net increase (decrease) | (9,872 | ) | $ | 474,945 | ||||
Year ended October 31, 2010: | ||||||||
Shares sold | 1,605,272 | $ | 22,743,678 | |||||
Shares issued to shareholders in reinvestment of dividends | 59,035 | 833,214 | ||||||
Shares redeemed | (1,255,621 | ) | (17,676,182 | ) | ||||
Net increase (decrease) | 408,686 | $ | 5,900,710 | |||||
Class I | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 12,441,138 | $ | 201,714,157 | |||||
Shares issued to shareholders in reinvestment of dividends | 176,106 | 2,831,887 | ||||||
Shares redeemed | (10,254,792 | ) | (162,900,193 | ) | ||||
Net increase (decrease) | 2,362,452 | $ | 41,645,851 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 11,801,058 | $ | 169,474,433 | |||||
Shares issued to shareholders in reinvestment of dividends | 79,699 | 1,124,327 | ||||||
Shares redeemed | (4,562,713 | ) | (64,489,661 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 7,318,044 | 106,109,099 | ||||||
Shares converted into Class I (a) | 1,341,173 | 18,709,381 | ||||||
Net increase (decrease) | 8,659,217 | $ | 124,818,480 | |||||
(a) | In addition to any automatic conversion features described above in Note 1 with respect to Investor Class, Class A and Class B shares, investors generally may also elect to convert their shares on a voluntary basis into another share class of the same MainStay Fund subject to satisfying the eligibility requirements of the new share class, if any. However, the following limitations apply: |
• | Investor Class, Class A and Class C shares that remain subject to a CDSC are ineligible for a voluntary conversion; and | |
• | All Class B shares are ineligible for a voluntary conversion. |
These limitations do not impact any automatic conversion features described elsewhere in Note 1 with respect to Investor Class, Class A and Class B shares.
An investor or an investor’s financial intermediary may contact the MainStay Funds to request a voluntary conversion between share classes of the same MainStay Fund. Investors may be required to provide sufficient information to establish eligibility to convert to the new share class. All permissible conversions will be made on the basis of the relevant NAVs of the two classes without the imposition of any sales load, fee or other charge. If an investor fails to remain eligible for the new share class, they may be converted automatically back to their original share class, or into another share class, if appropriate. Although the MainStay Funds expect that a conversion between share classes of the same MainStay Fund should not result in the recognition of a gain or loss for tax purposes, shareholders should consult with their own tax adviser with respect to the tax treatment of their investment in a MainStay Fund. The MainStay Funds may change, suspend or terminate this conversion feature at any time.
Note 10–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2011, events and transactions subsequent to October 31, 2011 through the date the financial statements were issued have been evaluated by the Fund’s management for possible adjustment and/or disclosure. No subsequent events requiring financial statement adjustment or disclosure have been identified.
mainstayinvestments.com 29
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Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Convertible Fund (“the Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Convertible Fund of The MainStay Funds as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 22, 2011
December 22, 2011
30 MainStay Convertible Fund
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Federal Income Tax Information (Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders within 60 days of the Fund’s fiscal year end (October 31, 2011) as to the federal tax status of dividends paid by the Fund during such fiscal years.
For the fiscal year ended October 31, 2011, the Fund designated approximately $6,598,873 under the Internal Revenue Code as qualified dividend income eligible for reduced tax rates.
The dividends paid by the Fund during the fiscal year ended October 31, 2011, should be multiplied by 23.5% to arrive at the amount eligible for the corporate dividends received deduction.
In February 2012, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2011. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2011.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
mainstayinvestments.com 31
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Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, Eclipse Funds, Eclipse Funds Inc., MainStay Funds Trust, and MainStay VP Funds Trust) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s). Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation upon reaching age 72. A Board Member reaching the age of 72 may continue for additional one-year periods with the approval of the Board’s Nominating and Governance Committee.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Interested Board Member* | ||||||||
John Y. Kim 9/24/60 | Indefinite; Eclipse Funds: Trustee since 2008 (2 funds); Eclipse Funds Inc.: Director since 2008 (1 fund); The MainStay Funds: Trustee since 2008 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc. since 2008 (21 portfolios). | Member of the Board of Managers (since 2011) of New York Life Enterprises LLC; Chairman (since 2011), Member of the Board of Managers, Chief Executive Officer and President (since 2008) of New York Life Investment Management LLC and New York Life Investment Management Holdings LLC; Executive Vice President (since 2011) of New York Life Foundation; Member of the Board of Managers and Chairman of the Board of Private Advisors, L.L.C. (since 2010); Executive Vice President, New York Life Insurance Company (since 2008); Chairman of the Board (2008-2010) and Member of the Boards of Managers (since 2008) of MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, Madison Square Investors LLC, NYLCAP Manager LLC and McMorgan & Company LLC; Chairman of the Board and Chief Executive Officer, NYLIFE Distributors LLC (2008-2010); Executive Vice President of NYLIFE Insurance Company of Arizona and New York Life Insurance and Annuity Corporation (since 2008); President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 66 | None | ||||
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
32 MainStay Convertible Fund
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Susan B. Kerley 8/12/51 | Indefinite; Eclipse Funds: Chairman since 2005, and Trustee since 2000 (2 funds); Eclipse Funds Inc.: Chairman since 2005 and Director since 1990 (1 fund); The MainStay Funds: Chairman and Board Member since 2007 (14 funds); MainStay Funds Trust: Chairman and Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Chairman and Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | President, Strategic Management Advisors LLC (since 1990) | 66 | Trustee, Legg Mason Partners Funds, since 1991 (58 portfolios) | ||||
Alan R. Latshaw 3/27/51 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2006 (14 funds); MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 66 | Trustee, State Farm Associates Funds Trusts since 2005 (4 portfolios); Trustee, State Farm Mutual Fund Trust since 2005 (15 portfolios); Trustee, State Farm Variable Product Trust since 2005 (9 portfolios) | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Peter Meenan 12/5/41 | Indefinite; Eclipse Funds: Trustee since 2002 (2 funds); Eclipse Funds Inc.: Director since 2002 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Independent Consultant; President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 66 | None | ||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2006 (21 portfolios). | Managing Director, ICC Capital Management; President—Shields/Alliance, Alliance Capital Management (1994 to 2004) | 66 | None | ||||
Richard S. Trutanic 2/13/52 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 1994 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 66 | None | ||||
34 MainStay Convertible Fund
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Roman L. Weil 5/22/40 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1994 and Audit Committee Financial Expert since 2003 (21 portfolios). | Visiting Professor, NYU Stem School of Business, New York University (since 2011); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School of Business, University of Chicago (1965-2008) | 66 | None | ||||
John A. Weisser 10/22/41 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1997 (21 portfolios). | Retired. Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 66 | Trustee, Direxion Funds since 2007 (27 portfolios); Direxion Insurance Trust since 2007 (1 portfolio); Trustee, Direxion Shares ETF Trust, since 2008 (50 portfolios) | ||||
mainstayinvestments.com 35
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The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.
Positions(s) Held | ||||
Name and | with the Funds | Principal Occupation(s) | ||
Date of Birth | and Length of Service | During Past Five Years | ||
Officers | ||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007); Vice President, Prudential Investments (2000 to 2007); Assistant Treasurer, JennisonDryden Family of Funds, Target Portfolio Trust, The Prudential Series Fund and American Skandia Trust (2006 to 2007); Treasurer and Principal Financial Officer, The Greater China Fund (2007) | ||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance (since 2009), Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Assistant Secretary NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2009); Assistant Secretary, The MainStay Funds and ICAP Funds, Inc. (2006 to 2008); Assistant Secretary, Eclipse Funds, Eclipse Funds, Inc. and MainStay VP Series Fund, Inc. (2005 to 2008) | ||
Stephen P. Fisher 2/22/59 | President, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Director, Senior Vice President, New York Life Insurance and Annuity Corporation (since 2011); Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2007); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007) | ||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2010); Director and Counsel of Credit Suisse, Chief Legal Officer and Secretary of Credit Suisse Asset Management, LLC and Credit Suisse Funds (2003 to 2010) | ||
Scott T. Harrington 2/8/59 | Vice President — Administration, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Director (since 2009), New York Life Trust Company FSB; Vice President—Administration, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2005) | ||
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one-year term. |
36 MainStay Convertible Fund
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay offerings is listed here, with information about the manager, subadvisors, legal counsel, and independent registered public accounting firm.
Equity Funds
MainStay 130/30 Core Fund
MainStay Common Stock Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Fund
MainStay Equity Index Fund1
MainStay Growth Equity Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Small Cap Fund
Income Funds
MainStay Flexible Bond Opportunities Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Municipal Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Money Market Fund
MainStay Principal Preservation Fund
MainStay Short Term Bond Fund
MainStay Tax Free Bond Fund
Blended Funds
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
International Funds
MainStay 130/30 International Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay Global High Income Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
Asset Allocation Funds
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
Retirement Funds
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC2
Chicago, Illinois
MacKay Shields LLC2
New York, New York
Madison Square Investors LLC2
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management, Inc.
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firm
KPMG LLP
1. | Closed to new investors and new purchases as of January 1, 2002. |
2. | An affiliate of New York Life Investment Management LLC. |
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mainstayinvestments.com
The MainStay Funds are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors
LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
MainStay Investments is a registered service mark and name under which New York Life Investment Management LLC does business.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment
advisory products and services.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment
advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
© 2012 by NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency | ||||||||
NYLIM-24948 MS284-11 | MSC11-12/11 |
N05
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MainStay Equity Index Fund
Message from the President and Annual Report
October 31, 2011
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Message from the President
Volatility was the keynote of the 12 months ended October 31, 2011. U.S. stocks generally advanced, but a variety of domestic and international forces influenced the market.
Early in November 2010, the Federal Open Market Committee (FOMC) announced its intention to extend quantitative easing by purchasing additional longer-term Treasury securities. The stock market reacted positively to this news—and to the midterm elections—and stocks generally advanced through mid-February.
Beginning in December 2010, a wave of protests and civil unrest across North Africa and the Middle East led to a substantial rise in the price of oil. By mid-February, stock prices started to decline. In March, a major earthquake and tsunami in Japan caused manufacturing supply-line interruptions and further setbacks for equity investors. After a sharp decline and a rapid recovery, stocks reached their high point for the 12-month period at the end of April 2011.
Pressed by a weak economy, lackluster employment and widespread concerns about European sovereign debt, the stock market faced wide fluctuations in the coming months. The volatility included a precipitous decline at the end of July into early August. Shortly thereafter, the FOMC expressed its expectation that economic conditions were “likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
After several unsuccessful attempts to recover from their dramatic drop, U.S. stocks reached their low point for the reporting period in early October. Then, buoyed by positive economic data and progress in the European debt situation, the U.S. stock market advanced rapidly in October, to close the reporting period with its best monthly performance in nearly a decade.
International stocks suffered from the turmoil in the Middle East and North Africa, the natural disasters in Japan, the sovereign debt concerns in Europe and the added threat of an economic slowdown in China. For the 12-month period, international stocks declined overall, with particular weakness in Europe.
The bond markets felt the impact of the European debt crisis, and several European nations suffered downgrades. In July, the United States faced a congressional deadlock on raising the debt ceiling and reducing deficit spending. In early August, Standard & Poor’s downgraded the debt of the United States of America to AA+.
Slow progress in resolving the European debt situation led to a flight to quality (or a movement toward securities perceived to carry lower risk). Amid strong demand, U.S. Treasury securities saw prices rise and yields decline, despite the downgrade by Standard & Poor’s. High-grade corporate
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
Throughout the 12-month reporting period, our portfolio managers took note of shifting market forces. But their primary focus was on the investment objectives of their respective Funds and the long-term strategies they were pursuing to achieve them. Some may have sought to capitalize on day-to-day market inefficiencies, but all remained focused on the long-term interests of our shareholders. They sought to apply time-tested investment principles consistently throughout the reporting period.
The information that follows provides specifics about the securities, decisions and market forces that affected your MainStay Fund(s) during the 12 months ended October 31, 2011. Behind the details, we hope you’ll recognize the professionalism and discipline that guided our portfolio managers during this volatile period.
We thank you for investing with MainStay and look forward to serving you for many years to come.
Sincerely,
Stephen P. Fisher
President
President
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Annual Report | ||
Investment and Performance Comparison | 5 | |
Portfolio Management Discussion and Analysis | 8 | |
Portfolio of Investments | 9 | |
Financial Statements | 18 | |
Notes to Financial Statements | 22 | |
Report of Independent Registered Public Accounting Firm | 28 | |
Federal Income Tax Information | 29 | |
Proxy Voting Policies and Procedures and Proxy Voting Record | 29 | |
Shareholder Reports and Quarterly Portfolio Disclosure | 29 | |
Board Members and Officers | 30 | |
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
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Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2011
Gross | ||||||||||||||||||||
Expense | ||||||||||||||||||||
Class | Sales Charge | One Year | Five Years | Ten Years | Ratio2 | |||||||||||||||
Class A Shares | Maximum 3% Initial Sales Charge | With sales charges | 4 | .24% | –0 | .85% | 2 | .74% | 0 | .85% | ||||||||||
Excluding sales charges | 7 | .47 | –0 | .25 | 3 | .05 | 0 | .85 | ||||||||||||
One | Five | Ten | ||||||||||
Benchmark Performance | Year | Years | Years | |||||||||
S&P 500® Index3 | 8 | .09% | 0 | .25% | 3 | .69% | ||||||
Average Lipper S&P 500 Index Objective Fund4 | 7 | .46 | –0 | .28 | 3 | .15 | ||||||
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, change in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on the share class and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. Performance figures shown reflect nonrecurring reimbursements from affiliates for professional fees and losses attributable to shareholder trading arrangements. If these nonrecurring reimbursements had not been made the total return (excluding sales charges) would have been 3.04% for the ten-year period ended October 31, 2011. |
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. | S&P 500® Index is a trademark of The McGraw Hill Companies, Inc. The S&P 500® Index is widely regarded as the standard index for measuring large-cap U.S. stock market performance. The S&P 500® Index is the Fund’s broad-based securities market index for comparison purposes. Total returns assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
4. | The average Lipper S&P 500 Index objective fund is representative of funds that are passively managed, and commit by prospectus language to replicate the performance of the S&P 500® Index (including reinvested dividends). In addition, S&P 500 Index objective funds have limited expenses (advisor fee no higher than 0.50%). 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 are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com 5
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Cost in Dollars of a $1,000 Investment in MainStay Equity Index Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2011, to October 31, 2011, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2011, to October 31, 2011.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2011. 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.
Ending Account | ||||||||||||||||||||||
Ending Account | Value (Based | |||||||||||||||||||||
Value (Based | on Hypothetical | |||||||||||||||||||||
Beginning | on Actual | Expenses | 5% Annualized | Expenses | ||||||||||||||||||
Account | Returns and | Paid | Return and | Paid | ||||||||||||||||||
Value | Expenses) | During | Actual Expenses) | During | ||||||||||||||||||
Share Class | 5/1/11 | 10/31/11 | Period1 | 10/31/11 | Period1 | |||||||||||||||||
Class A Shares | $ | 1,000.00 | $ | 926.10 | $ | 2.91 | $ | 1,022.20 | $ | 3.06 | ||||||||||||
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (0.60% for Class A) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the one-half year period). The table above represents the actual expenses incurred during the one-half year period. |
6 MainStay Equity Index Fund
Table of Contents
Industry Composition as of October 31, 2011 (Unaudited)
Oil, Gas & Consumable Fuels | 9.5 | % | ||
Pharmaceuticals | 5.4 | |||
Computers & Peripherals | 4.4 | |||
IT Services | 3.7 | |||
Software | 3.6 | |||
Insurance | 3.4 | |||
Media | 2.9 | |||
Diversified Financial Services | 2.8 | |||
Aerospace & Defense | 2.5 | |||
Diversified Telecommunication Services | 2.5 | |||
Beverages | 2.4 | |||
Commercial Banks | 2.4 | |||
Industrial Conglomerates | 2.3 | |||
Semiconductors & Semiconductor Equipment | 2.3 | |||
Food & Staples Retailing | 2.2 | |||
Chemicals | 2.1 | |||
Household Products | 2.1 | |||
Communications Equipment | 2.0 | |||
Energy Equipment & Services | 2.0 | |||
Health Care Providers & Services | 2.0 | |||
Electric Utilities | 1.9 | |||
Machinery | 1.9 | |||
Capital Markets | 1.8 | |||
Food Products | 1.8 | |||
Hotels, Restaurants & Leisure | 1.8 | |||
Internet Software & Services | 1.8 | |||
Specialty Retail | 1.8 | |||
Health Care Equipment & Supplies | 1.7 | |||
Real Estate Investment Trusts | 1.7 | |||
Tobacco | 1.7 | |||
Multi-Utilities | 1.3 | |||
Biotechnology | 1.2 | |||
Air Freight & Logistics | 0.9 | |||
Internet & Catalog Retail | 0.9 | |||
Metals & Mining | 0.9 | |||
Consumer Finance | 0.8 | |||
Road & Rail | 0.8 | |||
Multiline Retail | 0.7 | |||
Textiles, Apparel & Luxury Goods | 0.6 | |||
Electronic Equipment & Instruments | 0.5 | |||
Automobiles | 0.4 | |||
Commercial Services & Supplies | 0.4 | |||
Electrical Equipment | 0.4 | |||
Life Sciences Tools & Services | 0.4 | |||
Wireless Telecommunication Services | 0.3 | |||
Auto Components | 0.2 | |||
Construction & Engineering | 0.2 | |||
Household Durables | 0.2 | |||
Independent Power Producers & Energy Traders | 0.2 | |||
Personal Products | 0.2 | |||
Trading Companies & Distributors | 0.2 | |||
Airlines | 0.1 | |||
Containers & Packaging | 0.1 | |||
Distributors | 0.1 | |||
Diversified Consumer Services | 0.1 | |||
Gas Utilities | 0.1 | |||
Health Care Technology | 0.1 | |||
Leisure Equipment & Products | 0.1 | |||
Office Electronics | 0.1 | |||
Paper & Forest Products | 0.1 | |||
Professional Services | 0.1 | |||
Thrifts & Mortgage Finance | 0.1 | |||
Building Products | 0.0 | ‡ | ||
Construction Materials | 0.0 | ‡ | ||
Real Estate Management & Development | 0.0 | ‡ | ||
Short-Term Investments | 7.1 | |||
Investments Sold Short | –0.0 | ‡ | ||
Other Assets, Less Liabilities | –0.3 | |||
100.0 | % | |||
See Portfolio of Investments beginning on page 9 for specific holdings within these categories.
‡ | Less than one-tenth of a percent. |
Top Ten Holdings as of October 31, 2011 (excluding short-term investments)
1. | ExxonMobil Corp. | |
2. | Apple, Inc. | |
3. | International Business Machines Corp. | |
4. | Chevron Corp. | |
5. | Microsoft Corp. | |
6. | General Electric Co. | |
7. | Johnson & Johnson | |
8. | Procter & Gamble Co. (The) | |
9. | AT&T, Inc. | |
10. | Coca-Cola Co. (The) |
mainstayinvestments.com 7
Table of Contents
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio manager Francis J. Ok of Madison Square Investors LLC, the Fund’s Subadvisor.
How did MainStay Equity Index Fund perform relative to its peers and its benchmark during the 12 months ended October 31, 2011?
Excluding all sales charges, MainStay Equity Index Fund returned 7.47% for Class A shares for the 12 months ended October 31, 2011. The Fund, which offers only one class of shares, outperformed the 7.46% return of the average Lipper1 S&P 500 Index objective fund and underperformed the 8.09% return of the S&P 500® Index2 for the 12 months ended Octo-ber 31, 2011. Because the Fund incurs operating expenses that the Index does not, the Fund’s net performance will typically lag that of the Index. The S&P 500® Index is the Fund’s broad-based securities-market index. See page 5 for Fund returns with sales charges.
During the reporting period, which S&P 500® industries had the highest total returns and which industries had the lowest total returns?
During the reporting period, the S&P 500® industries with the highest total returns were gas utilities, trading companies & distributors, and health care technology. The S&P 500® industries with the lowest total returns were airlines, office electronics, and thrifts & mortgage finance.
During the reporting period, which industries made the strongest contributions to the Fund’s absolute performance and which industries made the weakest contributions?
During the reporting period, the S&P 500® industries that made the strongest positive contributions to the Fund’s absolute performance were oil, gas & consumable fuels; computers & peripherals; and IT services. (Contributions take weightings and total returns into account.) Over the same period, the industries that made the weakest contributions to the Fund’s performance were diversified financial services, capital markets and communications equipment.
During the reporting period, which individual stocks in the S&P 500® Index had the highest total returns and which stocks had the lowest total returns?
During the reporting period, the S&P 500® Index stocks with the highest total returns were oil, gas & consumable fuels companies Cabot Oil & Gas, Tesoro and El Paso. Over the same period, the S&P 500® Index stocks with the lowest total returns were leisure equipment & products company Eastman Kodak and two manufacturers of semiconductors & semiconductor equipment, First Solar and MEMC Electronic Materials. Eastman Kodak was deleted from the S&P 500® Index in December 2010.
During the reporting period, which S&P 500® Index stocks made the strongest contributions to the Fund’s absolute performance and which stocks made the weakest contributions?
The S&P 500® Index stocks that made the strongest contributions to the Fund’s absolute performance were computers & peripherals company Apple; oil, gas & consumable fuels company ExxonMobil; and IT services company International Business Machines.
Over the same period, the S&P 500® Index stocks that made the weakest contributions to the Fund’s absolute performance were diversified financial services company Bank of America, computers & peripherals company Hewlett-Packard, and capital markets firm Goldman Sachs Group.
Were there any changes in the S&P 500® Index during the reporting period?
During the reporting period, there were 19 additions to and 19 deletions from the S&P 500® Index. In terms of Index weight, significant additions to the Index included management and technology consulting services company Accenture and health care equipment & supplies company Covidien. Significant deletions included biotechnology company Genzyme and diversified telecommunication services company Qwest Communications.
1. See footnote on page 5 for more information on Lipper Inc.
2. See footnote on page 5 for more information on the S&P 500® Index.
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 made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
8 MainStay Equity Index Fund
Table of Contents
Portfolio of Investments††† October 31, 2011
Shares | Value | |||||||
Common Stocks 93.2%† | ||||||||
Aerospace & Defense 2.5% | ||||||||
Boeing Co. (The) | 11,973 | $ | 787,704 | |||||
General Dynamics Corp. | 5,844 | 375,126 | ||||||
Goodrich Corp. | 2,020 | 247,713 | ||||||
Honeywell International, Inc. | 12,640 | 662,336 | ||||||
ITT Corp. | 2,993 | 136,481 | ||||||
L-3 Communications Holdings, Inc. | 1,703 | 115,429 | ||||||
Lockheed Martin Corp. | 4,446 | 337,451 | ||||||
Northrop Grumman Corp. | 4,492 | 259,413 | ||||||
Precision Castparts Corp. | 2,327 | 379,650 | ||||||
Raytheon Co. | 5,712 | 252,413 | ||||||
Rockwell Collins, Inc. | 2,482 | 138,570 | ||||||
Textron, Inc. | 4,482 | 87,041 | ||||||
United Technologies Corp. | 14,682 | 1,144,902 | ||||||
4,924,229 | ||||||||
Air Freight & Logistics 0.9% | ||||||||
C.H. Robinson Worldwide, Inc. | 2,663 | 184,892 | ||||||
Expeditors International of Washington, Inc. | 3,425 | 156,180 | ||||||
FedEx Corp. | 5,121 | 419,051 | ||||||
United Parcel Service, Inc. Class B | 15,845 | 1,112,953 | ||||||
1,873,076 | ||||||||
Airlines 0.1% | ||||||||
Southwest Airlines Co. | 13,000 | 111,150 | ||||||
Auto Components 0.2% | ||||||||
Goodyear Tire & Rubber Co. (The) (a) | 3,953 | 56,765 | ||||||
Johnson Controls, Inc. | 10,981 | 361,604 | ||||||
418,369 | ||||||||
Automobiles 0.4% | ||||||||
Ford Motor Co. (a) | 61,397 | 717,117 | ||||||
Harley-Davidson, Inc. | 3,821 | 148,637 | ||||||
865,754 | ||||||||
Beverages 2.4% | ||||||||
Beam, Inc. | 2,496 | 123,377 | ||||||
Brown-Forman Corp. Class B | 1,630 | 121,810 | ||||||
X Coca-Cola Co. (The) | 37,096 | 2,534,399 | ||||||
Coca-Cola Enterprises, Inc. | 5,156 | 138,284 | ||||||
Constellation Brands, Inc. Class A (a) | 2,816 | 56,940 | ||||||
Dr. Pepper Snapple Group, Inc. | 3,504 | 131,225 | ||||||
Molson Coors Brewing Co. Class B | 2,633 | 111,481 | ||||||
PepsiCo., Inc. | 25,570 | 1,609,631 | ||||||
4,827,147 | ||||||||
Biotechnology 1.2% | ||||||||
Amgen, Inc. | 14,931 | 855,098 | ||||||
Biogen Idec, Inc. (a) | 3,919 | 456,015 | ||||||
Celgene Corp. (a) | 7,412 | 480,520 | ||||||
Gilead Sciences, Inc. (a) | 12,463 | 519,209 | ||||||
2,310,842 | ||||||||
Building Products 0.0%‡ | ||||||||
Masco Corp. | 5,784 | 55,526 | ||||||
Capital Markets 1.8% | ||||||||
Ameriprise Financial, Inc. | 3,814 | 178,037 | ||||||
Bank of New York Mellon Corp. (The) | 19,912 | 423,727 | ||||||
BlackRock, Inc. | 1,620 | 255,620 | ||||||
Charles Schwab Corp. (The) | 17,411 | 213,807 | ||||||
E*TRADE Financial Corp. (a) | 4,102 | 44,507 | ||||||
Federated Investors, Inc. Class B | 1,500 | 29,310 | ||||||
Franklin Resources, Inc. | 2,352 | 250,794 | ||||||
Goldman Sachs Group, Inc. (The) | 8,172 | 895,243 | ||||||
Invesco, Ltd. | 7,289 | 146,290 | ||||||
Janus Capital Group, Inc. | 3,009 | 19,739 | ||||||
Legg Mason, Inc. | 2,118 | 58,245 | ||||||
Morgan Stanley | 23,987 | 423,131 | ||||||
Northern Trust Corp. | 3,892 | 157,509 | ||||||
State Street Corp. | 8,144 | 328,936 | ||||||
T. Rowe Price Group, Inc. | 4,143 | 218,916 | ||||||
3,643,811 | ||||||||
Chemicals 2.1% | ||||||||
Air Products & Chemicals, Inc. | 3,444 | 296,666 | ||||||
Airgas, Inc. | 1,099 | 75,776 | ||||||
CF Industries Holdings, Inc. | 1,159 | 188,071 | ||||||
Dow Chemical Co. (The) | 19,087 | 532,145 | ||||||
E.I. du Pont de Nemours & Co. | 15,066 | 724,223 | ||||||
Eastman Chemical Co. | 2,266 | 89,031 | ||||||
Ecolab, Inc. | 3,746 | 201,685 | ||||||
FMC Corp. | 1,158 | 91,355 | ||||||
International Flavors & Fragrances, Inc. | 1,306 | 79,091 | ||||||
Monsanto Co. | 8,640 | 628,560 | ||||||
Mosaic Co. (The) | 4,469 | 261,705 | ||||||
PPG Industries, Inc. | 2,546 | 220,000 | ||||||
Praxair, Inc. | 4,882 | 496,353 | ||||||
Sherwin-Williams Co. (The) | 1,425 | 117,862 | ||||||
Sigma-Aldrich Corp. | 1,972 | 129,126 | ||||||
4,131,649 | ||||||||
Commercial Banks 2.4% | ||||||||
BB&T Corp. | 11,264 | 262,902 | ||||||
Comerica, Inc. | 3,249 | 83,012 | ||||||
Fifth Third Bancorp | 14,869 | 178,577 | ||||||
First Horizon National Corp. | 4,267 | 29,826 | ||||||
Huntington Bancshares, Inc. | 13,935 | 72,183 | ||||||
KeyCorp | 15,382 | 108,597 |
† | Percentages indicated are based on Fund net assets. |
X | Among the Fund’s 10 largest holdings or issuers held as of October 31, 2011, excluding short-term investments. May be subject to change daily. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 9 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Commercial Banks (continued) | ||||||||
M&T Bank Corp. | 2,029 | $ | 154,427 | |||||
PNC Financial Services Group, Inc. | 8,502 | 456,642 | ||||||
Regions Financial Corp. | 20,351 | 79,979 | ||||||
SunTrust Banks, Inc. | 8,675 | 171,158 | ||||||
U.S. Bancorp | 31,039 | 794,288 | ||||||
Wells Fargo & Co. | 85,305 | 2,210,253 | ||||||
Zions Bancorp | 2,983 | 51,785 | ||||||
4,653,629 | ||||||||
Commercial Services & Supplies 0.4% | ||||||||
Avery Dennison Corp. | 1,714 | 45,592 | ||||||
Cintas Corp. | 1,799 | 53,772 | ||||||
Iron Mountain, Inc. | 3,283 | 101,543 | ||||||
Pitney Bowes, Inc. | 3,265 | 66,541 | ||||||
R.R. Donnelley & Sons Co. | 3,038 | 49,520 | ||||||
Republic Services, Inc. | 5,169 | 147,110 | ||||||
Stericycle, Inc. (a) | 1,391 | 116,259 | ||||||
Waste Management, Inc. | 7,626 | 251,124 | ||||||
831,461 | ||||||||
Communications Equipment 2.0% | ||||||||
Cisco Systems, Inc. | 88,868 | 1,646,724 | ||||||
F5 Networks, Inc. (a) | 1,304 | 135,551 | ||||||
Harris Corp. | 1,944 | 73,386 | ||||||
JDS Uniphase Corp. (a) | 3,689 | 44,268 | ||||||
Juniper Networks, Inc. (a) | 8,612 | 210,736 | ||||||
Motorola Mobility Holdings, Inc. (a) | 4,226 | 164,307 | ||||||
Motorola Solutions, Inc. | 4,879 | 228,874 | ||||||
QUALCOMM, Inc. | 27,139 | 1,400,372 | ||||||
Tellabs, Inc. | 5,885 | 25,482 | ||||||
3,929,700 | ||||||||
Computers & Peripherals 4.4% | ||||||||
X Apple, Inc. (a) | 14,978 | 6,062,795 | ||||||
Dell, Inc. (a) | 25,055 | 396,120 | ||||||
EMC Corp. (a) | 33,362 | 817,703 | ||||||
Hewlett-Packard Co. | 33,508 | 891,648 | ||||||
Lexmark International, Inc. Class A (a) | 1,282 | 40,639 | ||||||
NetApp, Inc. (a) | 5,954 | 243,876 | ||||||
SanDisk Corp. (a) | 3,866 | 195,890 | ||||||
Western Digital Corp. (a) | 3,766 | 100,326 | ||||||
8,748,997 | ||||||||
Construction & Engineering 0.2% | ||||||||
Fluor Corp. | 2,808 | 159,635 | ||||||
Jacobs Engineering Group, Inc. (a) | 2,059 | 79,889 | ||||||
Quanta Services, Inc. (a) | 3,431 | 71,674 | ||||||
311,198 | ||||||||
Construction Materials 0.0%‡ | ||||||||
Vulcan Materials Co. | 2,089 | 65,365 | ||||||
Consumer Finance 0.8% | ||||||||
American Express Co. | 16,780 | 849,404 | ||||||
Capital One Financial Corp. | 7,423 | 338,934 | ||||||
Discover Financial Services | 8,816 | 207,705 | ||||||
SLM Corp. | 8,315 | 113,666 | ||||||
1,509,709 | ||||||||
Containers & Packaging 0.1% | ||||||||
Ball Corp. | 2,643 | 91,368 | ||||||
Bemis Co., Inc. | 1,670 | 46,944 | ||||||
Owens-Illinois, Inc. (a) | 2,648 | 53,172 | ||||||
Sealed Air Corp. | 2,609 | 46,440 | ||||||
237,924 | ||||||||
Distributors 0.1% | ||||||||
Genuine Parts Co. | 2,533 | 145,470 | ||||||
Diversified Consumer Services 0.1% | ||||||||
Apollo Group, Inc. Class A (a) | 1,878 | 88,923 | ||||||
DeVry, Inc. | 996 | 37,529 | ||||||
H&R Block, Inc. | 4,944 | 75,594 | ||||||
202,046 | ||||||||
Diversified Financial Services 2.8% | ||||||||
Bank of America Corp. | 163,745 | 1,118,378 | ||||||
Citigroup, Inc. | 47,145 | 1,489,311 | ||||||
CME Group, Inc. | 1,080 | 297,605 | ||||||
IntercontinentalExchange, Inc. (a) | 1,187 | 154,168 | ||||||
JPMorgan Chase & Co. | 62,993 | 2,189,637 | ||||||
Leucadia National Corp. | 3,203 | 85,936 | ||||||
Moody’s Corp. | 3,253 | 115,449 | ||||||
NASDAQ OMX Group, Inc. (The) (a) | 2,057 | 51,528 | ||||||
NYSE Euronext | 4,229 | 112,364 | ||||||
5,614,376 | ||||||||
Diversified Telecommunication Services 2.5% | ||||||||
X AT&T, Inc. | 95,743 | 2,806,227 | ||||||
CenturyLink, Inc. | 9,958 | 351,119 | ||||||
Frontier Communications Corp. | 16,080 | 100,661 | ||||||
Verizon Communications, Inc. | 45,733 | 1,691,207 | ||||||
Windstream Corp. | 8,236 | 100,232 | ||||||
5,049,446 | ||||||||
Electric Utilities 1.9% | ||||||||
American Electric Power Co., Inc. | 7,791 | 306,030 | ||||||
Duke Energy Corp. | 21,521 | 439,459 | ||||||
Edison International | 5,266 | 213,800 | ||||||
Entergy Corp. | 2,857 | 197,619 | ||||||
Exelon Corp. | 10,707 | 475,284 | ||||||
FirstEnergy Corp. | 6,756 | 303,750 |
The notes to the financial statements are an integral part of,
10 MainStay Equity Index Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Electric Utilities (continued) | ||||||||
NextEra Energy, Inc. | 6,823 | $ | 384,817 | |||||
Northeast Utilities | 2,857 | 98,766 | ||||||
Pepco Holdings, Inc. | 3,656 | 72,389 | ||||||
Pinnacle West Capital Corp. | 1,764 | 80,403 | ||||||
PPL Corp. | 9,336 | 274,198 | ||||||
Progress Energy, Inc. | 4,759 | 247,944 | ||||||
Southern Co. | 13,857 | 598,622 | ||||||
3,693,081 | ||||||||
Electrical Equipment 0.4% | ||||||||
Emerson Electric Co. | 12,032 | 578,980 | ||||||
Rockwell Automation, Inc. | 2,315 | 156,610 | ||||||
Roper Industries, Inc. | 1,551 | 125,786 | ||||||
861,376 | ||||||||
Electronic Equipment & Instruments 0.5% | ||||||||
Amphenol Corp. Class A | 2,746 | 130,408 | ||||||
Corning, Inc. | 25,384 | 362,737 | ||||||
FLIR Systems, Inc. | 2,580 | 67,854 | ||||||
Jabil Circuit, Inc. | 2,942 | 60,487 | ||||||
Molex, Inc. | 2,208 | 54,516 | ||||||
TE Connectivity, Ltd. | 6,999 | 248,814 | ||||||
924,816 | ||||||||
Energy Equipment & Services 2.0% | ||||||||
Baker Hughes, Inc. | 7,049 | 408,772 | ||||||
Cameron International Corp. (a) | 3,959 | 194,545 | ||||||
Diamond Offshore Drilling, Inc. | 1,122 | 73,536 | ||||||
FMC Technologies, Inc. (a) | 3,880 | 173,902 | ||||||
Halliburton Co. | 14,859 | 555,132 | ||||||
Helmerich & Payne, Inc. | 1,730 | 92,001 | ||||||
Nabors Industries, Ltd. (a) | 4,640 | 85,051 | ||||||
National-Oilwell Varco, Inc. | 6,844 | 488,183 | ||||||
Noble Corp. (a) | 4,079 | 146,599 | ||||||
Rowan Cos., Inc. (a) | 2,058 | 70,980 | ||||||
Schlumberger, Ltd. | 21,801 | 1,601,720 | ||||||
3,890,421 | ||||||||
Food & Staples Retailing 2.2% | ||||||||
Costco Wholesale Corp. | 7,074 | 588,910 | ||||||
CVS Caremark Corp. | 21,728 | 788,726 | ||||||
Kroger Co. (The) | 9,779 | 226,677 | ||||||
Safeway, Inc. | 5,653 | 109,499 | ||||||
SUPERVALU, Inc. | 3,434 | 27,541 | ||||||
Sysco Corp. | 9,573 | 265,364 | ||||||
Wal-Mart Stores, Inc. | 28,398 | 1,610,734 | ||||||
Walgreen Co. | 14,629 | 485,683 | ||||||
Whole Foods Market, Inc. | 2,548 | 183,762 | ||||||
4,286,896 | ||||||||
Food Products 1.8% | ||||||||
Archer-Daniels-Midland Co. | 10,920 | 316,025 | ||||||
Campbell Soup Co. | 2,905 | 96,591 | ||||||
ConAgra Foods, Inc. | 6,702 | 169,761 | ||||||
Dean Foods Co. (a) | 2,972 | 28,888 | ||||||
General Mills, Inc. | 10,448 | 402,561 | ||||||
H.J. Heinz Co. | 5,186 | 277,140 | ||||||
Hershey Co. (The) | 2,500 | 143,075 | ||||||
Hormel Foods Corp. | 2,244 | 66,131 | ||||||
J.M. Smucker Co. (The) | 1,839 | 141,640 | ||||||
Kellogg Co. | 4,035 | 218,737 | ||||||
Kraft Foods, Inc. Class A | 28,534 | 1,003,826 | ||||||
McCormick & Co., Inc. | 2,136 | 103,724 | ||||||
Mead Johnson Nutrition Co. | 3,294 | 236,674 | ||||||
Sara Lee Corp. | 9,511 | 169,296 | ||||||
Tyson Foods, Inc. Class A | 4,789 | 92,428 | ||||||
3,466,497 | ||||||||
Gas Utilities 0.1% | ||||||||
Nicor, Inc. | 735 | 41,344 | ||||||
ONEOK, Inc. | 1,672 | 127,155 | ||||||
168,499 | ||||||||
Health Care Equipment & Supplies 1.7% | ||||||||
Baxter International, Inc. | 9,182 | 504,826 | ||||||
Becton, Dickinson & Co. | 3,513 | 274,822 | ||||||
Boston Scientific Corp. (a) | 24,726 | 145,636 | ||||||
C.R. Bard, Inc. | 1,400 | 120,330 | ||||||
CareFusion Corp. (a) | 3,613 | 92,493 | ||||||
Covidien PLC | 7,972 | 375,003 | ||||||
DENTSPLY International, Inc. | 2,283 | 84,380 | ||||||
Edwards Lifesciences Corp. (a) | 1,858 | 140,130 | ||||||
Intuitive Surgical, Inc. (a) | 632 | 274,199 | ||||||
Medtronic, Inc. | 17,063 | 592,769 | ||||||
St. Jude Medical, Inc. | 5,324 | 207,636 | ||||||
Stryker Corp. | 5,335 | 255,600 | ||||||
Varian Medical Systems, Inc. (a) | 1,894 | 111,216 | ||||||
Zimmer Holdings, Inc. (a) | 3,077 | 161,942 | ||||||
3,340,982 | ||||||||
Health Care Providers & Services 2.0% | ||||||||
Aetna, Inc. | 6,024 | 239,514 | ||||||
AmerisourceBergen Corp. | 4,349 | 177,439 | ||||||
Cardinal Health, Inc. | 5,567 | 246,451 | ||||||
CIGNA Corp. | 4,364 | 193,500 | ||||||
Coventry Health Care, Inc. (a) | 2,400 | 76,344 | ||||||
DaVita, Inc. (a) | 1,508 | 105,560 | ||||||
Express Scripts, Inc. (a) | 7,887 | 360,673 | ||||||
Humana, Inc. | 2,696 | 228,863 | ||||||
Laboratory Corp. of America Holdings (a) | 1,637 | 137,262 | ||||||
McKesson Corp. | 3,979 | 324,487 | ||||||
Medco Health Solutions, Inc. (a) | 6,229 | 341,723 | ||||||
Patterson Cos., Inc. | 1,512 | 47,583 |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 11 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Health Care Providers & Services (continued) | ||||||||
Quest Diagnostics, Inc. | 2,556 | $ | 142,625 | |||||
Tenet Healthcare Corp. (a) | 7,639 | 36,133 | ||||||
UnitedHealth Group, Inc. | 17,387 | 834,402 | ||||||
WellPoint, Inc. | 5,827 | 401,480 | ||||||
3,894,039 | ||||||||
Health Care Technology 0.1% | ||||||||
Cerner Corp. (a) | 2,349 | 148,997 | ||||||
Hotels, Restaurants & Leisure 1.8% | ||||||||
Carnival Corp. | 7,468 | 262,948 | ||||||
Chipotle Mexican Grill, Inc. Class A (a) | 507 | 170,413 | ||||||
Darden Restaurants, Inc. | 2,175 | 104,139 | ||||||
International Game Technology | 4,818 | 84,749 | ||||||
Marriott International, Inc. Class A | 4,332 | 136,458 | ||||||
McDonald’s Corp. | 16,670 | 1,547,809 | ||||||
Starbucks Corp. | 12,055 | 510,409 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 3,105 | 155,592 | ||||||
Wyndham Worldwide Corp. | 2,653 | 89,326 | ||||||
Wynn Resorts, Ltd. | 1,292 | 171,578 | ||||||
Yum! Brands, Inc. | 7,504 | 401,989 | ||||||
3,635,410 | ||||||||
Household Durables 0.2% | ||||||||
D.R. Horton, Inc. | 4,485 | 49,918 | ||||||
Harman International Industries, Inc. | 1,129 | 48,728 | ||||||
Leggett & Platt, Inc. | 2,290 | 50,151 | ||||||
Lennar Corp. Class A | 2,592 | 42,872 | ||||||
Newell Rubbermaid, Inc. | 4,702 | 69,590 | ||||||
Pulte Group, Inc. (a) | 5,451 | 28,236 | ||||||
Whirlpool Corp. | 1,235 | 62,750 | ||||||
352,245 | ||||||||
Household Products 2.1% | ||||||||
Clorox Co. (The) | 2,124 | 142,181 | ||||||
Colgate-Palmolive Co. | 7,859 | 710,218 | ||||||
Kimberly-Clark Corp. | 6,330 | 441,264 | ||||||
X Procter & Gamble Co. (The) | 44,394 | 2,840,772 | ||||||
4,134,435 | ||||||||
Independent Power Producers & Energy Traders 0.2% | ||||||||
AES Corp. (The) (a) | 10,625 | 119,213 | ||||||
Constellation Energy Group, Inc. | 3,255 | 129,223 | ||||||
NRG Energy, Inc. (a) | 3,900 | 83,538 | ||||||
331,974 | ||||||||
Industrial Conglomerates 2.3% | ||||||||
3M Co. | 11,463 | 905,806 | ||||||
Danaher Corp. | 9,194 | 444,530 | ||||||
X General Electric Co. | 171,270 | 2,861,922 | ||||||
Tyco International, Ltd. | 7,503 | 341,762 | ||||||
4,554,020 | ||||||||
Insurance 3.4% | ||||||||
ACE, Ltd. | 5,462 | 394,083 | ||||||
Aflac, Inc. | 7,550 | 340,430 | ||||||
Allstate Corp. (The) | 8,345 | 219,807 | ||||||
American International Group, Inc. (a) | 7,055 | 174,188 | ||||||
AON Corp. | 5,279 | 246,107 | ||||||
Assurant, Inc. | 1,527 | 58,851 | ||||||
Berkshire Hathaway, Inc. Class B (a) | 28,413 | 2,212,236 | ||||||
Chubb Corp. (The) | 4,619 | 309,704 | ||||||
Cincinnati Financial Corp. | 2,638 | 76,344 | ||||||
Genworth Financial, Inc. Class A (a) | 7,915 | 50,498 | ||||||
Hartford Financial Services Group, Inc. (The) | 7,201 | 138,619 | ||||||
Lincoln National Corp. | 4,978 | 94,831 | ||||||
Loews Corp. | 5,027 | 199,572 | ||||||
Marsh & McLennan Cos., Inc. | 8,750 | 267,925 | ||||||
MetLife, Inc. | 17,085 | 600,709 | ||||||
Principal Financial Group, Inc. | 5,062 | 130,498 | ||||||
Progressive Corp. (The) | 10,318 | 196,145 | ||||||
Prudential Financial, Inc. | 7,852 | 425,578 | ||||||
Torchmark Corp. | 1,695 | 69,376 | ||||||
Travelers Cos., Inc. (The) | 6,765 | 394,738 | ||||||
Unum Group | 4,905 | 116,935 | ||||||
XL Group PLC | 5,304 | 115,309 | ||||||
6,832,483 | ||||||||
Internet & Catalog Retail 0.9% | ||||||||
Amazon.com, Inc. (a) | 5,868 | 1,252,876 | ||||||
Expedia, Inc. | 3,146 | 82,614 | ||||||
Netflix, Inc. (a) | 849 | 69,686 | ||||||
Priceline.com, Inc. (a) | 804 | 408,207 | ||||||
1,813,383 | ||||||||
Internet Software & Services 1.8% | ||||||||
Akamai Technologies, Inc. (a) | 2,981 | 80,308 | ||||||
eBay, Inc. (a) | 18,534 | 589,937 | ||||||
Google, Inc. Class A (a) | 4,069 | 2,411,452 | ||||||
Monster Worldwide, Inc. (a) | 2,084 | 19,236 | ||||||
VeriSign, Inc. | 2,688 | 86,258 | ||||||
Yahoo!, Inc. (a) | 20,398 | 319,025 | ||||||
3,506,216 | ||||||||
IT Services 3.7% | ||||||||
Accenture PLC Class A | 10,412 | 627,427 | ||||||
Automatic Data Processing, Inc. | 7,913 | 414,087 | ||||||
Cognizant Technology Solutions Corp. Class A (a) | 4,905 | 356,839 | ||||||
Computer Sciences Corp. | 2,502 | 78,713 | ||||||
Fidelity National Information Services, Inc. | 4,006 | 104,877 |
The notes to the financial statements are an integral part of,
12 MainStay Equity Index Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
IT Services (continued) | ||||||||
Fiserv, Inc. (a) | 2,286 | $ | 134,577 | |||||
X International Business Machines Corp. | 19,295 | 3,562,436 | ||||||
MasterCard, Inc. Class A | 1,725 | 598,989 | ||||||
Paychex, Inc. | 5,206 | 151,703 | ||||||
SAIC, Inc. (a) | 4,464 | 55,487 | ||||||
Teradata Corp. (a) | 2,719 | 162,215 | ||||||
Total System Services, Inc. | 2,648 | 52,669 | ||||||
Visa, Inc. Class A | 8,264 | 770,701 | ||||||
Western Union Co. (The) | 10,142 | 177,181 | ||||||
7,247,901 | ||||||||
Leisure Equipment & Products 0.1% | ||||||||
Hasbro, Inc. | 1,952 | 74,293 | ||||||
Mattel, Inc. | 5,538 | 156,393 | ||||||
230,686 | ||||||||
Life Sciences Tools & Services 0.4% | ||||||||
Agilent Technologies, Inc. (a) | 5,609 | 207,926 | ||||||
Life Technologies Corp. (a) | 2,915 | 118,553 | ||||||
PerkinElmer, Inc. | 1,830 | 37,826 | ||||||
Thermo Fisher Scientific, Inc. (a) | 6,171 | 310,216 | ||||||
Waters Corp. (a) | 1,475 | 118,177 | ||||||
792,698 | ||||||||
Machinery 1.9% | ||||||||
Caterpillar, Inc. | 10,438 | 985,973 | ||||||
Cummins, Inc. | 3,146 | 312,807 | ||||||
Deere & Co. | 6,688 | 507,619 | ||||||
Dover Corp. | 3,006 | 166,923 | ||||||
Eaton Corp. | 5,511 | 247,003 | ||||||
Flowserve Corp. | 900 | 83,421 | ||||||
Illinois Tool Works, Inc. | 7,941 | 386,171 | ||||||
Ingersoll-Rand PLC | 5,349 | 166,514 | ||||||
Joy Global, Inc. | 1,699 | 148,153 | ||||||
PACCAR, Inc. | 5,904 | 255,289 | ||||||
Pall Corp. | 1,880 | 96,200 | ||||||
Parker Hannifin Corp. | 2,505 | 204,283 | ||||||
Snap-On, Inc. | 941 | 50,503 | ||||||
Stanley Black & Decker, Inc. | 2,721 | 173,736 | ||||||
3,784,595 | ||||||||
Media 2.9% | ||||||||
Cablevision Systems Corp. Class A | 3,640 | 52,671 | ||||||
CBS Corp. Class B | 10,825 | 279,393 | ||||||
Comcast Corp. Class A | 44,418 | 1,041,602 | ||||||
DIRECTV Class A (a) | 11,929 | 542,292 | ||||||
Discovery Communications, Inc. Class A (a) | 4,420 | 192,093 | ||||||
Gannett Co., Inc. | 3,897 | 45,556 | ||||||
Interpublic Group of Cos., Inc. (The) | 7,726 | 73,243 | ||||||
McGraw-Hill Cos., Inc. (The) | 4,866 | 206,805 | ||||||
News Corp. Class A | 36,925 | 646,926 | ||||||
Omnicom Group, Inc. | 4,514 | 200,783 | ||||||
Scripps Networks Interactive Class A | 1,595 | 67,756 | ||||||
Time Warner Cable, Inc. | 5,254 | 334,627 | ||||||
Time Warner, Inc. | 16,881 | 590,666 | ||||||
Viacom, Inc. Class B | 9,284 | 407,103 | ||||||
Walt Disney Co. (The) | 29,984 | 1,045,842 | ||||||
Washington Post Co. Class B | 81 | 27,553 | ||||||
5,754,911 | ||||||||
Metals & Mining 0.9% | ||||||||
AK Steel Holding Corp. | 1,779 | 14,819 | ||||||
Alcoa, Inc. | 17,195 | 185,018 | ||||||
Allegheny Technologies, Inc. | 1,719 | 79,762 | ||||||
Cliffs Natural Resources, Inc. | 2,359 | 160,931 | ||||||
Freeport-McMoRan Copper & Gold, Inc. | 15,313 | 616,501 | ||||||
Newmont Mining Corp. | 7,984 | 533,571 | ||||||
Nucor Corp. | 5,112 | 193,131 | ||||||
Titanium Metals Corp. | 1,346 | 22,546 | ||||||
United States Steel Corp. | 2,325 | 58,962 | ||||||
1,865,241 | ||||||||
Multi-Utilities 1.3% | ||||||||
Ameren Corp. | 3,904 | 124,459 | ||||||
CenterPoint Energy, Inc. | 6,884 | 143,462 | ||||||
CMS Energy Corp. | 4,068 | 84,696 | ||||||
Consolidated Edison, Inc. | 4,733 | 273,899 | ||||||
Dominion Resources, Inc. | 9,196 | 474,422 | ||||||
DTE Energy Co. | 2,736 | 142,573 | ||||||
Integrys Energy Group, Inc. | 1,257 | 66,508 | ||||||
NiSource, Inc. | 4,534 | 100,156 | ||||||
PG&E Corp. | 6,501 | 278,893 | ||||||
Public Service Enterprise Group, Inc. | 8,174 | 275,464 | ||||||
SCANA Corp. | 1,853 | 78,345 | ||||||
Sempra Energy | 3,870 | 207,935 | ||||||
TECO Energy, Inc. | 3,483 | 64,679 | ||||||
Wisconsin Energy Corp. | 3,774 | 122,391 | ||||||
Xcel Energy, Inc. | 7,828 | 202,354 | ||||||
2,640,236 | ||||||||
Multiline Retail 0.7% | ||||||||
Big Lots, Inc. (a) | 1,058 | 39,876 | ||||||
Family Dollar Stores, Inc. | 1,944 | 113,977 | ||||||
J.C. Penney Co., Inc. | 2,311 | 74,137 | ||||||
Kohl’s Corp. | 4,541 | 240,718 | ||||||
Macy’s, Inc. | 6,901 | 210,687 | ||||||
Nordstrom, Inc. | 2,646 | 134,126 | ||||||
Sears Holdings Corp. (a) | 623 | 48,706 | ||||||
Target Corp. | 10,908 | 597,213 | ||||||
1,459,440 | ||||||||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 13 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Office Electronics 0.1% | ||||||||
Xerox Corp. | 22,672 | $ | 185,457 | |||||
Oil, Gas & Consumable Fuels 9.5% | ||||||||
Alpha Natural Resources, Inc. | 3,660 | 87,986 | ||||||
Anadarko Petroleum Corp. | 8,043 | 631,375 | ||||||
Apache Corp. | 6,204 | 618,105 | ||||||
Cabot Oil & Gas Corp. | 1,688 | 131,191 | ||||||
Chesapeake Energy Corp. | 10,674 | 300,153 | ||||||
X Chevron Corp. | 32,361 | 3,399,523 | ||||||
ConocoPhillips | 22,182 | 1,544,976 | ||||||
CONSOL Energy, Inc. | 3,662 | 156,587 | ||||||
Denbury Resources, Inc. (a) | 6,495 | 101,972 | ||||||
Devon Energy Corp. | 6,728 | 436,984 | ||||||
El Paso Corp. | 12,446 | 311,274 | ||||||
EOG Resources, Inc. | 4,339 | 388,037 | ||||||
EQT Corp. | 2,415 | 153,352 | ||||||
X ExxonMobil Corp. | 78,556 | 6,134,438 | ||||||
Hess Corp. | 4,887 | 305,731 | ||||||
Marathon Oil Corp. | 11,533 | 300,204 | ||||||
Marathon Petroleum Corp. | 5,761 | 206,820 | ||||||
Murphy Oil Corp. | 3,127 | 173,142 | ||||||
Newfield Exploration Co. (a) | 2,138 | 86,076 | ||||||
Noble Energy, Inc. | 2,851 | 254,708 | ||||||
Occidental Petroleum Corp. | 13,131 | 1,220,395 | ||||||
Peabody Energy Corp. | 4,374 | 189,700 | ||||||
Pioneer Natural Resources Co. | 1,888 | 158,403 | ||||||
QEP Resources, Inc. | 2,861 | 101,709 | ||||||
Range Resources Corp. | 2,601 | 179,053 | ||||||
Southwestern Energy Co. (a) | 5,623 | �� | 236,391 | |||||
Spectra Energy Corp. | 10,507 | 300,815 | ||||||
Sunoco, Inc. | 1,746 | 65,004 | ||||||
Tesoro Corp. (a) | 2,325 | 60,311 | ||||||
Valero Energy Corp. | 9,248 | 227,501 | ||||||
Williams Cos., Inc. | 9,516 | 286,527 | ||||||
18,748,443 | ||||||||
Paper & Forest Products 0.1% | ||||||||
International Paper Co. | 7,063 | 195,645 | ||||||
MeadWestvaco Corp. | 2,757 | 76,948 | ||||||
272,593 | ||||||||
Personal Products 0.2% | ||||||||
Avon Products, Inc. | 6,958 | 127,192 | ||||||
Estee Lauder Cos., Inc. (The) Class A | 1,827 | 179,868 | ||||||
307,060 | ||||||||
Pharmaceuticals 5.4% | ||||||||
Abbott Laboratories | 25,150 | 1,354,831 | ||||||
Allergan, Inc. | 4,968 | 417,908 | ||||||
Bristol-Myers Squibb Co. | 27,556 | 870,494 | ||||||
Eli Lilly & Co. | 16,459 | 611,616 | ||||||
Forest Laboratories, Inc. (a) | 4,434 | 138,784 | ||||||
Hospira, Inc. (a) | 2,662 | 83,720 | ||||||
X Johnson & Johnson | 44,275 | 2,850,867 | ||||||
Merck & Co., Inc. | 49,775 | 1,717,238 | ||||||
Mylan, Inc. (a) | 6,885 | 134,740 | ||||||
Pfizer, Inc. | 126,059 | 2,427,896 | ||||||
Watson Pharmaceuticals, Inc. (a) | 2,032 | 136,469 | ||||||
10,744,563 | ||||||||
Professional Services 0.1% | ||||||||
Dun & Bradstreet Corp. | 794 | 53,087 | ||||||
Equifax, Inc. | 1,979 | 69,562 | ||||||
Robert Half International, Inc. | 2,338 | 61,793 | ||||||
184,442 | ||||||||
Real Estate Investment Trusts 1.7% | ||||||||
Apartment Investment & Management Co. Class A | 1,952 | 48,156 | ||||||
AvalonBay Communities, Inc. | 1,520 | 203,209 | ||||||
Boston Properties, Inc. | 2,373 | 234,903 | ||||||
Equity Residential | 4,791 | 281,136 | ||||||
HCP, Inc. | 6,579 | 262,173 | ||||||
Health Care REIT, Inc. | 2,868 | 151,115 | ||||||
Host Hotels & Resorts, Inc. | 11,408 | 162,792 | ||||||
Kimco Realty Corp. | 6,579 | 114,935 | ||||||
Plum Creek Timber Co., Inc. | 2,617 | 98,556 | ||||||
ProLogis, Inc. | 7,418 | 220,760 | ||||||
Public Storage | 2,289 | 295,396 | ||||||
Simon Property Group, Inc. | 4,743 | 609,191 | ||||||
Ventas, Inc. | 4,653 | 258,753 | ||||||
Vornado Realty Trust | 2,980 | 246,774 | ||||||
Weyerhaeuser Co. | 8,704 | 156,498 | ||||||
3,344,347 | ||||||||
Real Estate Management & Development 0.0%‡ | ||||||||
CBRE Group, Inc. (a) | 5,249 | 93,327 | ||||||
Road & Rail 0.8% | ||||||||
CSX Corp. | 17,698 | 393,073 | ||||||
Norfolk Southern Corp. | 5,619 | 415,750 | ||||||
Ryder System, Inc. | 827 | 42,127 | ||||||
Union Pacific Corp. | 7,886 | 785,209 | ||||||
1,636,159 | ||||||||
Semiconductors & Semiconductor Equipment 2.3% | ||||||||
Advanced Micro Devices, Inc. (a) | 9,384 | 54,709 | ||||||
Altera Corp. | 5,234 | 198,473 | ||||||
Analog Devices, Inc. | 4,837 | 176,889 | ||||||
Applied Materials, Inc. | 21,292 | 262,317 | ||||||
Broadcom Corp. Class A (a) | 7,777 | 280,672 | ||||||
First Solar, Inc. (a) | 948 | 47,182 |
The notes to the financial statements are an integral part of,
14 MainStay Equity Index Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Semiconductors & Semiconductor Equipment (continued) | ||||||||
Intel Corp. | 84,841 | $ | 2,081,998 | |||||
KLA-Tencor Corp. | 2,698 | 127,049 | ||||||
Linear Technology Corp. | 3,685 | 119,062 | ||||||
LSI Corp. (a) | 9,244 | 57,775 | ||||||
MEMC Electronic Materials, Inc. (a) | 3,730 | 22,343 | ||||||
Microchip Technology, Inc. | 3,081 | 111,409 | ||||||
Micron Technology, Inc. (a) | 16,234 | 90,748 | ||||||
Novellus Systems, Inc. (a) | 1,123 | 38,800 | ||||||
NVIDIA Corp. (a) | 9,753 | 144,344 | ||||||
Teradyne, Inc. (a) | 3,014 | 43,161 | ||||||
Texas Instruments, Inc. | 18,665 | 573,575 | ||||||
Xilinx, Inc. | 4,282 | 143,276 | ||||||
4,573,782 | ||||||||
Software 3.6% | ||||||||
Adobe Systems, Inc. (a) | 7,982 | 234,751 | ||||||
Autodesk, Inc. (a) | 3,699 | 127,986 | ||||||
BMC Software, Inc. (a) | 2,836 | 98,579 | ||||||
CA, Inc. | 6,120 | 132,559 | ||||||
Citrix Systems, Inc. (a) | 3,041 | 221,476 | ||||||
Compuware Corp. (a) | 3,529 | 29,820 | ||||||
Electronic Arts, Inc. (a) | 5,401 | 126,113 | ||||||
Intuit, Inc. | 4,910 | 263,520 | ||||||
X Microsoft Corp. | 120,476 | 3,208,276 | ||||||
Oracle Corp. | 63,836 | 2,091,906 | ||||||
Red Hat, Inc. (a) | 3,120 | 154,908 | ||||||
Salesforce.com, Inc. (a) | 2,190 | 291,642 | ||||||
Symantec Corp. (a) | 12,112 | 206,025 | ||||||
7,187,561 | ||||||||
Specialty Retail 1.8% | ||||||||
Abercrombie & Fitch Co. Class A | 1,404 | 104,458 | ||||||
AutoNation, Inc. (a) | 798 | 31,074 | ||||||
AutoZone, Inc. (a) | 470 | 152,087 | ||||||
Bed Bath & Beyond, Inc. (a) | 3,952 | 244,392 | ||||||
Best Buy Co., Inc. | 4,893 | 128,343 | ||||||
Carmax, Inc. (a) | 3,656 | 109,899 | ||||||
GameStop Corp. Class A (a) | 2,251 | 57,558 | ||||||
Gap, Inc. (The) | 5,607 | 105,972 | ||||||
Home Depot, Inc. (The) | 25,276 | 904,881 | ||||||
Limited Brands, Inc. | 4,002 | 170,925 | ||||||
Lowe’s Cos., Inc. | 20,370 | 428,177 | ||||||
O’Reilly Automotive, Inc. (a) | 2,197 | 167,082 | ||||||
Ross Stores, Inc. | 1,867 | 163,792 | ||||||
Staples, Inc. | 11,461 | 171,457 | ||||||
Tiffany & Co. | 2,056 | 163,925 | ||||||
TJX Cos., Inc. | 6,156 | 362,773 | ||||||
Urban Outfitters, Inc. (a) | 1,914 | 52,157 | ||||||
3,518,952 | ||||||||
Textiles, Apparel & Luxury Goods 0.6% | ||||||||
Coach, Inc. | 4,668 | 303,747 | ||||||
NIKE, Inc. Class B | 6,137 | 591,300 | ||||||
Ralph Lauren Corp. | 1,046 | 166,094 | ||||||
VF Corp. | 1,400 | 193,508 | ||||||
1,254,649 | ||||||||
Thrifts & Mortgage Finance 0.1% | ||||||||
Hudson City Bancorp, Inc. | 8,512 | 53,200 | ||||||
People’s United Financial, Inc. | 6,077 | 77,482 | ||||||
130,682 | ||||||||
Tobacco 1.7% | ||||||||
Altria Group, Inc. | 33,464 | 921,933 | ||||||
Lorillard, Inc. | 2,237 | 247,546 | ||||||
Philip Morris International, Inc. | 28,379 | 1,982,841 | ||||||
Reynolds American, Inc. | 5,464 | 211,348 | ||||||
3,363,668 | ||||||||
Trading Companies & Distributors 0.2% | ||||||||
Fastenal Co. | 4,768 | 181,613 | ||||||
W.W. Grainger, Inc. | 982 | 168,227 | ||||||
349,840 | ||||||||
Wireless Telecommunication Services 0.3% | ||||||||
American Tower Corp. Class A (a) | 6,395 | 352,364 | ||||||
MetroPCS Communications, Inc. (a) | 4,740 | 40,290 | ||||||
Sprint Nextel Corp. (a) | 48,361 | 124,288 | ||||||
516,942 | ||||||||
Total Common Stocks (Cost $93,954,869) | 184,484,819 | |||||||
Principal | ||||||||
Amount | ||||||||
Short-Term Investments 7.1% | ||||||||
Repurchase Agreement 0.0%‡ | ||||||||
State Street Bank and Trust Co. 0.01%, dated 10/31/11 due 11/1/11 Proceeds at Maturity $35,787 (Collateralized by a United States Treasury Bond with a rate of 4.625% and a maturity date of 2/15/40, with a Principal Amount of $30,000 and a Market Value of $38,137) | $ | 35,787 | 35,787 | |||||
Total Repurchase Agreement (Cost $35,787) | 35,787 | |||||||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 15 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Short-Term Investments (continued) | ||||||||
U.S. Government 7.1% | ||||||||
United States Treasury Bills 0.011%, due 1/26/12 (b)(c) | $ | 1,000,000 | $ | 999,975 | ||||
0.015%, due 1/12/12 (b)(c) | 13,100,000 | 13,099,607 | ||||||
Total U.S. Government (Cost $14,099,914) | 14,099,582 | |||||||
Total Short-Term Investments (Cost $14,135,701) | 14,135,369 | |||||||
Total Investments, Before Investments Sold Short (Cost $108,090,570) (f) | 100.3 | % | 198,620,188 | |||||
Shares | ||||||||
Investments Sold Short (0.0%)‡ (d) | ||||||||
Common Stocks Sold Short (0.0%)‡ | ||||||||
Aerospace & Defense (0.0%)‡ | ||||||||
Exelis, Inc. | (1,077 | ) | (12,170 | ) | ||||
ITT Corp. | (539 | ) | (9,448 | ) | ||||
Total Investments Sold Short (Proceeds $20,150) | (0.0 | )%‡ | (21,618 | ) | ||||
Total Investments, Net of Investments Sold Short (Cost $108,070,420) | 100.3 | 198,598,570 | ||||||
Other Assets, Less Liabilities | (0.3 | ) | (511,897 | ) | ||||
Net Assets | 100.0 | % | $ | 198,086,673 | ||||
Unrealized | ||||||||
Contracts | Appreciation | |||||||
Long | (Depreciation) (e) | |||||||
Futures Contracts 0.5% | ||||||||
Standard & Poor’s 500 Index Mini December 2011 | 221 | $ | 1,019,562 | |||||
Total Futures Contracts (Settlement Value $13,804,765) | $ | 1,019,562 | ||||||
††† | On a daily basis New York Life Investments confirms that the value of the Fund’s liquid assets (liquid portfolio securities and cash) is sufficient to cover its potential senior securities (e.g., futures, swaps, options). | |
‡ | Less than one-tenth of a percent. | |
(a) | Non-income producing security. | |
(b) | Represents a security, or a portion thereof, which is maintained at the broker as collateral for futures contracts. | |
(c) | Interest rate presented is yield to maturity. | |
(d) | Represents securities sold short on a when-issued basis. At October 31, 2011 total proceeds from investments sold short on a when-issued basis was $20,150. | |
(e) | Represents the difference between the value of the contracts at the time they were opened and the value at October 31, 2011. | |
(f) | At October 31, 2011, cost is $112,849,569 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 93,679,258 | ||
Gross unrealized depreciation | (7,908,639 | ) | ||
Net unrealized appreciation | $ | 85,770,619 | ||
The notes to the financial statements are an integral part of,
16 MainStay Equity Index Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
The following is a summary of the fair valuations according to the inputs used as of October 31, 2011, for valuing the Fund’s assets and liabilities.
Asset Valuation Inputs
Quoted | ||||||||||||||||
Prices In | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Common Stocks | $ | 184,484,819 | $ | — | $ | — | $ | 184,484,819 | ||||||||
Short-Term Investments | ||||||||||||||||
Repurchase Agreement | — | 35,787 | — | 35,787 | ||||||||||||
U.S. Government | — | 14,099,582 | — | 14,099,582 | ||||||||||||
Total Short-Term Investments | — | 14,135,369 | — | 14,135,369 | ||||||||||||
Total Investments in Securities | 184,484,819 | 14,135,369 | — | 198,620,188 | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts Long (b) | 1,019,562 | — | — | 1,019,562 | ||||||||||||
Total Investments in Securities and Other Financial Instruments | $ | 185,504,381 | $ | 14,135,369 | $ | — | $ | 199,639,750 | ||||||||
Liability Valuation Inputs
Quoted | ||||||||||||||||
Prices In | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Investments in Securities Sold Short (a) | ||||||||||||||||
Common Stocks Sold Short | $ | (21,618 | ) | $ | — | $ | — | $ | (21,618 | ) | ||||||
Total Investments in Securities Sold Short | $ | (21,618 | ) | $ | — | $ | — | $ | (21,618 | ) | ||||||
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The value listed for these securities reflects unrealized appreciation (depreciation) as shown on the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended October 31, 2011, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
At October 31, 2011, the Fund did not hold any investments with significant unobservable inputs (Level 3). (See Note 2)
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 17 |
Table of Contents
Statement of Assets and Liabilities as of October 31, 2011
Assets | ||||
Investment in securities, at value (identified cost $108,090,570) | $ | 198,620,188 | ||
Receivables: | ||||
Dividends and interest | 209,922 | |||
Investment securities sold | 25,059 | |||
Other assets | 12,321 | |||
Total assets | 198,867,490 | |||
Liabilities | ||||
Investments sold short (proceeds $20,150) | 21,618 | |||
Payables: | ||||
Variation margin on futures contracts | 349,896 | |||
Fund shares redeemed | 230,148 | |||
Transfer agent (See Note 3) | 63,718 | |||
NYLIFE Distributors (See Note 3) | 40,715 | |||
Shareholder communication | 33,618 | |||
Manager (See Note 3) | 16,979 | |||
Professional fees | 12,604 | |||
Custodian | 2,244 | |||
Trustees | 825 | |||
Accrued expenses | 8,452 | |||
Total liabilities | 780,817 | |||
Net assets | $ | 198,086,673 | ||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 41,977 | ||
Additional paid-in capital | 112,722,134 | |||
112,764,111 | ||||
Undistributed net investment income | 2,846,993 | |||
Accumulated net realized gain (loss) on investments, futures transactions and investments sold short | (9,072,143 | ) | ||
Net unrealized appreciation (depreciation) on investments and futures contracts | 91,549,180 | |||
Net unrealized appreciation (depreciation) on investments sold short | (1,468 | ) | ||
Net assets | $ | 198,086,673 | ||
Shares of beneficial interest outstanding | 4,197,738 | |||
Net asset value per share outstanding (a) | $ | 47.19 | ||
Maximum sales charge (3.00% of offering price) (a) | 1.46 | |||
Maximum offering price per share outstanding (a) | $ | 48.65 | ||
(a) | Adjusted to reflect cumulative effects of the reverse stock split in each year, as well as the reverse stock split on December 7, 2011. (See Note 2 (C)) |
The notes to the financial statements are an integral part of,
18 MainStay Equity Index Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statement of Operations for the year ended October 31, 2011
Investment Income (Loss) | ||||
Income | ||||
Dividends | $ | 4,203,769 | ||
Interest | 7,565 | |||
Total income | 4,211,334 | |||
Expenses | ||||
Manager (See Note 3) | 584,058 | |||
Distribution/Service—Class A (See Note 3) | 535,953 | |||
Transfer agent (See Note 3) | 409,267 | |||
Shareholder communication | 70,125 | |||
Professional fees | 65,711 | |||
Custodian | 31,540 | |||
Registration | 25,050 | |||
Trustees | 5,896 | |||
Miscellaneous | 15,473 | |||
Total expenses before waiver/reimbursement | 1,743,073 | |||
Expense waiver/reimbursement from Manager (See Note 3) | (456,776 | ) | ||
Net expenses | 1,286,297 | |||
Net investment income (loss) | 2,925,037 | |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on: | ||||
Security transactions | 15,831,792 | |||
Futures transactions | (379,887 | ) | ||
Net realized gain (loss) on investments and futures transactions | 15,451,905 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (2,494,202 | ) | ||
Investments sold short | (1,468 | ) | ||
Futures contracts | 564,474 | |||
Net change in unrealized appreciation (depreciation) on investments, investments sold short and futures contracts | (1,931,196 | ) | ||
Net realized and unrealized gain (loss) on investments, investments sold short and futures transactions | 13,520,709 | |||
Net increase (decrease) in net assets resulting from operations | $ | 16,445,746 | ||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 19 |
Table of Contents
Statements of Changes in Net Assets
for the years ended October 31, 2011 and October 31, 2010
2011 | 2010 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 2,925,037 | $ | 3,089,341 | ||||
Net realized gain (loss) on investments and futures transactions | 15,451,905 | 11,882,404 | ||||||
Net change in unrealized appreciation (depreciation) on investments, investments sold short and futures contracts | (1,931,196 | ) | 18,461,136 | |||||
Net increase (decrease) in net assets resulting from operations | 16,445,746 | 33,432,881 | ||||||
Dividends to shareholders: | ||||||||
From net investment income | (3,061,226 | ) | (3,930,323 | ) | ||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 128,389 | 218,356 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 2,896,713 | 3,768,663 | ||||||
Cost of shares redeemed | (35,461,708 | ) | (43,050,196 | ) | ||||
Increase (decrease) in net assets derived from capital share transactions | (32,436,606 | ) | (39,063,177 | ) | ||||
Net increase (decrease) in net assets | (19,052,086 | ) | (9,560,619 | ) | ||||
Net Assets | ||||||||
Beginning of year | 217,138,759 | 226,699,378 | ||||||
End of year | $ | 198,086,673 | $ | 217,138,759 | ||||
Undistributed net investment income at end of year | $ | 2,846,993 | $ | 3,061,220 | ||||
The notes to the financial statements are an integral part of,
20 MainStay Equity Index Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
Net asset value at beginning of year (a) | $ | 44.52 | $ | 39.02 | $ | 36.66 | $ | 58.48 | $ | 52.15 | ||||||||||
Net investment income (loss) (a) | 0.71 | 0.64 | 0.69 | 0.82 | (b) | 0.82 | (b) | |||||||||||||
Net realized and unrealized gain (loss) on investments (a) | 2.60 | 5.54 | 2.56 | (21.88 | ) | 6.31 | ||||||||||||||
Total from investment operations (a) | 3.31 | 6.18 | 3.25 | (21.06 | ) | 7.13 | ||||||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income (a) | (0.64 | ) | (0.68 | ) | (0.89 | ) | (0.76 | ) | (0.80 | ) | ||||||||||
Net asset value at end of year (a) | $ | 47.19 | $ | 44.52 | $ | 39.02 | $ | 36.66 | $ | 58.48 | ||||||||||
Total investment return (c) | 7.47 | % | 15.98 | % | 9.48 | % | (36.44 | %) | 13.83 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 1.36 | % | 1.37 | % | 1.89 | % | 1.67 | % | 1.51 | % | ||||||||||
Net expenses | 0.60 | % | 0.60 | % | 0.60 | % | 0.60 | % | 0.60 | % | ||||||||||
Expenses (before waiver/reimbursement) | 0.81 | % | 0.85 | % | 0.92 | % | 0.79 | % | 0.74 | % | ||||||||||
Portfolio turnover rate | 4 | % | 5 | % | 14 | % | 4 | % | 5 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 198,087 | $ | 217,139 | $ | 226,699 | $ | 242,002 | $ | 458,323 |
(a) | Adjusted to reflect cumulative effects of the reverse stock split in each year, as well as the reverse stock split on December 7, 2011. (See Note 2(C)) | |
(b) | Per share data based on average shares outstanding during the year. | |
(c) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 21 |
Table of Contents
Notes to Financial Statements
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the ”1940 Act”), as an open-end management investment company, and is comprised of fourteen funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay Equity Index Fund (the “Fund”). When formed, the Fund was sub-classified as a “non-diversified” fund, which meant that it could invest a greater percentage of its assets than other funds in a particular issuer. However, due to the Fund’s principal investment strategy and investment process, it has historically operated as a “diversified” fund. Therefore, the Fund will not operate as a “non-diversified” fund without first obtaining shareholder approval.
The Fund has one class of shares. Class A shares were first offered on December 20, 1990. Effective January 1, 2002, the Fund was closed to new investors and new share purchases. No purchase orders, systematic investments or exchanges are being accepted. Existing shareholders are permitted to reinvest dividends and capital gains only. NYLIFE LLC (“NYLIFE”) will continue to honor the unconditional guarantee associated with the Fund. (See Note 9)
The Fund’s investment objective is to seek to provide investment results that correspond to the total return performance (reflecting reinvestment of dividends) of publicly traded common stocks represented by the S&P 500® Index.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (usually 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are determined within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish 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 developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in determining the fair value of investments) |
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may utilize some of the following fair value techniques: multi-dimensional relational pricing models, option adjusted spread pricing and estimating the price that would have prevailed in a liquid market for an international equity security given information available at the time of evaluation, when there are significant events after the close of local foreign markets.
The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2011, there have been no changes to the fair value methodologies.
The aggregate value by input level, as of October 31, 2011, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
Equity securities and Exchange Traded Funds are valued at the latest quoted sales prices as of the close of regular trading on the Exchange on each valuation date. Securities that are not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Prices normally are taken from the principal market in which each security trades. Futures contracts are valued at the last posted settlement price on the market where such futures are primarily traded. Investments in other mutual funds are valued at their 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 over 60 days prior to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of the difference between such cost and the value on maturity
22 MainStay Equity Index Fund
Table of Contents
date. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not obtained from a quoted price in an active market. These securities are all generally categorized as Level 2 in the hierarchy.
Securities for which market quotations are not readily available are valued by methods deemed in good faith by the Fund’s Board to represent fair value. Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security the trading for which 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 the market price of which is not available from an independent pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor (as defined in Note 3(A)) reflect the security’s market value; and (vi) a security where the trading on that security’s principal market is temporarily closed at a time when, under normal conditions, it would be open. These securities are generally categorized as Level 3 in the hierarchy. At October 31, 2011, the Fund did not hold any securities that were fair valued in such a manner.
Certain events may occur between the time that foreign markets close, on which securities held by the Fund principally trade, and the time at which the Fund’s NAV is calculated. These events may include, but are not limited to, situations relating to a single issuer in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. Should the Manager or Subadvisor conclude that such events may have affected the accuracy of the last price reported on the local foreign market, the Manager or Subadvisor may, pursuant to procedures adopted by the Fund’s Board, adjust the value of the local price to reflect the 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, 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 the Fund’s policies and procedures and are generally categorized as Level 2 in the hierarchy. As of October 31, 2011, the Fund did not hold any foreign equity securities.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provision is required.
Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provision for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income and distributions of net realized capital and currency gains, if any, 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.
The Fund declared a dividend of $0.6907 per share, which was paid on December 7, 2011, and also underwent a reverse share split on that day. The reverse share split rate was 0.98528 per share outstanding, based on the number of fund shares outstanding immediately after reinvestment of dividends.
Certain amounts in the Financial Highlights and Notes to Financial Statements (see Note 8) have been adjusted to reflect the cumulative effects of this reverse stock split and those that occurred in each of the years presented.
(D) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Dividend income is recognized on the ex-dividend date and interest income is accrued as earned using the effective interest rate method. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method.
(E) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(F) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(G) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisor to be creditworthy, pursuant to guidelines established by the Fund’s Board. Repurchase agreements are considered under the 1940 Act to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in
mainstayinvestments.com 23
Table of Contents
Notes to Financial Statements (continued)
such repurchase agreements. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default of 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, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(H) Futures Contracts. A futures contract is an agreement to purchase or sell a specified quantity of an underlying instrument at a specified future date and price, or to make or receive a cash payment based on the value of a financial instrument (e.g., foreign currency, interest rate, security, or securities index). The Fund is subject to equity price risk in the normal course of investment in these transactions. The Fund enters into futures contracts for market exposure. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by “marking to market” such contract on a daily basis to reflect the market value of the contract at the end of each day’s trading. The Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as “variation margin.” When the futures contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract.
The use of futures contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract or notional amounts and variation margin reflect the extent of the Fund’s involvement in open futures positions. Risks arise from the possible imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets, and the possible inability of counterparties to meet the terms of their contracts. However, the Fund’s activities in futures contracts have minimal counterparty risk as they are conducted through regulated exchanges that guarantee the futures against default by the counterparty. In the event of a bankruptcy or insolvency of a broker that holds margin on behalf of the Fund, the Fund may not be entitled to the return of all of the margin owed to the Fund, potentially resulting in a loss. The Fund’s investment in futures contracts and other derivatives may increase the volatility of the Fund’s NAV and may result in a loss to the Fund.
(I) Rights and Warrants. A right is a certificate that permits the holder to purchase a certain number of shares, or a fractional share, of a new stock from the issuer at a specific price. A warrant is an instrument that entitles the holder to buy an equity security at a specific price for a specific period of time. The Fund generally enters into rights and warrants when securities are acquired through a corporate action. With respect to warrants in international markets, the securities are only purchased when the underlying security cannot be purchased due to the many restrictions an industry and/or country might place on foreign investors. 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 the warrant is not exercised by the date of its expiration. The securities are sold as soon as the opportunity becomes available. The Fund is exposed to risk until each sale is completed. At October 31, 2011, the Fund did not hold any rights or warrants.
(J) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act, and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund’s cash collateral in accordance with the Lending Agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue to receive interest and dividends on the securities loaned and any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the account of the Fund.
Although the Fund and New York Life Investments (as defined in Note 3(A)) have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund had no portfolio securities on loan as of October 31, 2011.
(K) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
(L) Quantitative Disclosure of Derivative Holdings. The following tables show additional disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial positions, performance and cash flows. These derivatives are not accounted for as hedging instruments.
24 MainStay Equity Index Fund
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Fair value of derivatives as of October 31, 2011:
Asset Derivatives
Statement of | ||||||||||
Assets and | Equity | |||||||||
Liabilities | Contracts | |||||||||
Location | Risk | Total | ||||||||
Futures Contracts (a) | Net Assets—Net unrealized appreciation (depreciation) on investments and futures contracts | $ | 1,019,562 | $ | 1,019,562 | |||||
Total Fair Value | $ | 1,019,562 | $ | 1,019,562 | ||||||
(a) | Includes cumulative appreciation (depreciation) of futures as reported in the Portfolio of Investments. Only the current day’s variation margin is reported within the Statement of Assets and Liabilities. |
The effect of derivative instruments on the Statement of Operations for the year ended October 31, 2011:
Realized Gain (Loss)
Statement of | Equity | |||||||||||
Operations | Contracts | |||||||||||
Location | Risk | Total | ||||||||||
Warrants | Net realized gain (loss | ) on security transactions | $ | (2,038 | ) | $ | (2,038 | ) | ||||
Futures Contracts | Net realized gain (loss | ) on futures transactions | (379,887 | ) | (379,887 | ) | ||||||
Total Realized Gain | $ | (381,925 | ) | $ | (381,925 | ) | ||||||
Change in Unrealized Appreciation (Depreciation)
Statement of | Equity | |||||||||
Operations | Contracts | |||||||||
Location | Risk | Total | ||||||||
Futures Contracts | Net change in unrealized appreciation (depreciation) on futures contracts | $ | 564,474 | $ | 564,474 | |||||
Total Change in Unrealized Appreciation (Depreciation) | $ | 564,474 | $ | 564,474 | ||||||
Number of Contracts, Notional Amounts or Shares/Units
Equity | ||||||||
Contracts | ||||||||
Risk | Total | |||||||
Warrants (1)(3) | 0-21,609 | 0-21,609 | ||||||
Futures Contracts (2)(3) | 196 | 196 | ||||||
(1) | Amount disclosed represents the minimum and maximum held during the year ended October 31, 2011. |
(2) | Amount disclosed represents the weighted average held during the year ended October 31, 2011. |
(3) | Amount(s) represent(s) number of contracts or number of shares/units. |
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), 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, including a portion of the total compensation of the Chief Compliance Officer (“CCO”) of the Fund which is the responsibility of all investment companies for which the CCO serves, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. Madison Square Investors LLC (“MSI” or “Subadvisor”), a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life, serves as Subadvisor to the Fund and is responsible for the day-to-day portfolio management of the Fund. Pursuant to the terms of a Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and MSI, New York Life Investments pays for the services of the Subadvisor.
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.25% on assets up to $1 billion; 0.225% from $1 billion to $3 billion; and 0.20% in excess of $3 billion, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million: 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. The Manager has contractually agreed to waive a portion of its management fee so that the management fee does not exceed 0.19% up to $1 billion; 0.165% from $1 billion to $3 billion; and 0.14% in excess of $3 billion. The effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.27% for the year ended October 31, 2011, inclusive of a fee for fund accounting services of 0.02% of the Fund’s average daily net assets.
Additionally, the Manager has contractually agreed to waive fees and/or reimburse expenses so that Total Annual Fund Operating Expenses do not exceed 0.60% of the average daily net assets of the Fund. This agreement expires on February 28, 2012 and may only be amended or terminated prior to that date by action of the Board. Total Annual Fund Operating Expenses excludes taxes, interest, litigation, extraordinary expenses, brokerage and other transaction expenses relating to the purchase or sale of portfolio investments and acquired (underlying) fund fees and expenses.
For the year ended October 31, 2011, New York Life Investments earned fees from the Fund in the amount of $584,058 and waived its fees and/or reimbursed expenses in the amount of $456,776.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAV of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s NAV,
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Notes to Financial Statements (continued)
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 a distribution plan (the “Plan”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly distribution fee from Class A shares at an annual rate of 0.25% of the Fund’s average daily net assets for distribution or service activities as designated by the Distributor.
The Plan provides that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund’s shares and service activities.
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Class A shares were $0, for the year ended October 31, 2011.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2011, amounted to $409,267.
(E) Other. Pursuant to a Legal Services Agreement, a portion of the cost of legal services provided to the Fund by the Office of the General Counsel of New York Life Investments was payable directly by the Fund through March 17, 2011. For the year ended October 31, 2011, these fees, which are included in professional fees shown on the Statement of Operations, were $3,499. Effective March 18, 2011, the Legal Services Agreement expired and was not renewed. Therefore, the Fund is no longer directly responsible for any portion of the cost of legal services.
Note 4–Federal Income Tax
As of October 31, 2011, the components of accumulated gain (loss) on a tax basis were as follows:
Accumulated | ||||||||||||||||||
Capital | Other | Unrealized | Total | |||||||||||||||
Ordinary | and Other | Temporary | Appreciation | Accumulated | ||||||||||||||
Income | Gain (Loss) | Differences | (Depreciation) | Gain (Loss) | ||||||||||||||
$ | 2,846,993 | $ | (3,293,582 | ) | $ | — | $ | 85,769,151 | $ | 85,322,562 | ||||||||
The difference between book-basis and tax basis unrealized appreciation is primarily due to wash sale deferrals, marking to market of futures contracts, real estate investment trusts (“REITs”) basis adjustments and basis adjustments due to class action payments and return of capital distributions from non-REIT securities.
The following table discloses the current year reclassifications between undistributed net investment income, accumulated net realized income (loss) on investments, and additional paid-in capital arising from permanent differences; net assets at October 31, 2011 were not affected.
Accumulated | ||||||||
Undistributed | Net Realized | |||||||
Net Investment | Gain (Loss) | Additional | ||||||
Income (Loss) | on Investments | Paid-In Capital | ||||||
$(78,038) | $ | 2,882,588 | $ | (2,804,550 | ) | |||
The reclassifications for the Fund are primarily due to return of capital distributions from non-REIT securities and expiration of a portion of the capital loss carryforward, return of capital and capital gain distributions from REITs.
Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
At October 31, 2011, for federal income tax purposes, capital loss carryforwards of $3,293,582 were available as shown in the table below, to the extent provided by the regulations to offset future realized gains of the Fund through the years indicated. To the extent that these capital loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to shareholders. No capital gain distributions shall be made until any capital loss carryforwards have been fully utilized or expired.
Capital Loss | Capital Loss | |||||
Available Through | Amounts (000’s) | |||||
2012 | $ | 3,294 | ||||
The Fund utilized $15,049,315 of capital loss carryforwards during the year ended October 31, 2011. The Fund had $2,804,550 of capital loss carryforwards that expired during the year ended October 31, 2011.
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 shown in the Statements of Changes in Net Assets was as follows:
2011 | 2010 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 3,061,226 | $ | 3,930,323 | ||||
Note 5–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
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Note 6–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 31, 2011, under an amended credit agreement, the aggregate commitment amount is $125,000,000 with an optional maximum amount of $175,000,000. The commitment rate is an annual rate of 0.08% of the average commitment amount, payable quarterly, regardless of usage, to The Bank of New York Mellon, which serves as the agent to the syndicate. The commitment fee is allocated among certain MainStay Funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The amended credit agreement expires on August 29, 2012, although the MainStay Funds and the syndicate of banks may renew the amended credit agreement for an additional year on the same or different terms. Prior to August 31, 2011, the commitment rate was an annual rate of 0.10% of the average commitment amount, plus a 0.02% up-front payment. There were no borrowings made or outstanding with respect to the Fund on the amended credit agreement during the year ended October 31, 2011.
Note 7–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2011, purchases and sales of securities, other than short-term securities, were $7,757 and $43,490, respectively.
Note 8–Capital Share Transactions
Shares | Amount | |||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 2,565 | (a) | $ | 128,389 | ||||
Shares issued to shareholders in reinvestment of dividends | 64,436 | (a) | 2,896,713 | |||||
Shares redeemed | (746,759 | )(a) | (35,461,708 | ) | ||||
Net increase (decrease) | (679,758 | ) | $ | (32,436,606 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 5,176 | (a) | $ | 218,356 | ||||
Shares issued to shareholders in reinvestment of dividends | (3,972 | )(a) | 3,768,663 | |||||
Shares redeemed | (932,586 | )(a) | (43,050,196 | ) | ||||
Net increase (decrease) | (931,382 | ) | $ | (39,063,177 | ) | |||
(a) | Adjusted to reflect cumulative effects of the reverse stock split in each year, as well as the reverse stock split on December 7, 2011. (See Note 2 (C)) |
Note 9–Guarantee
NYLIFE LLC, a wholly-owned subsidiary of New York Life, has guaranteed unconditionally and irrevocably pursuant to a Guaranty Agreement between NYLIFE and the Fund (the “Guarantee”) that if, on the business day immediately after ten years from the date of purchase (the “Guarantee Date”), the NAV of a Fund share plus the value of all dividends and distributions paid, including cumulative reinvested dividends and distributions attributable to such share paid during that ten-year period (“Guaranteed Share”), is less than the price initially paid for the Fund share (“Guaranteed Amount”), NYLIFE will pay shareholders an amount equal to the difference between the Guaranteed Amount and the net asset value of that share as of the close of business on the Guarantee Date. For the services that New York Life Investments and its affiliates provide to the Fund, they receive the fees described in the prospectus (see Note 3). Neither New York Life Investments nor its affiliates receive a separate fee for providing the Guarantee, although the Guarantee has been considered in connection with the annual renewal of the management fee. During the year ended October 31, 2011, NYLIFE made payments directly to shareholders totaling $156,552 related to the Guarantee.
Note 10–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the fiscal year ended October 31, 2011, events and transactions subsequent to October 31, 2011 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:
At a meeting held on December 14, 2011, the Fund’s Board of Trustees approved submitting the following proposal to shareholders:
Approval of an Agreement and Plan of Reorganization providing for the acquisition of the assets and liabilities of the Fund by MainStay S&P 500 Index Fund (“S&P 500 Fund”), a series of MainStay Funds Trust, in exchange for Class A shares of the S&P 500 Fund, followed by the complete liquidation of the Fund. On or about March 19, 2012, shareholders who own shares of the Fund as of February 21, 2012 will receive a proxy statement/prospectus containing further information regarding the S&P 500 Fund and the proposed reorganization. The proxy statement/prospectus will also include voting instruction cards with which shareholders of the Fund may vote on the proposed reorganization at a special meeting scheduled to be held on or about May 21, 2012.
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Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Equity Index Fund (“the Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Equity Index Fund of The MainStay Funds as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
-s- KPMG LLP
Philadelphia, Pennsylvania
December 22, 2011
December 22, 2011
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Federal Income Tax Information (Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders within 60 days of the Fund’s fiscal year end (October 31, 2011) as to the federal tax status of dividends paid by the Fund during such fiscal years.
For the fiscal year ended October 31, 2011, the Fund designated approximately $4,068,371 under the Internal Revenue Code as qualified dividend income eligible for reduced tax rates.
The dividends paid by the Fund during the fiscal year ended October 31, 2011, should be multiplied by 100.0% to arrive at the amount eligible for the corporate dividends received deduction.
In February 2012, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2011. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2011.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
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Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, Eclipse Funds, Eclipse Funds Inc., MainStay Funds Trust, and MainStay VP Funds Trust) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s). Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation upon reaching age 72. A Board Member reaching the age of 72 may continue for additional one-year periods with the approval of the Board’s Nominating and Governance Committee.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Interested Board Member* | ||||||||
John Y. Kim 9/24/60 | Indefinite; Eclipse Funds: Trustee since 2008 (2 funds); Eclipse Funds Inc.: Director since 2008 (1 fund); The MainStay Funds: Trustee since 2008 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc. since 2008 (21 portfolios). | Member of the Board of Managers (since 2011) of New York Life Enterprises LLC; Chairman (since 2011), Member of the Board of Managers, Chief Executive Officer and President (since 2008) of New York Life Investment Management LLC and New York Life Investment Management Holdings LLC; Executive Vice President (since 2011) of New York Life Foundation; Member of the Board of Managers and Chairman of the Board of Private Advisors, L.L.C. (since 2010); Executive Vice President, New York Life Insurance Company (since 2008); Chairman of the Board (2008-2010) and Member of the Boards of Managers (since 2008) of MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, Madison Square Investors LLC, NYLCAP Manager LLC and McMorgan & Company LLC; Chairman of the Board and Chief Executive Officer, NYLIFE Distributors LLC (2008-2010); Executive Vice President of NYLIFE Insurance Company of Arizona and New York Life Insurance and Annuity Corporation (since 2008); President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 66 | None | ||||
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Susan B. Kerley 8/12/51 | Indefinite; Eclipse Funds: Chairman since 2005, and Trustee since 2000 (2 funds); Eclipse Funds Inc.: Chairman since 2005 and Director since 1990 (1 fund); The MainStay Funds: Chairman and Board Member since 2007 (14 funds); MainStay Funds Trust: Chairman and Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Chairman and Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | President, Strategic Management Advisors LLC (since 1990) | 66 | Trustee, Legg Mason Partners Funds, since 1991 (58 portfolios) | ||||
Alan R. Latshaw 3/27/51 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2006 (14 funds); MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 66 | Trustee, State Farm Associates Funds Trusts since 2005 (4 portfolios); Trustee, State Farm Mutual Fund Trust since 2005 (15 portfolios); Trustee, State Farm Variable Product Trust since 2005 (9 portfolios) | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Peter Meenan 12/5/41 | Indefinite; Eclipse Funds: Trustee since 2002 (2 funds); Eclipse Funds Inc.: Director since 2002 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Independent Consultant; President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 66 | None | ||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2006 (21 portfolios). | Managing Director, ICC Capital Management; President—Shields/Alliance, Alliance Capital Management (1994 to 2004) | 66 | None | ||||
Richard S. Trutanic 2/13/52 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 1994 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 66 | None | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Roman L. Weil 5/22/40 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1994 and Audit Committee Financial Expert since 2003 (21 portfolios). | Visiting Professor, NYU Stem School of Business, New York University (since 2011); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School of Business, University of Chicago (1965-2008) | 66 | None | ||||
John A. Weisser 10/22/41 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1997 (21 portfolios). | Retired. Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 66 | Trustee, Direxion Funds since 2007 (27 portfolios); Direxion Insurance Trust since 2007 (1 portfolio); Trustee, Direxion Shares ETF Trust, since 2008 (50 portfolios) | ||||
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The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.
Positions(s) Held | ||||
Name and | with the Funds | Principal Occupation(s) | ||
Date of Birth | and Length of Service | During Past Five Years | ||
Officers | ||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007); Vice President, Prudential Investments (2000 to 2007); Assistant Treasurer, JennisonDryden Family of Funds, Target Portfolio Trust, The Prudential Series Fund and American Skandia Trust (2006 to 2007); Treasurer and Principal Financial Officer, The Greater China Fund (2007) | ||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance (since 2009), Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Assistant Secretary NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2009); Assistant Secretary, The MainStay Funds and ICAP Funds, Inc. (2006 to 2008); Assistant Secretary, Eclipse Funds, Eclipse Funds, Inc. and MainStay VP Series Fund, Inc. (2005 to 2008) | ||
Stephen P. Fisher 2/22/59 | President, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Director, Senior Vice President, New York Life Insurance and Annuity Corporation (since 2011); Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2007); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007) | ||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2010); Director and Counsel of Credit Suisse, Chief Legal Officer and Secretary of Credit Suisse Asset Management, LLC and Credit Suisse Funds (2003 to 2010) | ||
Scott T. Harrington 2/8/59 | Vice President — Administration, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Director (since 2009), New York Life Trust Company FSB; Vice President—Administration, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2005) | ||
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one-year term. |
34 MainStay Equity Index Fund
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay offerings is listed here, with information about the manager, subadvisors, legal counsel, and independent registered public accounting firm.
Equity Funds
MainStay 130/30 Core Fund
MainStay Common Stock Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Fund
MainStay Equity Index Fund1
MainStay Growth Equity Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Small Cap Fund
Income Funds
MainStay Flexible Bond Opportunities Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Municipal Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Money Market Fund
MainStay Principal Preservation Fund
MainStay Short Term Bond Fund
MainStay Tax Free Bond Fund
Blended Funds
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
International Funds
MainStay 130/30 International Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay Global High Income Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
Asset Allocation Funds
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
Retirement Funds
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC2
Chicago, Illinois
MacKay Shields LLC2
New York, New York
Madison Square Investors LLC2
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management, Inc.
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firm
KPMG LLP
1. | Closed to new investors and new purchases as of January 1, 2002. |
2. | An affiliate of New York Life Investment Management LLC. |
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mainstayinvestments.com
The MainStay Funds are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
NYLIFE Distributors is a Member FINRA/SIPC.
MainStay Investments is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
© 2012 by NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency | ||||||||
NYLIM-24844 MS284-11 | MSEI11-12/11 |
N06
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MainStay Flexible Bond Opportunities Fund
Message from the President and Annual Report
October 31, 2011
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Message from the President
Volatility was the keynote of the 12 months ended October 31, 2011. U.S. stocks generally advanced, but a variety of domestic and international forces influenced the market.
Early in November 2010, the Federal Open Market Committee (FOMC) announced its intention to extend quantitative easing by purchasing additional longer-term Treasury securities. The stock market reacted positively to this news—and to the midterm elections—and stocks generally advanced through mid-February.
Beginning in December 2010, a wave of protests and civil unrest across North Africa and the Middle East led to a substantial rise in the price of oil. By mid-February, stock prices started to decline. In March, a major earthquake and tsunami in Japan caused manufacturing supply-line interruptions and further setbacks for equity investors. After a sharp decline and a rapid recovery, stocks reached their high point for the 12-month period at the end of April 2011.
Pressed by a weak economy, lackluster employment and widespread concerns about European sovereign debt, the stock market faced wide fluctuations in the coming months. The volatility included a precipitous decline at the end of July into early August. Shortly thereafter, the FOMC expressed its expectation that economic conditions were “likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
After several unsuccessful attempts to recover from their dramatic drop, U.S. stocks reached their low point for the reporting period in early October. Then, buoyed by positive economic data and progress in the European debt situation, the U.S. stock market advanced rapidly in October, to close the reporting period with its best monthly performance in nearly a decade.
International stocks suffered from the turmoil in the Middle East and North Africa, the natural disasters in Japan, the sovereign debt concerns in Europe and the added threat of an economic slowdown in China. For the 12-month period, international stocks declined overall, with particular weakness in Europe.
The bond markets felt the impact of the European debt crisis, and several European nations suffered downgrades. In July, the United States faced a congressional deadlock on raising the debt ceiling and reducing deficit spending. In early August, Standard & Poor’s downgraded the debt of the United States of America to AA+.
Slow progress in resolving the European debt situation led to a flight to quality (or a movement toward securities perceived to carry lower risk). Amid strong demand, U.S. Treasury securities saw prices rise and yields decline, despite the downgrade by Standard & Poor’s. High-grade corporate
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
Throughout the 12-month reporting period, our portfolio managers took note of shifting market forces. But their primary focus was on the investment objectives of their respective Funds and the long-term strategies they were pursuing to achieve them. Some may have sought to capitalize on day-to-day market inefficiencies, but all remained focused on the long-term interests of our shareholders. They sought to apply time-tested investment principles consistently throughout the reporting period.
The information that follows provides specifics about the securities, decisions and market forces that affected your MainStay Fund(s) during the 12 months ended October 31, 2011. Behind the details, we hope you’ll recognize the professionalism and discipline that guided our portfolio managers during this volatile period.
We thank you for investing with MainStay and look forward to serving you for many years to come.
Sincerely,
Stephen P. Fisher
President
President
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Annual Report | ||
Investment and Performance Comparison | 5 | |
Portfolio Management Discussion and Analysis | 9 | |
Portfolio of Investments | 11 | |
Financial Statements | 28 | |
Notes to Financial Statements | 36 | |
Report of Independent Registered Public Accounting Firm | 47 | |
Federal Income Tax Information | 48 | |
Proxy Voting Policies and Procedures and Proxy Voting Record | 48 | |
Shareholder Reports and Quarterly Portfolio Disclosure | 48 | |
Board Members and Officers | 49 | |
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
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Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2011
Gross | ||||||||||||||||||||
Expense | ||||||||||||||||||||
Class | Sales Charge | One Year | Five Years | Ten Years | Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 4.5% Initial Sales Charge | With sales charges | –3 | .23% | 4 | .90% | 6 | .30% | 1 | .71% | ||||||||||
Excluding sales charges | 1 | .33 | 5 | .87 | 6 | .79 | 1 | .71 | ||||||||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges | –3 | .03 | 5 | .01 | 6 | .36 | 1 | .47 | ||||||||||
Excluding sales charges | 1 | .54 | 5 | .98 | 6 | .85 | 1 | .47 | ||||||||||||
Class B Shares | Maximum 5% CDSC | With sales charges | –4 | .23 | 4 | .73 | 5 | .99 | 2 | .46 | ||||||||||
if Redeemed Within the First Six Years of Purchase | Excluding sales charges | 0 | .59 | 5 | .06 | 5 | .99 | 2 | .46 | |||||||||||
Class C Shares | Maximum 1% CDSC | With sales charges | –0 | .48 | 5 | .04 | 5 | .98 | 2 | .46 | ||||||||||
if Redeemed Within One Year of Purchase | Excluding sales charges | 0 | .48 | 5 | .04 | 5 | .98 | 2 | .46 | |||||||||||
Class I Shares4 | No Sales Charge | 1 | .79 | 6 | .32 | 7 | .18 | 1 | .21 | |||||||||||
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, change in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Investor Class shares might have been lower. |
4. | Performance figures for Class I shares, first offered on January 2, 2004, include the historical performance of Class A shares through January 1, 2004, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class I shares might have been lower. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com 5
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One | Five | Ten | ||||||||||
Benchmark Performance | Year | Years | Years | |||||||||
Barclays Capital U.S. Aggregate Bond Index5 | 5 | .00% | 6 | .41% | 5 | .46% | ||||||
Average Lipper Multi-Sector Income Fund6 | 2 | .47 | 5 | .70 | 6 | .98 | ||||||
5. | The Barclays Capital U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasurys, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. The Barclays Capital U.S. Aggregate Bond Index is the Fund’s broad-based securities market index for comparison purposes. Total returns assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
6. | The average Lipper multi-sector income fund is representative of funds that seek current income by allocating assets among several different fixed income securities sectors (with no more than 65% in any one sector except for defensive purposes), including U.S. government and foreign governments, with a significant portion of assets in securities rated below investment-grade. 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 Flexible Bond Opportunities Fund
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Cost in Dollars of a $1,000 Investment in MainStay Flexible Bond Opportunities Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2011, to October 31, 2011, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2011, to October 31, 2011.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2011. 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.
Ending Account | ||||||||||||||||||||||
Ending Account | Value (Based | |||||||||||||||||||||
Value (Based | on Hypothetical | |||||||||||||||||||||
Beginning | on Actual | Expenses | 5% Annualized | Expenses | ||||||||||||||||||
Account | Returns and | Paid | Return and | Paid | ||||||||||||||||||
Value | Expenses) | During | Actual Expenses) | During | ||||||||||||||||||
Share Class | 5/1/11 | 10/31/11 | Period1 | 10/31/11 | Period1 | |||||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 985.10 | $ | 7.71 | $ | 1,017.40 | $ | 7.83 | ||||||||||||
Class A Shares | $ | 1,000.00 | $ | 986.00 | $ | 6.71 | $ | 1,018.50 | $ | 6.82 | ||||||||||||
Class B Shares | $ | 1,000.00 | $ | 981.30 | $ | 11.44 | $ | 1,013.70 | $ | 11.62 | ||||||||||||
Class C Shares | $ | 1,000.00 | $ | 980.20 | $ | 11.43 | $ | 1,013.70 | $ | 11.62 | ||||||||||||
Class I Shares | $ | 1,000.00 | $ | 987.30 | $ | 5.41 | $ | 1,019.80 | $ | 5.50 | ||||||||||||
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.54% for Investor Class, 1.34% for Class A, 2.29% for Class B and Class C and 1.08% for Class I) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the one-half year period). The table above represents the actual expenses incurred during the one-half year period. |
mainstayinvestments.com 7
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Portfolio Composition as of October 31, 2011 (Unaudited)
Corporate Bonds | 63.9 | % | ||
Yankee Bonds | 10.8 | |||
Loan Assignments & Participations | 6.6 | |||
Convertible Bonds | 4.3 | |||
U.S. Government & Federal Agencies | 3.9 | |||
Foreign Bonds | 2.9 | |||
Asset-Backed Securities | 2.8 | |||
Short-Term Investment | 2.4 | |||
Convertible Preferred Stocks | 2.2 | |||
Other Assets, Less Liabilities | 1.6 | |||
Common Stocks | 0.8 | |||
Municipal Bonds | 0.5 | |||
Mortgage-Backed Securities | 0.3 | |||
Warrants | 0.2 | |||
Futures Contracts Short | 0.1 | |||
Credit Default Swap Contracts | −0.0 | ‡ | ||
Futures Contracts Long | −0.1 | |||
Investments Sold Short | −3.2 |
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
‡ | Less than one-tenth of a percent. |
Top Ten Holdings or Issuers Held as of October 31, 2011 (excluding short-term investment)
1. | United States Treasury Inflation Indexed Note, 1.25%, due 7/15/20 | |
2. | United States Treasury Bonds, 3.50%–3.875%, due 2/15/39–8/15/41 | |
3. | SunGard Data Systems, Inc., 7.375%–10.25%, due 8/15/15–11/15/18 | |
4. | Clear Channel Communications, Inc., 3.896%–9.00%, due 1/28/16–3/1/21 | |
5. | Bank of America Corp., 5.625%–7.25%, due 7/1/20 | |
6. | Ford Motor Credit Co. LLC, 8.00%, due 12/15/16 | |
7. | HCA, Inc., 6.50%, due 2/15/16 | |
8. | Springleaf Finance Corp., 5.50%–6.90%, due 5/5/17–12/15/17 | |
9. | Reynolds Group Issuer, Inc., 7.875%–9.875%, due 10/15/16–8/15/19 | |
10. | Novelis, Inc., 3.75%–8.75%, due 3/10/17–12/15/20 |
8 MainStay Flexible Bond Opportunities Fund
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Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Dan Roberts, PhD, Michael Kimble, Louis N. Cohen and Taylor Wagenseil of MacKay Shields LLC, the Fund’s Subadvisor.
How did MainStay Flexible Bond Opportunities Fund perform relative to its peers and its benchmark during the 12 months ended October 31, 2011?
Excluding all sales charges, MainStay Flexible Bond Opportunities Fund returned 1.33% for Investor Class shares, 1.54% for Class A shares, 0.59% for Class B shares and 0.48% Class C shares for the 12 months ended October 31, 2011. Over the same period, Class I shares returned 1.79%. All share classes underperformed the 2.47% return of the average Lipper1 multi-sector income fund for the 12 months ended October 31, 2011. All share classes underperformed the 5.00% return of the Barclays Capital U.S. Aggregate Bond Index2 over the same period. The Barclays Capital U.S. Aggregate Bond Index is the Fund’s broad-based securities-market index. See page 5 for Fund returns with sales charges.
Were any changes made to the Fund’s name and investment approach during the reporting period?
Effective February 28, 2011, MainStay Diversified Income Fund changed its name to MainStay Flexible Bond Opportunities Fund and modifications were made to its investment objective and principal investment strategies. As of February 28, 2011, the Fund seeks to provide current income and total return by in-vesting primarily in domestic and foreign debt securities. For more information regarding the Fund’s investment objective, fees and expenses, principal investment strategies, principal risks and other matters, please refer to the Prospectus dated February 28, 2011.
What factors affected the Fund’s relative performance during the reporting period?
During the reporting period, we anticipated that accommoda-tive monetary policy and steady credit creation would provide continued growth. To take advantage of healthy corporate balance sheets, few near-term debt maturities and low default rates, we positioned the Fund with an above-market risk profile (or beta).3
The Fund’s underperformance of the Barclays Capital U.S. Aggregate Bond Index was primarily due to the Fund’s beta positioning. Because we took an overweight position in corporate bonds, we underweighted U.S. Treasury securities. This positioning hurt performance when U.S. Treasurys rallied during the latter half of the reporting period.
Despite these developments, our investment thesis was somewhat vindicated toward the end of the reporting period, as U.S. economic data continued to show growth, though at a slower pace than in past recoveries. In addition, encouraging news about a potential resolution to the European sovereign debt crisis sparked a rally in high-yield corporate bonds and convertible securities, which typically carry higher risk.
What was the Fund’s duration4 strategy during the reporting period?
The Fund’s duration was shorter than that of the Barclays Capital U.S. Aggregate Bond Index, in large part because of our overweight position in high-yield corporate bonds. These bonds tend to have shorter durations than investment-grade corporate bonds. They also tend to have a low correlation to U.S. Treasury securities, so they have a lower sensitivity to interest rates. The Fund’s shorter duration detracted modestly from performance relative to the benchmark.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
During the reporting period, there were many macro factors to consider, and the Fund experienced extended periods of volatility. Nevertheless, we did not make any material changes to the Fund’s positioning. Prior to the reporting period, we had judged the Federal Reserve’s accommodative monetary policy coupled with an improving economy to be a positive combination for spread5 products such as high-yield corporate bonds. Although there was a flight to quality (or movement toward securities perceived to have lower risk) during the second half of the reporting period, we viewed this as more technical in nature—and not based on fundamentals, which we believed to be favorable.
During the reporting period, which market segments were the strongest contributors to the Fund’s perfor-mance and which market segments were partic-
ularly weak?
ularly weak?
Our positioning in higher-beta securities such as high-yield corporate bonds and convertible securities was the driving force behind the Fund’s outperformance relative to the Barclays Capital U.S. Aggregate Bond Index during the first half of the reporting period. As investors became more concerned about global economic conditions, there was a sharp turnaround in investor sentiment, which drove investors to the perceived safety of U.S. Treasury securities and away from assets with higher risk profiles. Because of this shift, U.S. Treasurys and agencies were the Fund’s best performers during the reporting period, but our underweight position relative to the benchmark
1. See footnote on page 6 for more information on Lipper Inc.
2. See footnote on page 6 for more information on the Barclays Capital U.S. Aggregate Bond Index.
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.
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 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.
2. See footnote on page 6 for more information on the Barclays Capital U.S. Aggregate Bond Index.
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.
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 terms “spread” and “yield spread” may refer to the difference in yield between a security or type of security and comparable U.S. Treasury issues. The terms may also refer to the difference in yield between two specific securities or types of securities at a given time.
mainstayinvestments.com 9
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detracted from overall performance. The Fund’s holdings in investment-grade corporate bonds were positive contributors to performance during the reporting period. Our positions in high-yield corporate bonds and convertible securities, on the other hand, were the weakest performers during the reporting period. More specifically, our cyclical holdings within the high-yield sector underperformed the benchmark.
Did the Fund make any significant purchases or sales during the reporting period?
During the reporting period we initiated positions in homebuilder Meritage Homes, Canadian oil sands producer MEG Energy, coal producer Arch Coal and communications company Commscope. In addition to initiating short positions for the Fund in movie theater owner and operator AMC Entertainment and jeans and casual wear manufacturer Levi Strauss at the beginning of the reporting period, we added a short position in Vulcan Materials. The company is a producer of cement components, such as crushed stone, sand and gravel, and it is highly levered. In our opinion, Vulcan Materials’ bonds were not attractively valued. This short position served as a partial hedge for the Fund’s long positions in homebuilder bonds. We sold the Fund’s positions in apparel company Phillips Van Huesen and eye care company Bausch & Lomb.
How did the Fund’s sector weightings change during the reporting period?
During the reporting period, we modestly increased the Fund’s exposure to high-yield corporate bonds, while slightly reducing the Fund’s positions in floating-rate securities/bank debt and U.S. Treasurys.
How was the Fund positioned at the end of the reporting period?
As of October 31, 2011, the Fund’s most substantially overweight position relative to the Barclays Capital U.S. Aggregate Bond Index was in high-yield corporate bonds. The Fund was also overweight in convertible securities and had an equal weight in investment-grade corporate bonds. As of the same date, the Fund held underweight positions relative to the benchmark in U.S. Treasury securities and agency securities.
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
10 MainStay Flexible Bond Opportunities Fund
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Portfolio of Investments††† October 31, 2011
Principal | ||||||||
Amount | Value | |||||||
Long-Term Bonds 96.0%† Asset-Backed Securities 2.8% | ||||||||
Airlines 0.4% | ||||||||
American Airlines Pass-Through Trust Series 2001-1, Class A1 6.977%, due 11/23/22 | $ | 825,623 | $ | 569,680 | ||||
Continental Airlines, Inc. Series 2004-ERJ1, Class A 9.558%, due 9/1/19 | 116,029 | 119,800 | ||||||
Northwest Airlines, Inc. Series 2007-1, Class A 7.027%, due 11/1/19 | 377,331 | 379,217 | ||||||
United Air Lines, Inc. Series 2009-2, Class A 9.75%, due 1/15/17 | 724,814 | 782,799 | ||||||
1,851,496 | ||||||||
Home Equity 1.7% | ||||||||
Carrington Mortgage Loan Trust Series 2006-NC4, Class A5 0.305%, due 10/25/36 (a) | 831,345 | 643,787 | ||||||
Citicorp Residential Mortgage Securities, Inc. Series 2006-1, Class A3 5.706%, due 7/25/36 (b) | 27,415 | 27,475 | ||||||
Citigroup Mortgage Loan Trust, Inc. Series 2007-AHL2, Class A3A 0.315%, due 5/25/37 (a) | 568,818 | 455,673 | ||||||
Equifirst Loan Securitization Trust Series 2007-1, Class A2A 0.305%, due 4/25/37 (a) | 255,639 | 234,734 | ||||||
First NLC Trust Series 2007-1, Class A1 0.315%, due 8/25/37 (a)(c) | 529,632 | 176,177 | ||||||
GSAA Home Equity Trust Series 2006-14, Class A1 0.295%, due 9/25/36 (a) | 1,108,820 | 408,928 | ||||||
Home Equity Loan Trust Series 2007-FRE1, Class 2AV1 0.375%, due 4/25/37 (a) | 361,896 | 240,915 | ||||||
HSI Asset Securitization Corp. Trust Series 2007-NC1, Class A1 0.345%, due 4/25/37 (a) | 779,129 | 586,738 | ||||||
JP Morgan Mortgage Acquisition Corp. Series 2007-HE1, Class AF1 0.345%, due 3/25/47 (a) | 462,829 | 302,257 | ||||||
Master Asset Backed Securities Trust Series 2006-HE4, Class A1 0.295%, due 11/25/36 (a) | 138,529 | 46,084 | ||||||
Merrill Lynch Mortgage Investors Trust Series 2007-MLN1, Class A2A 0.355%, due 3/25/37 (a) | 1,079,249 | 541,467 | ||||||
Morgan Stanley ABS Capital I, Inc. Series 2006-HE6, Class A2B 0.345%, due 9/25/36 (a) | 1,003,646 | 810,980 | ||||||
Series 2006-HE8, Class A2B 0.345%, due 10/25/36 (a) | 344,022 | 198,589 | ||||||
Series 2007-HE4, Class A2A 0.355%, due 2/25/37 (a) | 200,981 | 184,846 | ||||||
Series 2007-NC2, Class A2FP 0.395%, due 2/25/37 (a) | 585,814 | 338,652 | ||||||
Renaissance Home Equity Loan Trust Series 2007-2, Class AF1 5.893%, due 6/25/37 | 934,242 | 494,648 | ||||||
Securitized Asset Backed Receivables LLC Trust Series 2007-BR4, Class A2A 0.335%, due 5/25/37 (a) | 635,253 | 251,021 | ||||||
Soundview Home Equity Loan Trust | ||||||||
Series 2007-OPT1, Class 2A1 0.325%, due 6/25/37 (a) | 1,026,639 | 879,610 | ||||||
Series 2006-EQ2, Class A2 0.355%, due 1/25/37 (a) | 530,742 | 436,790 | ||||||
7,259,371 | ||||||||
Student Loans 0.7% | ||||||||
Keycorp Student Loan Trust Series 2000-A, Class A2 0.632%, due 5/25/29 (a) | 3,090,242 | 2,811,197 | ||||||
Total Asset-Backed Securities (Cost $13,497,691) | 11,922,064 | |||||||
Convertible Bonds 4.3% | ||||||||
Airlines 0.0%‡ | ||||||||
AMR Corp. 6.25%, due 10/15/14 | 176,000 | 98,780 | ||||||
Auto Manufacturers 0.1% | ||||||||
Ford Motor Co. 4.25%, due 11/15/16 | 266,000 | 397,005 | ||||||
Auto Parts & Equipment 0.2% | ||||||||
ArvinMeritor, Inc. 4.00%, due 2/15/27 | 855,000 | 649,800 | ||||||
† | Percentages indicated are based on Fund net assets. |
X | Among the Fund’s 10 largest holdings or issuers held, as of October 31, 2011, excluding short-term investment. May be subject to change daily. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 11 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Convertible Bonds (continued) | ||||||||
Banks 0.0%‡ | ||||||||
JPMorgan Chase & Co. 1.50%, due 6/25/15 (c) | $ | 129,375 | $ | 187,413 | ||||
Biotechnology 0.2% | ||||||||
Amgen, Inc. 0.375%, due 2/1/13 | 182,000 | 180,863 | ||||||
Gilead Sciences, Inc. 1.00%, due 5/1/14 | 532,000 | 590,520 | ||||||
Life Technologies Corp. 1.50%, due 2/15/24 | 10,000 | 10,000 | ||||||
781,383 | ||||||||
Coal 0.2% | ||||||||
Peabody Energy Corp. 4.75%, due 12/15/66 | 565,000 | 618,675 | ||||||
Computers 0.4% | ||||||||
EMC Corp. 1.75%, due 12/1/13 | 732,000 | 1,168,455 | ||||||
NetApp, Inc. 1.75%, due 6/1/13 | 196,000 | 269,990 | ||||||
SanDisk Corp. 1.50%, due 8/15/17 | 266,000 | 318,867 | ||||||
1,757,312 | ||||||||
Distribution & Wholesale 0.2% | ||||||||
WESCO International, Inc. 6.00%, due 9/15/29 | 379,000 | 714,415 | ||||||
Electronics 0.1% | ||||||||
TTM Technologies, Inc. 3.25%, due 5/15/15 | 541,000 | 579,546 | ||||||
Energy—Alternate Sources 0.3% | ||||||||
Covanta Holding Corp. 3.25%, due 6/1/14 | 1,080,000 | 1,190,700 | ||||||
Entertainment 0.1% | ||||||||
International Game Technology 3.25%, due 5/1/14 | 470,000 | 564,588 | ||||||
Food 0.0%‡ | ||||||||
Spartan Stores, Inc. 3.375%, due 5/15/27 (c) | 118,000 | 106,347 | ||||||
3.375%, due 5/15/27 | 11,000 | 9,914 | ||||||
116,261 | ||||||||
Health Care—Products 0.2% | ||||||||
Teleflex, Inc. 3.875%, due 8/1/17 | 788,000 | 932,795 | ||||||
Internet 0.0%‡ | ||||||||
At Home Corp. 4.75%, due 12/31/49 (d)(e)(f)(g) | 504,238 | 50 | ||||||
Iron & Steel 0.4% | ||||||||
Allegheny Technologies, Inc. 4.25%, due 6/1/14 | 730,000 | 994,625 | ||||||
ArcelorMittal 5.00%, due 5/15/14 | 398,000 | 442,277 | ||||||
Steel Dynamics, Inc. 5.125%, due 6/15/14 | 36,000 | 38,520 | ||||||
United States Steel Corp. 4.00%, due 5/15/14 | 190,000 | 208,525 | ||||||
1,683,947 | ||||||||
Media 0.1% | ||||||||
Central European Media Enterprises, Ltd. 5.00%, due 11/15/15 | 250,000 | 190,938 | ||||||
Mining 0.0%‡ | ||||||||
Alcoa, Inc. 5.25%, due 3/15/14 | 76,000 | 136,610 | ||||||
Miscellaneous—Manufacturing 0.2% | ||||||||
Danaher Corp. (zero coupon), due 1/22/21 | 484,000 | 681,230 | ||||||
Ingersoll-Rand Co. 4.50%, due 4/15/12 | 107,000 | 188,989 | ||||||
870,219 | ||||||||
Oil & Gas 0.3% | ||||||||
St. Mary Land & Exploration Co. 3.50%, due 4/1/27 | 589,000 | 923,994 | ||||||
Transocean, Inc. Series C 1.50%, due 12/15/37 | 126,000 | 123,007 | ||||||
1,047,001 | ||||||||
Pharmaceuticals 0.1% | ||||||||
Teva Pharmaceutical Finance Co. LLC 0.25%, due 2/1/26 | 456,000 | 481,650 | ||||||
Real Estate Investment Trusts 0.1% | ||||||||
SL Green Operating Partnership, L.P. 3.00%, due 10/15/17 (c) | 454,000 | 478,970 | ||||||
The notes to the financial statements are an integral part of,
12 MainStay Flexible Bond Opportunities Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Convertible Bonds (continued) | ||||||||
Semiconductors 0.3% | ||||||||
Microchip Technology, Inc. 2.125%, due 12/15/37 | $ | 277,000 | $ | 369,103 | ||||
Novellus Systems, Inc. 2.625%, due 5/15/41 (c) | 408,000 | 424,830 | ||||||
ON Semiconductor Corp. 2.625%, due 12/15/26 | 541,000 | 593,071 | ||||||
1,387,004 | ||||||||
Software 0.3% | ||||||||
Microsoft Corp. (zero coupon), due 6/15/13 (c) | 131,000 | 133,620 | ||||||
Symantec Corp. 1.00%, due 6/15/13 | 499,000 | 581,335 | ||||||
SYNNEX Corp. 4.00%, due 5/15/18 | 277,000 | 317,165 | ||||||
1,032,120 | ||||||||
Telecommunications 0.5% | ||||||||
Alcatel-Lucent USA, Inc. 2.875%, due 6/15/25 | 430,000 | 408,500 | ||||||
Anixter International, Inc. 1.00%, due 2/15/13 | 509,000 | 569,444 | ||||||
Ciena Corp. 4.00%, due 3/15/15 (c) | 243,000 | 248,164 | ||||||
Leap Wireless International, Inc. 4.50%, due 7/15/14 | 5,000 | 4,375 | ||||||
SBA Communications Corp. 1.875%, due 5/1/13 | 867,000 | 942,862 | ||||||
2,173,345 | ||||||||
Total Convertible Bonds (Cost $19,774,899) | 18,070,527 | |||||||
Corporate Bonds 63.9% | ||||||||
Advertising 0.4% | ||||||||
Lamar Media Corp. | ||||||||
Series C 6.625%, due 8/15/15 | 750,000 | 753,750 | ||||||
Series C 6.625%, due 8/15/15 | 815,000 | 819,075 | ||||||
1,572,825 | ||||||||
Aerospace & Defense 1.4% | ||||||||
BE Aerospace, Inc. 6.875%, due 10/1/20 (h) | 1,630,000 | 1,756,325 | ||||||
Ducommun, Inc. 9.75%, due 7/15/18 (c) | 1,900,000 | 1,957,000 | ||||||
TransDigm, Inc. 7.75%, due 12/15/18 | 815,000 | 884,275 | ||||||
Triumph Group, Inc. 8.625%, due 7/15/18 | 1,305,000 | 1,435,500 | ||||||
6,033,100 | ||||||||
Airlines 1.3% | ||||||||
Continental Airlines, Inc. 7.875%, due 1/2/20 | 616,603 | 604,271 | ||||||
9.798%, due 4/1/21 | 758,281 | 781,030 | ||||||
Delta Air Lines, Inc. Series 2011-1 Class A Pass Through Trust 5.30%, due 4/15/19 | 1,630,000 | 1,638,150 | ||||||
Series 2010-1 Class A Pass Through Trust 6.20%, due 7/2/18 | 423,526 | 444,702 | ||||||
Series 2010-2, Class B Pass Through Trust 6.75%, due 11/23/15 (c) | 612,000 | 567,630 | ||||||
12.25%, due 3/15/15 (c) | 489,000 | 528,120 | ||||||
United Air Lines, Inc. 9.875%, due 8/1/13 (c) | 750,000 | 785,625 | ||||||
5,349,528 | ||||||||
Auto Manufacturers 0.7% | ||||||||
Ford Motor Co. 6.625%, due 10/1/28 | 229,000 | 243,281 | ||||||
General Motors Corp. (Escrow Shares) 8.375%, due 7/15/33 (f)(g)(i) | 11,365,000 | 140,584 | ||||||
Navistar International Corp. 8.25%, due 11/1/21 | 2,396,000 | 2,605,650 | ||||||
2,989,515 | ||||||||
Auto Parts & Equipment 0.7% | ||||||||
Commercial Vehicle Group, Inc. 7.875%, due 4/15/19 (c) | 1,000,000 | 975,000 | ||||||
Pinafore LLC/Pinafore, Inc. 9.00%, due 10/1/18 (c) | 1,646,000 | 1,794,140 | ||||||
2,769,140 | ||||||||
Banks 4.8% | ||||||||
AgriBank FCB 9.125%, due 7/15/19 | 1,600,000 | 2,073,256 | ||||||
Ally Financial, Inc. 7.50%, due 9/15/20 | 2,525,000 | 2,550,250 | ||||||
8.30%, due 2/12/15 | 571,000 | 599,550 | ||||||
BAC Capital Trust XIV 5.63%, due 9/29/49 (a)(h) | 652,000 | 397,720 | ||||||
X Bank of America Corp. 5.625%, due 7/1/20 | 3,590,000 | 3,458,735 | ||||||
CIT Group, Inc. 7.00%, due 5/1/15 | 500 | 500 | ||||||
7.00%, due 5/1/16 | 938 | 939 | ||||||
7.00%, due 5/2/16 (c) | 333,000 | 332,167 | ||||||
7.00%, due 5/1/17 | 400 | 400 | ||||||
7.00%, due 5/2/17 (c) | 2,022,000 | 2,016,945 |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 13 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Banks (continued) | ||||||||
�� | ||||||||
Discover Bank/Greenwood DE 7.00%, due 4/15/20 (h) | $ | 2,445,000 | $ | 2,553,265 | ||||
JPMorgan Chase & Co. 7.90%, due 4/29/49 (a)(h) | 2,200,000 | 2,368,762 | ||||||
PNC Funding Corp. 5.625%, due 2/1/17 | 2,180,000 | 2,391,314 | ||||||
Whitney National Bank 5.875%, due 4/1/17 | 1,450,000 | 1,526,260 | ||||||
20,270,063 | ||||||||
Biotechnology 0.3% | ||||||||
Life Technologies Corp. 5.00%, due 1/15/21 | 1,350,000 | 1,409,095 | ||||||
Building Materials 1.5% | ||||||||
Associated Materials LLC 9.125%, due 11/1/17 | 1,223,000 | 1,112,930 | ||||||
Boise Cascade LLC 7.125%, due 10/15/14 | 1,304,000 | 1,274,660 | ||||||
Masco Corp. 7.125%, due 3/15/20 | 2,250,000 | 2,242,739 | ||||||
Texas Industries, Inc. 9.25%, due 8/15/20 | 840,000 | 764,400 | ||||||
USG Corp. 6.30%, due 11/15/16 | 615,000 | 475,088 | ||||||
9.75%, due 1/15/18 | 363,000 | 304,920 | ||||||
6,174,737 | ||||||||
Chemicals 2.2% | ||||||||
Chevron Phillips Chemical Co. LLC 8.25%, due 6/15/19 (c) | 1,426,000 | 1,780,563 | ||||||
Dow Chemical Co. (The) 8.55%, due 5/15/19 | 1,084,000 | 1,408,212 | ||||||
Hexion U.S. Finance Corp./Hexion Nova Scotia Finance ULC 8.875%, due 2/1/18 | 1,223,000 | 1,207,713 | ||||||
Huntsman International LLC 5.50%, due 6/30/16 | 713,000 | 705,870 | ||||||
8.625%, due 3/15/21 | 1,325,000 | 1,361,438 | ||||||
Momentive Performance Materials, Inc. 9.00%, due 1/15/21 | 815,000 | 688,675 | ||||||
Nalco Co. 6.625%, due 1/15/19 (c) | 1,223,000 | 1,363,645 | ||||||
Vertellus Specialties, Inc. 9.375%, due 10/1/15 (c) | 1,019,000 | 927,290 | ||||||
9,443,406 | ||||||||
Coal 1.9% | ||||||||
Alpha Natural Resources, Inc. 6.00%, due 6/1/19 (h) | 1,560,000 | 1,548,300 | ||||||
Arch Coal, Inc. 7.25%, due 10/1/20 | 2,880,000 | 2,988,000 | ||||||
Cloud Peak Energy Resources LLC/Cloud Peak Energy Finance Corp. 8.25%, due 12/15/17 (h) | 2,162,000 | 2,313,340 | ||||||
Peabody Energy Corp. 7.375%, due 11/1/16 | 1,025,000 | 1,122,375 | ||||||
7,972,015 | ||||||||
Commercial Services 4.4% | ||||||||
Aramark Corp. 8.50%, due 2/1/15 | 734,000 | 761,525 | ||||||
Aramark Holdings Corp. 8.625%, due 5/1/16 (c)(j) | 2,900,000 | 3,008,750 | ||||||
Avis Budget Car Rental LLC 9.625%, due 3/15/18 | 2,375,000 | 2,481,875 | ||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc. 8.25%, due 1/15/19 | 1,223,000 | 1,219,942 | ||||||
Ford Holdings LLC 9.30%, due 3/1/30 | 127,000 | 167,640 | ||||||
Geo Group, Inc. (The) 6.625%, due 2/15/21 | 1,223,000 | 1,216,885 | ||||||
Hertz Corp. (The) 7.375%, due 1/15/21 | 1,630,000 | 1,674,825 | ||||||
Iron Mountain, Inc. 7.75%, due 10/1/19 | 431,000 | 447,163 | ||||||
8.375%, due 8/15/21 | 2,693,000 | 2,820,917 | ||||||
Quebecor World, Inc. (Litigation Recovery Trust—Escrow Shares) 6.50%, due 8/1/49 (f)(g)(i) | 5,000 | 80 | ||||||
9.75%, due 1/15/49 (c)(f)(g)(i) | 160,000 | 2,560 | ||||||
Stewart Enterprises, Inc. 6.50%, due 4/15/19 | 2,030,000 | 1,989,400 | ||||||
United Rentals North America, Inc. 9.25%, due 12/15/19 | 2,384,000 | 2,682,000 | ||||||
18,473,562 | ||||||||
Computers 1.1% | ||||||||
X SunGard Data Systems, Inc. 7.375%, due 11/15/18 | 3,857,000 | 3,943,783 | ||||||
10.25%, due 8/15/15 | 572,000 | 593,450 | ||||||
4,537,233 | ||||||||
Diversified Financial Services 0.6% | ||||||||
GE Capital Trust IV Series Reg S 4.625%, due 9/15/66 (a) | € | 1,223,000 | 1,413,041 | |||||
General Electric Capital Corp. 6.50%, due 9/15/67 (a) | £ | 815,000 | 1,179,395 | |||||
2,592,436 | ||||||||
The notes to the financial statements are an integral part of,
14 MainStay Flexible Bond Opportunities Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Electric 1.3% | ||||||||
Energy Future Intermediate Holding Co. LLC/EFIH Finance, Inc. 10.00%, due 12/1/20 | $ | 1,724,000 | $ | 1,810,200 | ||||
Great Plains Energy, Inc. 4.85%, due 6/1/21 | 750,000 | 786,581 | ||||||
NRG Energy, Inc. 8.50%, due 6/15/19 | 1,970,000 | 2,058,650 | ||||||
Wisconsin Energy Corp. 6.25%, due 5/15/67 (a) | 833,280 | 824,947 | ||||||
5,480,378 | ||||||||
Entertainment 0.7% | ||||||||
Isle of Capri Casinos, Inc. 7.00%, due 3/1/14 | 882,000 | 846,720 | ||||||
Mohegan Tribal Gaming Authority 6.125%, due 2/15/13 | 815,000 | 566,425 | ||||||
Pinnacle Entertainment, Inc. 7.50%, due 6/15/15 | 1,488,000 | 1,461,960 | ||||||
United Artists Theatre Circuit, Inc. Series BA7 9.30%, due 7/1/15 (f)(g) | 47,921 | 33,545 | ||||||
2,908,650 | ||||||||
Environmental Controls 0.1% | ||||||||
EnergySolutions, Inc./EnergySolutions LLC 10.75%, due 8/15/18 | 550,000 | 555,500 | ||||||
Finance—Auto Loans 1.0% | ||||||||
X Ford Motor Credit Co. LLC 8.00%, due 12/15/16 | 3,500,000 | 4,041,345 | ||||||
Finance—Consumer Loans 1.6% | ||||||||
American General Finance Corp. 3.25%, due 1/16/13 | 612,000 | 739,207 | ||||||
HSBC Finance Capital Trust IX 5.911%, due 11/30/35 (a)(h) | 2,425,000 | 2,134,000 | ||||||
SLM Corp. 4.75%, due 3/17/14 | € | 815,000 | 1,100,462 | |||||
6.25%, due 1/25/16 | $ | 408,000 | 408,000 | |||||
8.00%, due 3/25/20 | 408,000 | 424,320 | ||||||
X Springleaf Finance Corp. 6.90%, due 12/15/17 | 2,727,000 | 2,079,338 | ||||||
6,885,327 | ||||||||
Finance—Credit Card 1.2% | ||||||||
American Express Co. 6.80%, due 9/1/66 (a)(h) | 2,139,000 | 2,117,610 | ||||||
Capital One Capital III 7.686%, due 8/15/36 | 3,097,000 | 3,073,773 | ||||||
5,191,383 | ||||||||
Finance—Other Services 0.5% | ||||||||
Icahn Enterprises, L.P. / Icahn Enterprises Finance Corp. 7.75%, due 1/15/16 (h) | 2,180,000 | 2,234,500 | ||||||
Food 1.0% | ||||||||
Kraft Foods, Inc. 6.50%, due 8/11/17 | 1,600,000 | 1,912,482 | ||||||
Smithfield Foods, Inc. 7.75%, due 7/1/17 | 2,206,000 | 2,382,480 | ||||||
4,294,962 | ||||||||
Forest Products & Paper 1.2% | ||||||||
Boise Paper Holdings LLC/Boise Finance Co. 9.00%, due 11/1/17 | 1,306,000 | 1,397,420 | ||||||
Domtar Corp. 10.75%, due 6/1/17 | 734,000 | 921,170 | ||||||
International Paper Co. 7.30%, due 11/15/39 | 693,000 | 808,076 | ||||||
MeadWestvaco Corp. 7.375%, due 9/1/19 | 1,800,000 | 1,973,183 | ||||||
5,099,849 | ||||||||
Health Care—Products 0.3% | ||||||||
Alere, Inc. 8.625%, due 10/1/18 | 1,323,000 | 1,321,346 | ||||||
Health Care—Services 1.6% | ||||||||
Fresenius Medical Care U.S. Finance, Inc. 6.50%, due 9/15/18 (c) | 2,500,000 | 2,625,000 | ||||||
X HCA, Inc. 6.50%, due 2/15/16 | 3,900,000 | 3,999,937 | ||||||
6,624,937 | ||||||||
Holding Company—Diversified 0.5% | ||||||||
Chiron Merger Sub, Inc. 10.50%, due 11/1/18 (c) | 1,925,000 | 1,946,656 | ||||||
Home Builders 1.8% | ||||||||
Beazer Homes USA, Inc. 8.125%, due 6/15/16 (h) | 819,000 | 663,390 | ||||||
K Hovnanian Enterprises, Inc. 10.625%, due 10/15/16 (h) | 1,752,000 | 1,502,340 | ||||||
Lennar Corp. 6.95%, due 6/1/18 | 204,000 | 199,410 | ||||||
MDC Holdings, Inc. 5.625%, due 2/1/20 | 693,000 | 620,957 | ||||||
Meritage Homes Corp. 6.25%, due 3/15/15 | 1,956,000 | 1,877,760 | ||||||
Shea Homes, L.P./Shea Homes Funding Corp. 8.625%, due 5/15/19 (c) | 2,000,000 | 1,810,000 |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 15 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Home Builders (continued) | ||||||||
Standard Pacific Corp. 8.375%, due 5/15/18 | $ | 815,000 | $ | 786,475 | ||||
7,460,332 | ||||||||
Household Products & Wares 1.3% | ||||||||
Jarden Corp. 7.50%, due 5/1/17 | 500,000 | 535,000 | ||||||
7.50%, due 1/15/20 | 1,223,000 | 1,308,610 | ||||||
X Reynolds Group Issuer, Inc. 7.875%, due 8/15/19 (c) | 1,025,000 | 1,071,125 | ||||||
8.50%, due 10/15/16 (c) | 612,000 | 643,365 | ||||||
9.875%, due 8/15/19 (c) | 2,089,000 | 2,089,000 | ||||||
5,647,100 | ||||||||
Housewares 0.4% | ||||||||
Libbey Glass, Inc. 10.00%, due 2/15/15 | 1,600,000 | 1,704,000 | ||||||
Insurance 2.5% | ||||||||
Allstate Corp. (The) 6.50%, due 5/15/57 (a)(h) | 713,000 | 663,981 | ||||||
American International Group, Inc. 4.875%, due 3/15/67 (a) | € | 1,250,000 | 1,230,196 | |||||
Series A2 5.75%, due 3/15/67 (a) | £ | 450,000 | 524,578 | |||||
Farmers Exchange Capital 7.20%, due 7/15/48 (c) | $ | 603,000 | 658,932 | |||||
Hartford Financial Services Group, Inc. (The) 6.10%, due 10/1/41 | 632,000 | 597,930 | ||||||
Liberty Mutual Group, Inc. 7.80%, due 3/7/87 (c) | 453,000 | 412,230 | ||||||
10.75%, due 6/15/88 (a)(c) | 938,000 | 1,139,670 | ||||||
Lincoln National Corp. 7.00%, due 5/17/66 (a) | 3,443,000 | 3,236,420 | ||||||
Pacific Life Insurance Co. 7.90%, due 12/30/23 (c) | 1,150,000 | 1,384,824 | ||||||
9.25%, due 6/15/39 (c) | 204,000 | 272,869 | ||||||
Progressive Corp. (The) 6.70%, due 6/15/67 (a) | 612,000 | 607,410 | ||||||
10,729,040 | ||||||||
Iron & Steel 0.2% | ||||||||
Allegheny Ludlum Corp. 6.95%, due 12/15/25 | 693,000 | 763,748 | ||||||
Leisure Time 0.1% | ||||||||
Harley-Davidson Funding Corp. 6.80%, due 6/15/18 (c) | 408,000 | 471,890 | ||||||
Lodging 1.3% | ||||||||
Harrah’s Operating Co., Inc. 10.00%, due 12/15/18 | 2,250,000 | 1,695,938 | ||||||
MGM Resorts International 7.50%, due 6/1/16 (h) | 1,992,000 | 1,892,400 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. 7.15%, due 12/1/19 | 1,700,000 | 1,921,000 | ||||||
5,509,338 | ||||||||
Machinery—Construction & Mining 0.3% | ||||||||
Terex Corp. 8.00%, due 11/15/17 | 1,182,000 | 1,161,315 | ||||||
Machinery—Diversified 0.2% | ||||||||
CNH America LLC 7.25%, due 1/15/16 | 652,000 | 700,900 | ||||||
Media 2.9% | ||||||||
CCO Holdings LLC/CCO Holdings Capital Corp. 7.00%, due 1/15/19 | 978,000 | 1,014,675 | ||||||
Cequel Communications Holdings/LLC and Cequel Capital Corp. 8.625%, due 11/15/17 (c) | 938,000 | 980,210 | ||||||
X Clear Channel Communications, Inc. 9.00%, due 3/1/21 | 3,200,000 | 2,848,000 | ||||||
COX Communications, Inc. 6.95%, due 6/1/38 (c) | 2,241,000 | 2,663,287 | ||||||
DIRECTV Holdings LLC/DIRECTV Financing Co., Inc. 4.60%, due 2/15/21 (h) | 2,852,000 | 3,032,375 | ||||||
DISH DBS Corp. 6.75%, due 6/1/21 | 765,000 | 789,863 | ||||||
7.125%, due 2/1/16 (h) | 815,000 | 865,937 | ||||||
12,194,347 | ||||||||
Metal Fabricate & Hardware 0.2% | ||||||||
Mueller Water Products, Inc. 8.75%, due 9/1/20 | 697,000 | 742,305 | ||||||
Mining 0.9% | ||||||||
Alcoa, Inc. 6.15%, due 8/15/20 (h) | 1,426,000 | 1,472,195 | ||||||
Aleris International, Inc. 7.625%, due 2/15/18 | 1,426,000 | 1,372,525 | ||||||
Freeport-McMoRan Copper & Gold, Inc. 8.375%, due 4/1/17 (h) | 791,000 | 846,370 | ||||||
3,691,090 | ||||||||
Miscellaneous—Manufacturing 0.7% | ||||||||
American Railcar Industries, Inc. 7.50%, due 3/1/14 | 1,145,000 | 1,150,725 |
The notes to the financial statements are an integral part of,
16 MainStay Flexible Bond Opportunities Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Miscellaneous—Manufacturing (continued) | ||||||||
Polypore International, Inc. 7.50%, due 11/15/17 | $ | 815,000 | $ | 831,300 | ||||
SPX Corp. 6.875%, due 9/1/17 | 815,000 | 867,975 | ||||||
2,850,000 | ||||||||
Office Furnishings 0.4% | ||||||||
Interface, Inc. 7.625%, due 12/1/18 | 1,674,000 | 1,753,515 | ||||||
Oil & Gas 6.1% | ||||||||
Berry Petroleum Co. 6.75%, due 11/1/20 (h) | 1,223,000 | 1,233,701 | ||||||
Chesapeake Energy Corp. 6.625%, due 8/15/20 (h) | 2,445,000 | 2,649,769 | ||||||
Concho Resources, Inc. 6.50%, due 1/15/22 | 750,000 | 787,500 | ||||||
7.00%, due 1/15/21 | 2,002,000 | 2,162,160 | ||||||
Denbury Resources, Inc. 6.375%, due 8/15/21 (h) | 815,000 | 839,450 | ||||||
Frontier Oil Corp. 6.875%, due 11/15/18 | 571,000 | 582,420 | ||||||
Hilcorp Energy I, L.P./Hilcorp Finance Co. 7.625%, due 4/15/21 (c) | 1,223,000 | 1,290,265 | ||||||
8.00%, due 2/15/20 (c) | 1,000,000 | 1,075,000 | ||||||
Linn Energy LLC/Linn Energy Finance Corp. 6.50%, due 5/15/19 (c) | 2,250,000 | 2,261,250 | ||||||
7.75%, due 2/1/21 | 815,000 | 870,013 | ||||||
Nabors Industries, Inc. 5.00%, due 9/15/20 (h) | 2,853,000 | 2,961,482 | ||||||
Range Resources Corp. 8.00%, due 5/15/19 | 1,687,000 | 1,881,005 | ||||||
Swift Energy Co. 7.125%, due 6/1/17 | 750,000 | 761,250 | ||||||
8.875%, due 1/15/20 | 658,000 | 694,190 | ||||||
Tesoro Corp. 6.50%, due 6/1/17 | 3,025,000 | 3,055,250 | ||||||
Valero Energy Corp. 6.125%, due 2/1/20 | 2,241,000 | 2,573,327 | ||||||
25,678,032 | ||||||||
Oil & Gas Services 1.5% | ||||||||
Basic Energy Services, Inc. 7.125%, due 4/15/16 | 800,000 | 812,000 | ||||||
7.75%, due 2/15/19 (c) | 1,600,000 | 1,600,000 | ||||||
Dresser-Rand Group, Inc. 6.50%, due 5/1/21 (c) | 1,292,000 | 1,308,150 | ||||||
Helix Energy Solutions Group, Inc. 9.50%, due 1/15/16 (c)(h) | 1,080,000 | 1,134,000 | ||||||
Hornbeck Offshore Services, Inc. Class B 6.125%, due 12/1/14 | 571,000 | 575,283 | ||||||
8.00%, due 9/1/17 | 815,000 | 823,150 | ||||||
6,252,583 | ||||||||
Packaging & Containers 1.4% | ||||||||
Ball Corp. 6.75%, due 9/15/20 (h) | 2,648,000 | 2,853,220 | ||||||
Crown Americas LLC/Crown Americas Capital Corp. III 6.25%, due 2/1/21 (c) | 1,630,000 | 1,711,500 | ||||||
Owens-Illinois, Inc. 7.80%, due 5/15/18 (h) | 1,243,000 | 1,339,333 | ||||||
5,904,053 | ||||||||
Pipelines 2.7% | ||||||||
Energy Transfer Partners, L.P. 4.65%, due 6/1/21 | 2,300,000 | 2,283,235 | ||||||
MarkWest Energy Partners, L.P./MarkWest Energy Finance Corp. 6.75%, due 11/1/20 | 1,223,000 | 1,284,150 | ||||||
Panhandle Eastern Pipeline Co., L.P. 8.125%, due 6/1/19 | 2,037,000 | 2,473,741 | ||||||
Plains All American Pipeline, L.P./PAA Finance Corp. 5.00%, due 2/1/21 | 2,037,000 | 2,188,928 | ||||||
Regency Energy Partners, L.P./Regency Energy Finance Corp. 6.875%, due 12/1/18 | 1,750,000 | 1,846,250 | ||||||
Targa Resources Partners, L.P./Targa Resources Partners Finance Corp. 7.875%, due 10/15/18 | 1,170,000 | 1,216,800 | ||||||
11,293,104 | ||||||||
Real Estate Investment Trusts 0.2% | ||||||||
Host Hotels & Resorts, L.P. 5.875%, due 6/15/19 (c) | 1,000,000 | �� | 1,012,500 | |||||
Retail 1.6% | ||||||||
AmeriGas Partners, L.P./AmeriGas Finance Corp. 6.50%, due 5/20/21 (h) | 1,553,000 | 1,537,470 | ||||||
CVS Caremark Corp. 4.75%, due 5/18/20 (h) | 2,445,000 | 2,713,708 | ||||||
5.789%, due 1/10/26 (c)(g) | 85,090 | 88,676 | ||||||
Ferrellgas L.P./Ferrellgas Finance Corp. 9.125%, due 10/1/17 | 591,000 | 626,460 | ||||||
Inergy LP/Inergy Finance Corp. 7.00%, due 10/1/18 | 1,630,000 | 1,638,150 | ||||||
6,604,464 | ||||||||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 17 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Semiconductors 0.2% | ||||||||
Freescale Semiconductor, Inc. 9.25%, due 4/15/18 (c) | $ | 734,000 | $ | 794,555 | ||||
Software 0.4% | ||||||||
Fidelity National Information Services, Inc. 7.625%, due 7/15/17 (h) | 1,549,000 | 1,684,538 | ||||||
Telecommunications 3.8% | ||||||||
CommScope, Inc. 8.25%, due 1/15/19 (c) | 2,930,000 | 2,886,050 | ||||||
Crown Castle International Corp. 7.125%, due 11/1/19 | 2,445,000 | 2,646,712 | ||||||
EH Holding Corp. 7.625%, due 6/15/21 (c) | 1,695,000 | 1,754,325 | ||||||
Frontier Communications Corp. 8.50%, due 4/15/20 (h) | 1,489,000 | 1,585,785 | ||||||
MetroPCS Wireless, Inc. 7.875%, due 9/1/18 | 1,386,000 | 1,410,255 | ||||||
Nextel Communications, Inc. 5.95%, due 3/15/14 (h) | 1,630,000 | 1,556,650 | ||||||
Sprint Capital Corp. 6.90%, due 5/1/19 | 612,000 | 509,490 | ||||||
8.75%, due 3/15/32 | 3,760,000 | 3,120,800 | ||||||
Viasat, Inc. 8.875%, due 9/15/16 | 530,000 | 545,900 | ||||||
16,015,967 | ||||||||
Transportation 0.5% | ||||||||
PHI, Inc. 8.625%, due 10/15/18 | 669,000 | 672,345 | ||||||
RailAmerica, Inc. 9.25%, due 7/1/17 | 1,172,000 | 1,274,550 | ||||||
1,946,895 | ||||||||
Total Corporate Bonds (Cost $269,417,600) | 268,737,099 | |||||||
Foreign Bonds 2.9% | ||||||||
Cayman Islands 0.0%‡ | ||||||||
Government of the Cayman Islands 5.95%, due 11/24/19 (c) | 200,000 | 209,095 | ||||||
Colombia 0.1% | ||||||||
Republic of Colombia 7.375%, due 3/18/19 | 200,000 | 252,000 | ||||||
El Salvador 0.1% | ||||||||
Republic of El Salvador 7.65%, due 6/15/35 | 163,000 | 164,630 | ||||||
8.25%, due 4/10/32 (c) | 163,000 | 177,670 | ||||||
342,300 | ||||||||
France 0.5% | ||||||||
Societe Generale S.A. 5.75%, due 3/29/49 (a) | £ | 1,500,000 | 2,074,191 | |||||
Germany 0.1% | ||||||||
IKB Deutsche Industriebank A.G. 4.50%, due 7/9/13 | € | 734,000 | 644,929 | |||||
Indonesia 0.1% | ||||||||
Republic of Indonesia 5.875%, due 3/13/20 (c) | $ | 300,000 | 342,000 | |||||
Liberia 0.2% | ||||||||
Royal Caribbean Cruises, Ltd. Series Reg S 5.625%, due 1/27/14 | € | 525,000 | 718,452 | |||||
Philippines 0.1% | ||||||||
Republic of Philippines 6.50%, due 1/20/20 | $ | 300,000 | 356,250 | |||||
South Africa 0.1% | ||||||||
Republic of South Africa 5.50%, due 3/9/20 | 300,000 | 333,750 | ||||||
Turkey 0.0%‡ | ||||||||
Republic of Turkey 5.125%, due 3/25/22 | 200,000 | 200,250 | ||||||
Ukraine 0.1% | ||||||||
Ukraine Government 7.65%, due 6/11/13 (c) | 400,000 | 394,000 | ||||||
United Kingdom 1.5% | ||||||||
EGG Banking PLC 6.875%, due 12/29/21 (a) | £ | 530,000 | 762,993 | |||||
7.50%, due 5/29/49 (a) | 1,997,000 | 2,897,387 | ||||||
HSH Nordbank A.G. 4.375%, due 2/14/17 (a) | € | 612,000 | 482,690 | |||||
Northern Rock Asset Management PLC 9.375%, due 10/17/21 | £ | 815,000 | 1,009,038 |
The notes to the financial statements are an integral part of,
18 MainStay Flexible Bond Opportunities Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Foreign Bonds (continued) | ||||||||
United Kingdom (continued) | ||||||||
Rexam PLC 6.75%, due 6/29/67 (a) | € | 978,000 | $ | 1,244,998 | ||||
6,397,106 | ||||||||
Total Foreign Bonds (Cost $12,650,981) | 12,264,323 | |||||||
Loan Assignments & Participations 6.6% (k) | ||||||||
Aerospace & Defense 0.8% | ||||||||
Hawker Beechcraft Acquisition Co. LLC LC Facility Deposits 2.369%, due 3/26/14 | $ | 128,238 | 95,057 | |||||
Term Loan 2.369%, due 3/26/14 | 2,073,790 | 1,537,196 | ||||||
U.S. Airways Group, Inc. Term Loan 2.746%, due 3/21/14 | 1,972,222 | 1,703,014 | ||||||
3,335,267 | ||||||||
Auto Manufacturers 0.6% | ||||||||
Allison Transmission, Inc. Term Loan B 2.75%, due 8/7/14 | 966,396 | 933,377 | ||||||
Federal-Mogul Corp. | ||||||||
Term Loan B 2.178%, due 12/29/14 | 1,043,202 | 984,087 | ||||||
Term Loan C 2.178%, due 12/28/15 | 532,246 | 502,085 | ||||||
2,419,549 | ||||||||
Automobile 0.3% | ||||||||
Hertz Corp. (The) | ||||||||
New Synthetic LC 3.75%, due 3/9/18 | 100,000 | 92,500 | ||||||
Term Loan B 3.75%, due 3/9/18 | 995,000 | 985,050 | ||||||
1,077,550 | ||||||||
Beverage, Food & Tobacco 0.4% | ||||||||
Del Monte Corp. Term Loan 4.50%, due 3/8/18 | 1,795,500 | 1,750,612 | ||||||
Buildings & Real Estate 0.2% | ||||||||
Realogy Corp. Extended Letter of Credit 4.436%, due 10/10/16 | 143,575 | 125,269 | ||||||
Extended Term Loan 4.522%, due 10/10/16 | 852,913 | 744,166 | ||||||
869,435 | ||||||||
Chemicals 0.2% | ||||||||
PQ Corp. Term Loan B 3.643%, due 7/30/14 | $ | 768,808 | $ | 723,961 | ||||
Diversified/Conglomerate Manufacturing 0.2% | ||||||||
Walter Energy, Inc. Term Loan B 4.00%, due 4/2/18 | 973,630 | 969,979 | ||||||
Electric 0.3% | ||||||||
Calpine Corp New Term Loan 4.50%, due 4/2/18 | 1,094,500 | 1,081,332 | ||||||
Electronics 0.2% | ||||||||
Edwards (Cayman Islands II), Ltd. Term Loan B 5.50%, due 5/31/16 | 992,500 | 927,161 | ||||||
Finance—Consumer Loans 0.4% | ||||||||
X Springleaf Finance Corp. Term Loan 5.50%, due 5/5/17 | 2,000,000 | 1,829,166 | ||||||
Healthcare, Education & Childcare 0.3% | ||||||||
Community Health Systems, Inc. Non Extended Term Loan 2.569%, due 7/25/14 | 120,221 | 116,464 | ||||||
Extended Term Loan B 3.819%, due 1/25/17 | 57,382 | 55,517 | ||||||
Warner Chilcott Co., LLC New Term Loan B2 4.25%, due 3/15/18 | 227,429 | 225,249 | ||||||
Warner Chilcott Corp. New Term Loan B1 4.25%, due 3/15/18 | 454,857 | 450,498 | ||||||
WC Luxco S.A.R.L. New Term Loan B3 4.25%, due 3/15/18 | 312,714 | 309,718 | ||||||
1,157,446 | ||||||||
Hotels, Restaurants & Leisure 0.7% | ||||||||
Caesars Entertainment Operating Co. Extended Term Loan 4.668%, due 1/26/18 | 3,500,000 | 2,910,834 | ||||||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 19 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Loan Assignments & Participations (continued) | ||||||||
Machinery 0.0%‡ | ||||||||
BHM Technologies LLC Exit Term Loan B 8.50%, due 9/30/13 (d)(f)(g) | $ | 77,725 | $ | 521 | ||||
Media 0.4% | ||||||||
Charter Communications Operating LLC Extended Term Loan 3.62%, due 9/6/16 | 86,590 | 85,833 | ||||||
X Clear Channel Communications, Inc. Term Loan B 3.896%, due 1/28/16 | 979,728 | 771,383 | ||||||
Delayed Draw Term Loan 2 3.896%, due 1/29/16 | 964,025 | 718,199 | ||||||
1,575,415 | ||||||||
Mining, Steel, Iron & Non-Precious Metals 0.4% | ||||||||
X Novelis, Inc. New Term Loan B 3.75%, due 3/10/17 | 1,588,000 | 1,576,587 | ||||||
Oil & Gas 0.7% | ||||||||
MEG Energy Corp. New Term Loan B 4.00%, due 3/16/18 | 3,000,000 | 2,990,001 | ||||||
Telecommunications 0.5% | ||||||||
Intelsat Jackson Holdings S.A. Tranche B Term Loan 5.25%, due 4/2/18 | 1,194,000 | 1,185,045 | ||||||
MetroPCS Wireless, Inc. Tranche B3 4.00%, due 3/16/18 | 992,508 | 974,313 | ||||||
2,159,358 | ||||||||
Utilities 0.0%‡ | ||||||||
Texas Competitive Electric Holdings Co. LLC Extended Term Loan 4.757%, due 10/10/17 | 306,947 | 208,571 | ||||||
Total Loan Assignments & Participations (Cost $29,038,343) | 27,562,745 | |||||||
Mortgage-Backed Securities 0.3% | ||||||||
Commercial Mortgage Loans (Collateralized Mortgage Obligations) 0.3% | ||||||||
Banc of America Commercial Mortgage, Inc. Series 2005-J, Class 1A1 2.78%, due 11/25/35 (l) | 576,488 | 419,704 | ||||||
Series 2005-5, Class A2 5.001%, due 10/10/45 | 13,254 | 13,256 | ||||||
Bayview Commercial Asset Trust Series 2006-4A, Class A1 0.475%, due 12/25/36 (a)(c)(f) | 66,873 | 46,816 | ||||||
Deutsche ALT-A Securities, Inc. Alternate Loan Trust Series 2005-5, Class 1A3 5.50%, due 11/25/35 | 350,667 | 304,947 | ||||||
WaMu Mortgage Pass Through Certificates Series 2006-AR14, Class 1A1 4.298%, due 11/25/36 (l) | 269,023 | 191,167 | ||||||
Wells Fargo Mortgage Backed Securities Trust Series 2006-AR10, Class 5A2 2.734%, due 7/25/36 (l) | 323,493 | 235,021 | ||||||
Total Mortgage-Backed Securities (Cost $1,410,282) | 1,210,911 | |||||||
Municipal Bonds 0.5% | ||||||||
New York 0.3% | ||||||||
New York City Industrial Development Agency Special Facilities Revenue Series A 8.00%, due 8/1/12 | 1,430,000 | 1,427,383 | ||||||
Oklahoma 0.2% | ||||||||
Tulsa, Okla, Municipal Airport Trust Revenue Series A 7.75%, due 6/1/35 | 720,000 | 663,207 | ||||||
West Virginia 0.0%‡ | ||||||||
Tobacco Settlement Finance Authority of West Virginia 7.467%, due 6/1/47 | 100,000 | 72,369 | ||||||
Total Municipal Bonds (Cost $2,300,845) | 2,162,959 | |||||||
The notes to the financial statements are an integral part of,
20 MainStay Flexible Bond Opportunities Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
U.S. Government & Federal Agencies 3.9% | ||||||||
Government National Mortgage Association (Mortgage Pass-Through Security) 0.0%‡ | ||||||||
6.00%, due 8/15/32 | $ | 1 | $ | 2 | ||||
Overseas Private Investment Corporation 0.3% | ||||||||
5.142%, due 12/15/23 | 973,875 | 1,126,890 | ||||||
X United States Treasury Bonds 1.7% | ||||||||
3.50%, due 2/15/39 | 464,500 | 491,281 | ||||||
3.75%, due 8/15/41 | 4,275,800 | 4,724,759 | ||||||
3.875%, due 8/15/40 | 1,637,800 | 1,847,388 | ||||||
7,063,428 | ||||||||
United States Treasury Notes 0.1% | ||||||||
2.125%, due 8/15/21 | 70,000 | 69,694 | ||||||
2.375%, due 10/31/14 | 122,300 | 129,342 | ||||||
4.75%, due 8/15/17 | 65,200 | 78,016 | ||||||
4.875%, due 8/15/16 | 220,000 | 260,700 | ||||||
537,752 | ||||||||
X United States Treasury Inflation Indexed Note 1.8% | ||||||||
1.25%, due 7/15/20 | 6,770,662 | 7,538,712 | ||||||
Total U.S. Government & Federal Agencies (Cost $15,595,523) | 16,266,784 | |||||||
Yankee Bonds 10.8% (m) | ||||||||
Banks 1.5% | ||||||||
Bangkok Bank PCL 4.80%, due 10/18/20 (c) | 250,000 | 244,216 | ||||||
Barclays Bank PLC 5.14%, due 10/14/20 | 2,037,000 | 1,849,639 | ||||||
Mizuho Capital Investment, Ltd. 14.95%, due 12/29/49 (a)(c) | 1,092,000 | 1,337,078 | ||||||
Royal Bank of Scotland Group PLC 6.40%, due 10/21/19 | 856,000 | 862,602 | ||||||
Royal Bank of Scotland PLC (The) 6.125%, due 1/11/21 | 2,037,000 | 2,150,988 | ||||||
6,444,523 | ||||||||
Building Materials 0.4% | ||||||||
Holcim U.S. Finance Sarl & Cie SCS 6.00%, due 12/30/19 (c) | 1,630,000 | 1,749,829 | ||||||
Electric 0.3% | ||||||||
Centrais Eletricas Brasileiras S.A. 6.875%, due 7/30/19 (c) | 400,000 | 453,000 | ||||||
Intergen N.V. 9.00%, due 6/30/17 (c) | 685,000 | 708,119 | ||||||
Majapahit Holding B.V. 8.00%, due 8/7/19 (c) | 200,000 | 235,000 | ||||||
1,396,119 | ||||||||
Engineering & Construction 0.6% | ||||||||
BAA Funding, Ltd. 4.875%, due 7/15/21 (c) | 2,575,000 | 2,620,778 | ||||||
Food 0.0%‡ | ||||||||
Independencia International, Ltd. Series Reg S 12.00%, due 12/30/16 (d)(f)(g) | 56,027 | 70 | ||||||
Forest Products & Paper 0.1% | ||||||||
Norske Skogindustrier A.S.A. 7.125%, due 10/15/33 (c) | 815,000 | 317,850 | ||||||
Gas 0.1% | ||||||||
Grupo Petrotemex S.A. de C.V. 9.50%, due 8/19/14 (c) | 400,000 | 422,000 | ||||||
Home Builders 0.1% | ||||||||
Corporacion GEO SAB de C.V. 8.875%, due 9/25/14 (c) | 500,000 | 495,000 | ||||||
Insurance 0.4% | ||||||||
ING Groep N.V. 5.775%, due 12/29/49 (a) | 815,000 | 645,888 | ||||||
Oil Insurance, Ltd. 3.351%, due 12/29/49 (a)(c) | 652,000 | 616,023 | ||||||
Swiss Re Capital I, L.P. 6.854%, due 5/29/49 (a)(c) | 571,000 | 514,892 | ||||||
1,776,803 | ||||||||
Iron & Steel 0.7% | ||||||||
APERAM 7.375%, due 4/1/16 (c) | 3,260,000 | 2,950,300 | ||||||
Leisure Time 0.2% | ||||||||
Royal Caribbean Cruises, Ltd. 7.25%, due 3/15/18 | 675,000 | 702,000 | ||||||
Machinery—Construction & Mining 0.4% | ||||||||
Boart Longyear Management Pty, Ltd. 7.00%, due 4/1/21 (c) | 1,606,000 | 1,585,925 | ||||||
Mining 2.5% | ||||||||
X Novelis, Inc. 8.375%, due 12/15/17 | 734,000 | 792,720 | ||||||
8.75%, due 12/15/20 | 1,223,000 | 1,333,070 |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 21 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Yankee Bonds (continued) | ||||||||
Mining (continued) | ||||||||
Rio Tinto Finance USA, Ltd. 9.00%, due 5/1/19 | $ | 1,298,000 | $ | 1,772,751 | ||||
Teck Resources, Ltd. 10.75%, due 5/15/19 | 1,000,000 | 1,235,000 | ||||||
Vedanta Resources PLC 8.25%, due 6/7/21 (c) | 2,565,000 | 2,372,625 | ||||||
Xstrata Finance Canada, Ltd. 5.80%, due 11/15/16 (c) | 2,526,000 | 2,754,222 | ||||||
10,260,388 | ||||||||
Oil & Gas 2.2% | ||||||||
CITIC Resources Finance, Ltd. 6.75%, due 5/15/14 (c) | 200,000 | 199,000 | ||||||
ENI S.p.A 4.15%, due 10/1/20 (c) | 1,630,000 | 1,636,830 | ||||||
MEG Energy Corp. 6.50%, due 3/15/21 (c) | 1,862,000 | 1,941,135 | ||||||
OGX Petroleo e Gas Participacoes S.A. 8.50%, due 6/1/18 (c) | 2,115,000 | 2,093,850 | ||||||
Petroleum Co. of Trinidad & Tobago, Ltd. 9.75%, due 8/14/19 (c) | 325,000 | 377,900 | ||||||
Precision Drilling Corp. 6.50%, due 12/15/21 (c) | 643,000 | 678,365 | ||||||
6.625%, due 11/15/20 (h) | 1,630,000 | 1,731,875 | ||||||
TNK-BP Finance S.A. 7.875%, due 3/13/18 (c) | 400,000 | 454,000 | ||||||
9,112,955 | ||||||||
Oil & Gas Services 0.6% | ||||||||
Cie Generale de Geophysique—Veritas 6.50%, due 6/1/21 (c) | 600,000 | 597,000 | ||||||
9.50%, due 5/15/16 | 1,675,000 | 1,813,187 | ||||||
2,410,187 | ||||||||
Packaging & Containers 0.2% | ||||||||
Ardagh Packaging Finance PLC 9.125%, due 10/15/20 (c) | 1,000,000 | 995,000 | ||||||
Telecommunications 0.2% | ||||||||
Intelsat Luxembourg S.A. 11.25%, due 2/4/17 | 815,000 | 808,888 | ||||||
Transportation 0.3% | ||||||||
CHC Helicopter S.A. 9.25%, due 10/15/20 (c) | 1,100,000 | 990,000 | ||||||
Hapag-Lloyd A.G. 9.75%, due 10/15/17 (c) | 500,000 | 395,000 | ||||||
1,385,000 | ||||||||
Total Yankee Bonds (Cost $46,307,708) | 45,433,615 | |||||||
Total Long-Term Bonds (Cost $409,993,872) | 403,631,027 | |||||||
Shares | ||||||||
Common Stocks 0.8% | ||||||||
Aerospace & Defense 0.0%‡ | ||||||||
Triumph Group, Inc. | 1,340 | 77,854 | ||||||
Auto Manufacturers 0.3% | ||||||||
General Motors Co. (i) | 45,730 | 1,182,121 | ||||||
Banks 0.4% | ||||||||
CIT Group, Inc. (i) | 6,479 | 225,793 | ||||||
Citigroup, Inc. | 41,400 | 1,307,826 | ||||||
1,533,619 | ||||||||
Biotechnology 0.0%‡ | ||||||||
Life Technologies Corp. (i) | 1,000 | 40,670 | ||||||
Building Materials 0.0%‡ | ||||||||
Nortek, Inc. (i) | 225 | 4,753 | ||||||
U.S. Concrete, Inc. (f)(i) | 19,613 | 70,999 | ||||||
75,752 | ||||||||
Media 0.0%‡ | ||||||||
Adelphia Contingent Value Vehicle (f)(g)(i) | 100,330 | 1,003 | ||||||
Oil & Gas Services 0.1% | ||||||||
Core Laboratories N.V. | 5,615 | 607,880 | ||||||
Total Common Stocks (Cost $4,420,974) | 3,518,899 | |||||||
Convertible Preferred Stocks 2.2% | ||||||||
Auto Manufacturers 0.0%‡ | ||||||||
General Motors Co. 4.75% | 3,750 | 155,850 | ||||||
Auto Parts & Equipment 0.1% | ||||||||
Goodyear Tire & Rubber Co. (The) 5.87% | 5,900 | 296,298 | ||||||
The notes to the financial statements are an integral part of,
22 MainStay Flexible Bond Opportunities Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Shares | Value | |||||||
Convertible Preferred Stocks (continued) | ||||||||
Banks 0.6% | ||||||||
X Bank of America Corp. 7.25% Series L | 781 | $ | 668,536 | |||||
Citigroup, Inc. 7.50% | 8,700 | 826,848 | ||||||
Wells Fargo & Co. 7.50% Series L | 800 | 844,920 | ||||||
2,340,304 | ||||||||
Diversified Financial Services 0.4% | ||||||||
SG Preferred Capital II LLC (a)(c) 6.30% | 1,850 | 1,863,297 | ||||||
Hand & Machine Tools 0.2% | ||||||||
Stanley Black & Decker, Inc. 4.75% | 5,600 | 641,032 | ||||||
Insurance 0.1% | ||||||||
Hartford Financial Services Group, Inc. 7.25% | 16,100 | 337,456 | ||||||
MetLife, Inc. 5.00% | 4,275 | 290,315 | ||||||
627,771 | ||||||||
Leisure Time 0.0%‡ | ||||||||
Callaway Golf Co. 7.50% | 200 | 19,890 | ||||||
Media 0.1% | ||||||||
Nielsen Holdings N.V. 6.25% | 5,300 | 304,750 | ||||||
Oil & Gas 0.5% | ||||||||
Apache Corp. 6.00% | 21,600 | 1,216,080 | ||||||
Chesapeake Energy Corp. (c) 5.75% | 800 | 963,544 | ||||||
2,179,624 | ||||||||
Telecommunications 0.2% | ||||||||
Crown Castle International Corp. 6.25% | 14,200 | 823,600 | ||||||
Total Convertible Preferred Stocks (Cost $10,058,772) | 9,252,416 | |||||||
Number of | ||||||||
Warrants | Value | |||||||
Warrants 0.2% | ||||||||
Auto Manufacturers 0.2% | ||||||||
General Motors Co. | ||||||||
Strike Price $10.00 Expires 7/10/16 (i) | 34,575 | $ | 586,046 | |||||
Strike Price $18.33 Expires 7/10/19 (i) | 34,575 | 407,985 | ||||||
994,031 | ||||||||
Media 0.0%‡ | ||||||||
ION Media Networks, Inc. Unsecured Debt Expires 12/19/12 (f)(g)(i) | 11 | 0 | (n) | |||||
Second Lien Expires 12/19/12 (f)(g)(i) | 11 | 0 | (n) | |||||
0 | (n) | |||||||
Total Warrants (Cost $1,526,502) | 994,031 | |||||||
Principal | ||||||||
Amount | ||||||||
Short-Term Investment 2.4% | ||||||||
Repurchase Agreement 2.4% | ||||||||
State Street Bank and Trust Co. 0.01%, dated 10/31/11 due 11/1/11 Proceeds at Maturity $9,940,257 (Collateralized by a United States Treasury Bond with a rate of 4.625% and a maturity date of 2/15/40, with a Principal Amount of $7,980,000 and a Market Value of $10,144,495) | $ | 9,940,254 | 9,940,254 | |||||
Total Short-Term Investment (Cost $9,940,254) | 9,940,254 | |||||||
Total Investments, Before Investments Sold Short (Cost $435,940,374) (q) | 101.6 | % | 427,336,627 | |||||
Long-Term Bonds Sold Short (3.2%) | ||||||||
Corporate Bonds Sold Short (3.2%) | ||||||||
Entertainment (0.7%) | ||||||||
AMC Entertainment, Inc. 9.75%, due 12/1/20 (c) | (3,175,000 | ) | (3,079,750 | ) | ||||
Apparel (1.7%) | ||||||||
Levi Strauss & Co. 7.625%, due 5/15/20 | (6,900,000 | ) | (7,055,250 | ) | ||||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 23 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Long-Term Bonds Sold Short (continued) | ||||||||
Mining (0.8%) | ||||||||
Vulcan Materials Co. 7.50%, due 6/15/21 | $ | (3,600,000 | ) | $ | (3,545,266 | ) | ||
Total Investments Sold Short (Proceeds $13,830,600) | (3.2 | )% | (13,680,266 | ) | ||||
Total Investments, Net of Investments Sold Short (Cost $422,109,774) | 98.4 | 413,656,361 | ||||||
Other Assets, Less Liabilities | 1.6 | 6,796,575 | ||||||
Net Assets | 100.0 | % | $ | 420,452,936 | ||||
Unrealized | ||||||||
Contracts | Appreciation | |||||||
Long | (Depreciation) (p) | |||||||
Futures Contracts (0.0%)‡ | ||||||||
United States Treasury Bonds December 2011 (30 Year) (o) | 160 | $ | (314,856 | ) | ||||
Total Futures Contracts Long (Settlement Value $22,245,000) | $ | (314,856 | ) | |||||
Contracts | ||||||||
Short | ||||||||
United States Treasury Notes December 2011 (5 Year) (o) | (580 | ) | $ | 170,737 | ||||
Total Futures Contracts Short (Settlement Value $71,113,438) | $ | 170,737 | ||||||
Total Futures Contracts (Settlement Value $48,868,438) | $ | (144,119 | ) | |||||
††† | On a daily basis New York Life Investments confirms that the value of the Fund’s liquid assets (liquid portfolio securities and cash) is sufficient to cover its potential senior securities (e.g., futures, swaps, options). | |
‡ | Less than one-tenth of a percent. | |
(a) | Floating rate—Rate shown is the rate in effect at October 31, 2011. | |
(b) | Subprime mortgage investment and other asset-backed securities—The total market value of this security at October 31, 2011 is $27,475, which represents less than one-tenth of a percent of the Fund’s net assets. | |
(c) | May be sold to institutional investors only under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended. | |
(d) | Issue in default. | |
(e) | Restricted security. | |
(f) | Illiquid security. The total market value of these securities at October 31, 2011 is $296,228, which represents 0.1% of the Fund’s net assets. | |
(g) | Fair valued security. The total market value of these securities at October 31, 2011 is $267,089, which represents 0.1% of the Fund’s net assets. | |
(h) | Security, or a portion thereof, is maintained in a segregated account at the Fund’s custodian as collateral for securities sold short (See Note 2(O)). | |
(i) | Non-income producing security. | |
(j) | PIK (“Payment in Kind”)—interest or dividend payment is made with additional securities. | |
(k) | Floating Rate Loan—generally pays interest at rates which are periodically re-determined at a margin above the London InterBank Offered Rate or other short-term rates. The rate shown is the rate(s) in effect at October 31, 2011. Floating Rate Loans are generally considered restrictive in that the Fund is ordinarily contractually obligated to receive consent from the Agent Bank and/or borrower prior to disposition of a Floating Rate Loan. | |
(l) | Collateral strip rate—Bond whose interest is based on the weighted net interest rate of the collateral. Coupon rate adjusts periodically based on a predetermined schedule. Rate shown is the rate in effect at October 31, 2011. | |
(m) | Yankee Bond—dollar-denominated bond issued in the United States by a foreign bank or corporation. | |
(n) | Less than one dollar. | |
(o) | At October 31, 2011, cash in the amount of $174,800 is on deposit with broker for futures transactions. | |
(p) | Represents the difference between the value of the contracts at the time they were opened and the value at October 31, 2011. | |
(q) | At October 31, 2011, cost is $436,018,197 for federal income tax purposes and net unrealized depreciation is as follows: |
Gross unrealized appreciation | $ | 8,498,486 | ||
Gross unrealized depreciation | (17,180,056 | ) | ||
Net unrealized depreciation | $ | (8,681,570 | ) | |
The following abbreviations are used in the above portfolio:
€—Euro
£—British Pound Sterling
The notes to the financial statements are an integral part of,
24 MainStay Flexible Bond Opportunities Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
At October 31, 2011, the Fund held the following credit default swap contracts:
(Pay)/ | Upfront | |||||||||||||||||||||||||||||||
Notional | Receive | Premiums | Unrealized | |||||||||||||||||||||||||||||
Termination | Buy/Sell | Amount | Fixed | (Received)/ | Appreciation | |||||||||||||||||||||||||||
Reference Entity | Counterparty | Date | Protection1 | (000)2 | �� | Rate3 | Paid | Value | (Depreciation)4 | |||||||||||||||||||||||
Republic of France 4.25%, due 4/25/19 | Credit Suisse First Boston | 12/20/16 | Buy | $ | 7,700 | (0.25 | )% | $ | 602,438 | $ | 538,448 | $ | (63,990 | ) | ||||||||||||||||||
1. | Buy—Fund pays premium and buys credit protection. If a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. |
Sell—Fund receives premium and sells credit protection. If a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index.
2. | The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap contract. |
3. | The annual fixed rate represents the interest received by the Fund (as a seller of protection) or paid by the Fund (as a buyer of protection) annually on the notional amount of the credit default swap contract. |
4. | Represents the difference between the value of the credit default swap contract at the time they were opened and the value at October 31, 2011. |
The following is a summary of the fair valuations according to the inputs used as of October 31, 2011, for valuing the Fund’s assets and liabilities.
Asset Valuation Inputs
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Long-Term Bonds | ||||||||||||||||
Asset-Backed Securities | $ | — | $ | 11,922,064 | $ | — | $ | 11,922,064 | ||||||||
Convertible Bonds (b) | — | 18,070,477 | 50 | 18,070,527 | ||||||||||||
Corporate Bonds (c) | — | 268,471,654 | 265,445 | 268,737,099 | ||||||||||||
Foreign Bonds | — | 12,264,323 | — | 12,264,323 | ||||||||||||
Loan Assignments & Participations (d) | — | 27,562,224 | 521 | 27,562,745 | ||||||||||||
Mortgage-Backed Securities | — | 1,210,911 | — | 1,210,911 | ||||||||||||
Municipal Bonds | — | 2,162,959 | — | 2,162,959 | ||||||||||||
U.S. Government & Federal Agencies | — | 16,266,784 | — | 16,266,784 | ||||||||||||
Yankee Bonds (e) | — | 45,433,545 | 70 | 45,433,615 | ||||||||||||
Total Long-Term Bonds | — | 403,364,941 | 266,086 | 403,631,027 | ||||||||||||
Common Stocks (f) | 3,517,896 | — | 1,003 | 3,518,899 | ||||||||||||
Convertible Preferred Stocks | 9,252,416 | — | — | 9,252,416 | ||||||||||||
Warrants (g) | 994,031 | — | 0 | (g) | 994,031 | |||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 9,940,254 | — | 9,940,254 | ||||||||||||
Total Investments in Securities | 13,764,343 | 413,305,195 | 267,089 | 427,336,627 | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts Short (h) | 170,737 | — | — | 170,737 | ||||||||||||
Foreign Currency Forward Contracts (i) | — | 183 | — | 183 | ||||||||||||
Total Other Financial Instruments | 170,737 | 183 | — | 170,920 | ||||||||||||
Total Investments in Securities and Other Financial Instruments | $ | 13,935,080 | $ | 413,305,378 | $ | 267,089 | $ | 427,507,547 | ||||||||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 25 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Liability Valuation Inputs
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Investments in Securities Sold Short (a) | ||||||||||||||||
Long-Term Bonds Sold Short | ||||||||||||||||
Corporate Bonds Sold Short | $ | — | $ | (13,680,266 | ) | $ | — | $ | (13,680,266 | ) | ||||||
Total Investments in Securities Sold Short | — | (13,680,266 | ) | — | (13,680,266 | ) | ||||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts Long (h) | (314,856 | ) | — | — | (314,856 | ) | ||||||||||
Foreign Currency Forward Contracts (i) | — | (576,220 | ) | — | (576,220 | ) | ||||||||||
Credit Default Swap Contracts (j) | — | (63,990 | ) | — | (63,990 | ) | ||||||||||
Total Other Financial Instruments | (314,856 | ) | (640,210 | ) | — | (955,066 | ) | |||||||||
Total Investments in Securities Sold Short and Other Financial Instruments | $ | (314,856 | ) | $ | (14,320,476 | ) | $ | — | $ | (14,635,332 | ) | |||||
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The Level 3 security valued at $50 is held in Internet within the Convertible Bonds section of the Portfolio of Investments. |
(c) | The Level 3 securities valued at $140,584, $2,640, $33,545 and $88,676 are held in Auto Manufacturers, Commercial Services, Entertainment and Retail, respectively, within the Corporate Bonds section of the Portfolio of Investments. |
(d) | The Level 3 security valued at $521 is held in Machinery within the Loan Assignments & Participations section of the Portfolio of Investments. |
(e) | The Level 3 security valued at $70 is held in Food within the Yankee Bonds section of the Portfolio of Investments. |
(f) | The Level 3 security valued at $1,003 is held in Media within the Common Stocks section of the Portfolio of Investments. |
(g) | The Level 3 securities valued at less than one dollar are held in Media within the Warrants section of the Portfolio of Investments. |
(h) | The value listed for these securities reflects unrealized appreciation (depreciation) as shown on the Portfolio of Investments. |
(i) | The value listed for these securities reflects unrealized appreciation (depreciation) as shown on the table of foreign currency forward contracts. (See Note 5) |
(j) | The value listed for these securities reflects unrealized appreciation (depreciation) as shown on the table of credit default swap contracts. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended October 31, 2011, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
The notes to the financial statements are an integral part of,
26 MainStay Flexible Bond Opportunities Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
Change in | ||||||||||||||||||||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||||||||||||||||||
Appreciation | ||||||||||||||||||||||||||||||||||||||||
(Depreciation) | ||||||||||||||||||||||||||||||||||||||||
from | ||||||||||||||||||||||||||||||||||||||||
Balance | Change in | Balance | Investments | |||||||||||||||||||||||||||||||||||||
as of | Accrued | Realized | Unrealized | Transfers | Transfers | as of | Still Held at | |||||||||||||||||||||||||||||||||
October 31, | Discounts | Gain | Appreciation | in to | out of | October 31, | October 31, | |||||||||||||||||||||||||||||||||
Investments in Securities | 2010 | (Premiums) | (Loss) | (Depreciation) | Purchases | Sales | Level 3 | Level 3 | 2011 | 2011 (a) | ||||||||||||||||||||||||||||||
Long-Term Bonds | ||||||||||||||||||||||||||||||||||||||||
Convertible Bonds Internet | $ | 50 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 50 | $ | — | ||||||||||||||||||||
Corporate Bonds | ||||||||||||||||||||||||||||||||||||||||
Auto Manufacturers | — | — | — | (61,098 | ) | 341,958 | (b) | (140,276 | )(c) | — | — | 140,584 | (61,098 | ) | ||||||||||||||||||||||||||
Commercial Services | 8,580 | — | — | (5,940 | ) | — | — | — | — | 2,640 | (5,940 | ) | ||||||||||||||||||||||||||||
Entertainment | 40,192 | 1,220 | 1,251 | 377 | — | (9,495 | ) | — | — | 33,545 | (1,220 | ) | ||||||||||||||||||||||||||||
Media | 837 | — | (61,167 | ) | 60,811 | — | (481 | ) | — | — | — | — | ||||||||||||||||||||||||||||
Retail | 93,180 | (47 | ) | (103 | ) | (475 | ) | — | (3,879 | ) | — | — | 88,676 | (396 | ) | |||||||||||||||||||||||||
Loan Assignments & Participations | ||||||||||||||||||||||||||||||||||||||||
Machinery | 210 | (25,356 | ) | — | 25,667 | — | — | — | — | 521 | 25,667 | |||||||||||||||||||||||||||||
Yankee Bonds | ||||||||||||||||||||||||||||||||||||||||
Food | — | (1,030 | ) | — | (581 | ) | — | — | 1,681 | — | 70 | (581 | ) | |||||||||||||||||||||||||||
Leisure Time | 119,945 | — | 28,299 | (34,945 | ) | — | (113,299 | ) | — | — | — | — | ||||||||||||||||||||||||||||
Common Stocks | ||||||||||||||||||||||||||||||||||||||||
Machinery | 72 | — | — | (72 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Media | 1,003 | — | — | — | — | — | — | — | 1,003 | — | ||||||||||||||||||||||||||||||
Convertible Preferred Stocks | ||||||||||||||||||||||||||||||||||||||||
Machinery | 1 | — | — | (1 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Warrants | ||||||||||||||||||||||||||||||||||||||||
Media | 0 | (d) | — | — | — | — | — | — | — | 0 | (d) | — | ||||||||||||||||||||||||||||
Total | $ | 264,070 | $ | (25,213 | ) | $ | (31,720 | ) | $ | (16,257 | ) | $ | 341,958 | $ | (267,430 | ) | $ | 1,681 | $ | — | $ | 267,089 | $ | (43,568 | ) | |||||||||||||||
(a) | Included in “Net change in unrealized appreciation (depreciation) on investments” in the Statement of Operations. |
(b) | Purchases include securities received from a restructure. |
(c) | Sales include disbursement as a result of a restructure. |
(d) | Less than one dollar |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 27 |
Table of Contents
Statement of Assets and Liabilities as of October 31, 2011
Assets | ||||
Investment in securities, at value (identified cost $435,940,374) | $ | 427,336,627 | ||
Cash | 480,109 | |||
Cash denominated in foreign currencies (identified cost $364,958) | 378,442 | |||
Cash collateral on deposit at broker | 174,800 | |||
Receivables: | ||||
Dividends and interest | 7,330,134 | |||
Fund shares sold | 3,377,100 | |||
Investment securities sold | 691,251 | |||
Variation margin on futures contracts | 27,813 | |||
Premiums paid for swap contracts | 602,438 | |||
Other assets | 37,767 | |||
Unrealized appreciation on foreign currency forward contracts | 183 | |||
Total assets | 440,436,664 | |||
Liabilities | ||||
Investments sold short (proceeds $13,830,600) | 13,680,266 | |||
Payables: | ||||
Investment securities purchased | 4,104,642 | |||
Interest on investments sold short | 474,336 | |||
Fund shares redeemed | 314,772 | |||
Manager (See Note 3) | 210,891 | |||
NYLIFE Distributors (See Note 3) | 93,851 | |||
Transfer agent (See Note 3) | 72,536 | |||
Shareholder communication | 29,503 | |||
Professional fees | 20,000 | |||
Custodian | 3,232 | |||
Trustees | 1,582 | |||
Accrued expenses | 4,878 | |||
Dividend payable | 333,029 | |||
Unrealized depreciation on foreign currency forward contracts | 576,220 | |||
Unrealized depreciation on swap contracts | 63,990 | |||
Total liabilities | 19,983,728 | |||
Net assets | $ | 420,452,936 | ||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 481,758 | ||
Additional paid-in capital | 432,416,013 | |||
432,897,771 | ||||
Undistributed net investment income | 588,017 | |||
Accumulated net realized gain (loss) on investments, futures transactions, investments sold short, swap transactions and foreign currency transactions | (3,817,971 | ) | ||
Net unrealized appreciation (depreciation) on investments, swap contracts and futures contracts | (8,811,856 | ) | ||
Net unrealized appreciation (depreciation) on investments sold short | 150,334 | |||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (553,359 | ) | ||
Net assets | $ | 420,452,936 | ||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 20,415,037 | ||
Shares of beneficial interest outstanding | 2,324,191 | |||
Net asset value per share outstanding | $ | 8.78 | ||
Maximum sales charge (4.50% of offering price) | 0.41 | |||
Maximum offering price per share outstanding | $ | 9.19 | ||
Class A | ||||
Net assets applicable to outstanding shares | $ | 169,648,957 | ||
Shares of beneficial interest outstanding | 19,437,612 | |||
Net asset value per share outstanding | $ | 8.73 | ||
Maximum sales charge (4.50% of offering price) | 0.41 | |||
Maximum offering price per share outstanding | $ | 9.14 | ||
Class B | ||||
Net assets applicable to outstanding shares | $ | 16,753,511 | ||
Shares of beneficial interest outstanding | 1,926,594 | |||
Net asset value and offering price per share outstanding | $ | 8.70 | ||
Class C | ||||
Net assets applicable to outstanding shares | $ | 50,279,768 | ||
Shares of beneficial interest outstanding | 5,785,584 | |||
Net asset value and offering price per share outstanding | $ | 8.69 | ||
Class I | ||||
Net assets applicable to outstanding shares | $ | 163,355,663 | ||
Shares of beneficial interest outstanding | 18,701,816 | |||
Net asset value and offering price per share outstanding | $ | 8.73 | ||
The notes to the financial statements are an integral part of,
28 MainStay Flexible Bond Opportunities Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statement of Operations for the year ended October 31, 2011
Investment Income (Loss) | ||||
Income | ||||
Interest (a) | $ | 20,098,846 | ||
Dividends | 455,524 | |||
Total income | 20,554,370 | |||
Expenses | ||||
Manager (See Note 3) | 2,032,464 | |||
Distribution/Service—Investor Class (See Note 3) | 46,653 | |||
Distribution/Service—Class A (See Note 3) | 359,211 | |||
Distribution/Service—Class B (See Note 3) | 182,451 | |||
Distribution/Service—Class C (See Note 3) | 394,619 | |||
Interest on investments sold short | 544,960 | |||
Transfer agent (See Note 3) | 385,422 | |||
Broker fees and charges on short sales | 136,417 | |||
Registration | 105,111 | |||
Professional fees | 90,711 | |||
Shareholder communication | 72,027 | |||
Custodian | 16,031 | |||
Trustees | 9,757 | |||
Miscellaneous | 13,772 | |||
Total expenses | 4,389,606 | |||
Net investment income (loss) | 16,164,764 | |||
Realized and Unrealized Gain (Loss) on Investments, Swap Contracts and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Security transactions (b) | $ | 5,130,283 | ||
Futures transactions | (145,800 | ) | ||
Swap transactions | 801,988 | |||
Foreign currency transactions | 442,644 | |||
Net realized gain (loss) on investments, swap transactions, futures transactions and foreign currency transactions | 6,229,115 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (19,401,355 | ) | ||
Investments sold short | 150,334 | |||
Swap contracts | (63,990 | ) | ||
Futures contracts | 188,781 | |||
Translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (452,387 | ) | ||
Net change in unrealized appreciation (depreciation) on investments, investments sold short, swap contracts, futures contracts and foreign currency transactions | (19,578,617 | ) | ||
Net realized and unrealized gain (loss) on investments, investments sold short, futures transactions, swap transactions and foreign currency transactions | (13,349,502 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | 2,815,262 | ||
(a) | Interest recorded net of foreign withholding taxes in the amount of $412. |
(b) | Includes realized gain of $1,774,490 due to an in-kind redemption. (See Note 11) |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 29 |
Table of Contents
Statements of Changes in Net Assets
for the years ended October 31, 2011 and October 31, 2010
2011 | 2010 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 16,164,764 | $ | 8,036,396 | ||||
Net realized gain (loss) on investments, futures transactions, swap transactions and foreign currency transactions | 6,229,115 | (a) | 2,837,399 | |||||
Net change in unrealized appreciation (depreciation) on investments, investments sold short, futures contracts, swap contracts and foreign currency transactions | (19,578,617 | ) | 7,167,151 | |||||
Net increase (decrease) in net assets resulting from operations | 2,815,262 | 18,040,946 | ||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (933,654 | ) | (793,388 | ) | ||||
Class A | (7,477,966 | ) | (4,998,542 | ) | ||||
Class B | (781,827 | ) | (950,261 | ) | ||||
Class C | (1,693,424 | ) | (1,018,364 | ) | ||||
Class I | (5,674,370 | ) | (158,029 | ) | ||||
Total dividends to shareholders | (16,561,241 | ) | (7,918,584 | ) | ||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 414,223,323 | 86,351,173 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 13,090,401 | 5,927,118 | ||||||
Cost of shares redeemed | (172,331,003 | )(b) | (28,383,232 | ) | ||||
Increase (decrease) in net assets derived from capital share transactions | 254,982,721 | 63,895,059 | ||||||
Net increase (decrease) in net assets | 241,236,742 | 74,017,421 | ||||||
Net Assets | ||||||||
Beginning of year | 179,216,194 | 105,198,773 | ||||||
End of year | $ | 420,452,936 | $ | 179,216,194 | ||||
Undistributed net investment income at end of year | $ | 588,017 | $ | 517,070 | ||||
(a) | Includes realized gain of $1,774,490 due to an in-kind redemption during the year ended October 31, 2011. (See Note 11) |
(b) | Includes an in-kind redemption in the amount of $79,972,617 during the year ended October 31, 2011. (See Note 11) |
The notes to the financial statements are an integral part of,
30 MainStay Flexible Bond Opportunities Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Investor Class | ||||||||||||||||||
February 28, | ||||||||||||||||||
2008** | ||||||||||||||||||
through | ||||||||||||||||||
Year ended October 31, | October 31, | |||||||||||||||||
2011 | 2010 | 2009 | 2008 | |||||||||||||||
Net asset value at beginning of period | $ | 9.12 | $ | 8.47 | $ | 7.20 | $ | 8.86 | ||||||||||
Net investment income (loss) (a) | 0.43 | 0.52 | 0.40 | 0.29 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.32 | ) | 0.68 | 1.50 | (1.77 | ) | ||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.05 | ) | 0.02 | 0.11 | ||||||||||||
Total from investment operations | 0.11 | 1.15 | 1.92 | (1.37 | ) | |||||||||||||
Less dividends: | ||||||||||||||||||
From net investment income | (0.45 | ) | (0.50 | ) | (0.62 | ) | (0.29 | ) | ||||||||||
Return of capital | — | — | (0.03 | ) | — | |||||||||||||
Total dividends | (0.45 | ) | (0.50 | ) | (0.65 | ) | (0.29 | ) | ||||||||||
Net asset value at end of period | $ | 8.78 | $ | 9.12 | $ | 8.47 | $ | 7.20 | ||||||||||
Total investment return (b) | 1.33 | % | 13.97 | % | 28.35 | % | (15.88 | %)(c) | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||
Net investment income (loss) | 4.85 | % | 5.93 | % | 5.26 | % | 5.07 | % †† | ||||||||||
Net expenses (excluding short sale expenses) | 1.24 | % | 1.41 | % | 1.42 | % | 1.40 | % †† | ||||||||||
Expenses (including short sales expenses, before waiver/reimbursement) | 1.42 | % | 1.45 | % | 1.70 | % | 1.51 | % †† | ||||||||||
Short sale expenses | 0.18 | % | — | — | — | |||||||||||||
Portfolio turnover rate | 26 | % | 80 | % | 154 | %(d) | 81 | % (d) | ||||||||||
Net assets at end of period (in 000’s) | $ | 20,415 | $ | 16,654 | $ | 12,200 | $ | 9,990 |
** | Commencement of operations. | |
†† | Annualized. | |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the period. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. | |
(c) | Total investment return is not annualized. | |
(d) | The portfolio turnover rates not including mortgage dollar rolls were 117% and 72% for the years ended October 31, 2009 and 2008, respectively. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 31 |
Table of Contents
Financial Highlights selected per share data and ratios
Class A | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 9.06 | $ | 8.42 | $ | 7.16 | $ | 9.02 | $ | 8.91 | ||||||||||||
Net investment income (loss) (a) | 0.45 | 0.54 | 0.41 | 0.44 | 0.45 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.31 | ) | 0.67 | 1.49 | (1.96 | ) | 0.21 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.05 | ) | 0.02 | 0.12 | (0.04 | ) | ||||||||||||||
Total from investment operations | 0.14 | 1.16 | 1.92 | (1.40 | ) | 0.62 | ||||||||||||||||
Less dividends: | ||||||||||||||||||||||
From net investment income | (0.47 | ) | (0.52 | ) | (0.62 | ) | (0.46 | ) | (0.51 | ) | ||||||||||||
Return of capital | — | — | (0.04 | ) | — | — | ||||||||||||||||
Total dividends | (0.47 | ) | (0.52 | ) | (0.66 | ) | (0.46 | ) | (0.51 | ) | ||||||||||||
Net asset value at end of year | $ | 8.73 | $ | 9.06 | $ | 8.42 | $ | 7.16 | $ | 9.02 | ||||||||||||
Total investment return (b) | 1.54 | % | 14.19 | % | 28.56 | % | (16.27 | %) | 7.14 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 5.04 | % | 6.19 | % | 5.41 | % | 5.13 | % | 5.01 | % | ||||||||||||
Net expenses (excluding short sales expenses) | 1.03 | % | 1.18 | % | 1.27 | % | 1.30 | % | 1.30 | % | ||||||||||||
Expenses (including short sales expenses, before waiver/reimbursement) | 1.22 | % | 1.21 | % | 1.37 | % | 1.34 | % | 1.39 | % | ||||||||||||
Short sale expenses | 0.19 | % | — | — | — | — | ||||||||||||||||
Portfolio turnover rate | 26 | % | 80 | % | 154 | %(c) | 81 | % (c) | 64 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 169,649 | $ | 109,694 | $ | 60,555 | $ | 45,293 | $ | 68,637 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. | |
(c) | The portfolio turnover rates not including mortgage dollar rolls were 117% and 72% for the years ended October 31, 2009 and 2008, respectively. |
The notes to the financial statements are an integral part of,
32 MainStay Flexible Bond Opportunities Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class B | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 9.03 | $ | 8.39 | $ | 7.14 | $ | 8.99 | $ | 8.89 | ||||||||||||
Net investment income (loss) (a) | 0.36 | 0.45 | 0.34 | 0.37 | 0.38 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.31 | ) | 0.68 | 1.48 | (1.95 | ) | 0.20 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.05 | ) | 0.02 | 0.12 | (0.04 | ) | ||||||||||||||
Total from investment operations | 0.05 | 1.08 | 1.84 | (1.46 | ) | 0.54 | ||||||||||||||||
Less dividends: | ||||||||||||||||||||||
From net investment income | (0.38 | ) | (0.44 | ) | (0.56 | ) | (0.39 | ) | (0.44 | ) | ||||||||||||
Return of capital | — | — | (0.03 | ) | — | — | ||||||||||||||||
Total dividends | (0.38 | ) | (0.44 | ) | (0.59 | ) | (0.39 | ) | (0.44 | ) | ||||||||||||
Net asset value at end of year | $ | 8.70 | $ | 9.03 | $ | 8.39 | $ | 7.14 | $ | 8.99 | ||||||||||||
Total investment return (b) | 0.59 | % | 13.13 | % | 27.35 | % | (16.88 | %) | 6.23 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 4.10 | % | 5.15 | % | 4.54 | % | 4.32 | % | 4.26 | % | ||||||||||||
Net expenses (excluding short sales expenses) | 1.99 | % | 2.16 | % | 2.17 | % | 2.11 | % | 2.05 | % | ||||||||||||
Expenses (including short sales expenses, before waiver/reimbursement) | 2.16 | % | 2.20 | % | 2.46 | % | 2.20 | % | 2.13 | % | ||||||||||||
Short sale expenses | 0.17 | % | — | — | — | — | ||||||||||||||||
Portfolio turnover rate | 26 | % | 80 | % | 154 | %(c) | 81 | % (c) | 64 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 16,754 | $ | 19,352 | $ | 19,176 | $ | 18,567 | $ | 28,069 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. | |
(c) | The portfolio turnover rates not including mortgage dollar rolls were 117% and 72% for the years ended October 31, 2009 and 2008, respectively. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 33 |
Table of Contents
Financial Highlights selected per share data and ratios
Class C | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 9.03 | $ | 8.39 | $ | 7.14 | $ | 8.99 | $ | 8.89 | ||||||||||||
Net investment income (loss) (a) | 0.36 | 0.46 | 0.34 | 0.37 | 0.38 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.32 | ) | 0.67 | 1.48 | (1.95 | ) | 0.20 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.05 | ) | 0.02 | 0.12 | (0.04 | ) | ||||||||||||||
Total from investment operations | 0.04 | 1.08 | 1.84 | (1.46 | ) | 0.54 | ||||||||||||||||
Less dividends: | ||||||||||||||||||||||
From net investment income | (0.38 | ) | (0.44 | ) | (0.56 | ) | (0.39 | ) | (0.44 | ) | ||||||||||||
Return of capital | — | — | (0.03 | ) | — | — | ||||||||||||||||
Total dividends | (0.38 | ) | (0.44 | ) | (0.59 | ) | (0.39 | ) | (0.44 | ) | ||||||||||||
Net asset value at end of year | $ | 8.69 | $ | 9.03 | $ | 8.39 | $ | 7.14 | $ | 8.99 | ||||||||||||
Total investment return (b) | 0.48 | % | 13.14 | % | 27.36 | % | (16.88 | %) | 6.23 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 4.09 | % | 5.23 | % | 4.50 | % | 4.32 | % | 4.26 | % | ||||||||||||
Net expenses (excluding short sale expenses) | 1.99 | % | 2.16 | % | 2.17 | % | 2.11 | % | 2.05 | % | ||||||||||||
Expenses (including short sales expenses, before waiver/reimbursement) | 2.19 | % | 2.20 | % | 2.45 | % | 2.20 | % | 2.13 | % | ||||||||||||
Short sale expenses | 0.20 | % | — | — | — | — | ||||||||||||||||
Portfolio turnover rate | 26 | % | 80 | % | 154 | %(c) | 81 | % (c) | 64 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 50,280 | $ | 28,334 | $ | 12,948 | $ | 9,484 | $ | 12,081 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. | |
(c) | The portfolio turnover rates not including mortgage dollar rolls were 117% and 72% for the years ended October 31, 2009 and 2008, respectively. |
The notes to the financial statements are an integral part of,
34 MainStay Flexible Bond Opportunities Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
�� | ||||||||||||||||||||||
Class I | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 9.07 | $ | 8.42 | $ | 7.17 | $ | 9.02 | $ | 8.91 | ||||||||||||
Net investment income (loss) (a) | 0.46 | 0.58 | 0.43 | 0.47 | 0.48 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.31 | ) | 0.66 | 1.48 | (1.94 | ) | 0.21 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.05 | ) | 0.02 | 0.11 | (0.04 | ) | ||||||||||||||
Total from investment operations | 0.15 | 1.19 | 1.93 | (1.36 | ) | 0.65 | ||||||||||||||||
Less dividends: | ||||||||||||||||||||||
From net investment income | (0.49 | ) | (0.54 | ) | (0.64 | ) | (0.49 | ) | (0.54 | ) | ||||||||||||
Return of capital | — | — | (0.04 | ) | — | — | ||||||||||||||||
Total dividends | (0.49 | ) | (0.54 | ) | (0.68 | ) | (0.49 | ) | (0.54 | ) | ||||||||||||
Net asset value at end of year | $ | 8.73 | $ | 9.07 | $ | 8.42 | $ | 7.17 | $ | 9.02 | ||||||||||||
Total investment return (b) | 1.79 | % | 14.59 | % | 28.78 | % | (15.86 | %) | 7.50 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 5.20 | % | 6.57 | % | 5.75 | % | 5.49 | % | 5.37 | % | ||||||||||||
Net expenses (excluding short sale expenses) | 0.78 | % | 0.92 | % | 0.95 | % | 0.96 | % | 0.96 | % | ||||||||||||
Expenses (including short sales expenses, before waiver/reimbursement) | 1.02 | % | 0.95 | % | 1.12 | % | 1.03 | % | 1.04 | % | ||||||||||||
Short sale expenses | 0.24 | % | — | — | — | — | ||||||||||||||||
Portfolio turnover rate | 26 | % | 80 | % | 154 | %(c) | 81 | % (c) | 64 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 163,356 | $ | 5,183 | $ | 319 | $ | 259 | $ | 262 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. | |
(c) | The portfolio turnover rates not including mortgage dollar rolls were 117% and 72% for the years ended October 31, 2009 and 2008, respectively. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 35 |
Table of Contents
Notes to Financial Statements
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of fourteen funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay Flexible Bond Opportunities Fund (the “Fund”). Prior to February 28, 2011, the Fund’s name was MainStay Diversified Income Fund, with a different investment objective, investment strategies and investment process.
The Fund currently offers five classes of shares. Class A and Class B shares commenced operations on February 28, 1997. Class C shares commenced operations on September 1, 1998. Class I shares commenced operations on January 2, 2004. Investor Class shares commenced operations on February 28, 2008. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies on investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The five classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class and Class A shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I shares are not subject to a distribution and/or service fee.
The Fund’s investment objective is to seek to provide current income and total return by investing primarily in domestic and foreign debt securities.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (usually 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are determined within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish 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 developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in determining the fair value of investments) |
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may utilize some of the following fair value techniques: multi-dimensional relational pricing models, option adjusted spread pricing and estimating the price that would have prevailed in a liquid market for an international equity security given information available at the time of evaluation, when there are significant events after the close of local foreign markets.
The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2011, there have been no changes to the fair value methodologies.
The aggregate value by input level, as of October 31, 2011, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
Equity securities and Exchange Traded Funds are valued at the latest quoted sales prices as of the close of regular trading on the Exchange
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on each valuation date. Securities that are not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Prices normally are taken from the principal market in which each security trades. Futures contracts are valued at the last posted settlement price on the market where such futures are primarily traded. Options contracts are valued at the last posted settlement price on the market where such options are principally traded. Investments in other mutual funds are valued at their 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 are valued at the evaluated bid prices supplied by a pricing agent or brokers selected by the Fund’s Manager (as defined in Note 3(A)) in consultation with the Fund’s Subadvisor (as defined in Note 3(A)) whose prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Fund’s Manager, in consultation with the Fund’s Subadvisor, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities, including corporate bonds, U.S. government & federal agency bonds, municipal bonds, foreign bonds, Yankee bonds, convertible bonds, asset-backed securities, and mortgage-backed securities, are generally categorized as Level 2 in the hierarchy.
Temporary cash investments acquired over 60 days prior to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of the difference between such cost and the value on maturity date. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not obtained from a quoted price in an active market. These securities are all generally categorized as Level 2 in the hierarchy.
Foreign currency forward contracts are valued at their fair market values determined 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.
Credit default swaps are valued at prices supplied by a pricing agent or brokers selected by the Fund’s Manager in consultation with the Fund’s Subadvisor whose prices reflect broker/dealer supplied valuations and electronic data processing techniques. Swaps are marked-to-market daily and the change in value, if any, is recorded as unrealized appreciation or depreciation. These securities are generally categorized as Level 2 in the hierarchy.
Securities for which market quotations are not readily available are valued by methods deemed in good faith by the Fund’s Board to represent fair value. Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security the trading for which 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 the market price of which is not available from an independent pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor reflect the security’s market value; and (vi) a security where the trading on that security’s principal market is temporarily closed at a time when, under normal conditions, it would be open. These securities are generally categorized as Level 3 in the hierarchy. At October 31, 2011, the Fund held securities with a value of $267,089 that were fair valued in such a manner.
Certain events may occur between the time that foreign markets close, on which securities held by the Fund principally trade, and the time at which the Fund’s NAV is calculated. These events may include, but are not limited to, situations relating to a single issuer in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. Should the Manager or Subadvisor conclude that such events may have affected the accuracy of the last price reported on the local foreign market, the Manager or Subadvisor may, pursuant to procedures adopted by the Fund’s Board, adjust the value of the local price to reflect the 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, 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 the Fund’s policies and procedures and are generally categorized as Level 2 in the hierarchy. As of October 31, 2011, the Fund did not hold any foreign equity securities.
Generally, a security is considered illiquid if it cannot be sold or disposed of in the ordinary course of business at approximately the price at which it is valued. Its illiquidity might prevent the sale of such security at a time when the Manager or Subadvisor might wish to sell, and these securities could have the effect of decreasing the overall level of a Fund’s liquidity. Further, the lack of an established secondary market may make it more difficult to value illiquid securities, requiring the Fund to rely on judgments that may be somewhat subjective in determining value, which could vary from the amount that the Fund could realize upon disposition. Difficulty in selling illiquid securities may result in a loss or may be costly to the Fund. Under the supervision of the Board, the Manager or Subadvisor 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 generally will be valued in such manner as the Board in good faith deems appropriate to reflect their fair market value.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the
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“Internal Revenue Code”) applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to foreign income taxes. These foreign income taxes are generally withheld at the source.
Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provision for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income monthly and distributions of net realized capital and currency gains, if any, annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(D) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Dividend income is recognized on the ex-dividend date and interest income is accrued as earned using the effective interest rate method. Discounts and premiums on securities purchased, other than Short-Term Investments, for the Fund are accreted and amortized, respectively, on the effective interest rate method over the life of the respective securities or, in the case of a callable security, over the period to the first date of call. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
(E) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(F) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(G) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisor to be creditworthy, pursuant to guidelines established by the Fund’s Board. Repurchase agreements are considered under the 1940 Act to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in such repurchase agreements. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default of 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, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(H) Futures Contracts. A futures contract is an agreement to purchase or sell a specified quantity of an underlying instrument at a specified future date and price, or to make or receive a cash payment based on the value of a financial instrument (e.g., foreign currency, interest rate, security, or securities index). The Fund is subject to equity price risk and interest rate risk in the normal course of investing in these transactions. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by “marking to market” such contract on a daily basis to reflect the market value of the contract at the end of each day’s trading. The Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as “variation margin.” When the futures contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract.
The use of futures contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract or notional amounts and variation margin reflect the extent of the Fund’s involvement in open futures positions. Risks arise from the possible imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets, and the possible inability of counterparties to meet the terms of their contracts. However, the Fund’s activities in futures contracts have minimal counterparty risk as they are conducted through regulated exchanges that guarantee the futures against default by the counterparty. In the event of a bankruptcy or insolvency of a broker that holds margin on behalf of the Fund, the Fund may not be entitled to the return of all of the margin owed to the Fund, potentially
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resulting in a loss. The Fund may also invest in futures contracts to help manage the duration and yield curve of the portfolio while minimizing the exposure to wider bid/ask spreads in traditional bonds. The Fund’s investment in futures contracts and other derivatives may increase the volatility of the Fund’s NAV and may result in a loss to the Fund.
(I) Loan Assignments, Participations and Commitments. The Fund invests in loan assignments and loan participations. Loan assignments and participations (“loans”) are agreements to make money available (a “commitment”) to a borrower in a specified amount, at a specified rate and within a specified time. Such loans are typically senior, secured and collateralized in nature. The Fund records an investment when the borrower withdraws money and records interest as earned. These loans pay interest at rates that are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate.
The loans in which the Fund invests are generally readily marketable, but may be subject to some restrictions on resale. For example, the Fund may be contractually obligated to receive approval from the agent bank and/or borrower prior to the sale of these investments.
The Fund assumes the credit risk of the borrower, the selling participant and any other persons interpositioned between the Fund and the borrower (“intermediate participants”). In the event that the borrower, selling participant or intermediate participants become insolvent or enters into bankruptcy, the Fund may incur certain costs and delays in realizing payment, or may suffer a loss of principal and/or interest.
Unfunded commitments represent the remaining obligation of the Fund to the borrower. At any point in time, up to the maturity date of the issue, the borrower may demand the unfunded portion. These unfunded amounts are marked to market and recorded in the Statement of Assets and Liabilities. At October 31, 2011, the Fund did not hold unfunded commitments.
(J) Swap Contracts. The Fund may enter into credit default, interest rate, index and currency exchange rate contracts (“swaps”) for the purpose of attempting to obtain a desired return at a lower cost to the Fund, rather than directly investing in an instrument yielding that desired return or to hedge against credit risk. In a typical swap transaction, two parties agree to exchange the returns (or differentials in rates of returns) earned or realized on a particular investment or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a notional amount. The payments may be adjusted for transaction costs, interest payments, the amount of interest paid on the investment or instrument or other factors. Collateral, in the form of cash or securities, may be required to be held in segregated accounts with the custodian bank or broker in accordance with the swap.
Credit default swaps, in particular, are contracts whereby one party makes periodic payments to a counterparty in exchange for the right to receive a specified return in the event of a default by a third party on its obligation. Such periodic payments are accrued daily and recorded as a realized gain or loss. Credit default swaps may be used to provide a measure of protection against defaults of sovereign or corporate issuers.
Swaps are “marked-to-market” daily based upon quotations from pricing agents, brokers, or market makers and the change in value, if any, is recorded as unrealized appreciation or depreciation. Any payments made or received upon entering a swap would be amortized or accreted over the life of the swap and recorded as a realized gain or loss. Early termination of a swap is recorded as a realized gain or loss.
The Fund bears the risk of loss of the amount expected to be received under a swap in the event of the default or bankruptcy of the swap counterparty. The Fund may be able to eliminate its exposure under a swap either by assignment or other disposition, or by entering into an offsetting swap with the same party or a similar creditworthy party. Swaps are not actively traded on financial markets. Entering into swaps involves elements of credit, market, and documentation risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibilities that there will be no liquid market for these swaps, that the counterparty to the swaps may default on its obligation to perform or disagree as to the meaning of the contractual terms in the swaps and that there may be unfavorable changes in interest rates, the price of the index or the security underlying these transactions.
(K) Foreign Currency Forward Contracts. The Fund may enter into foreign currency forward contracts, which are agreements to buy or sell currencies of different countries on a specified future date at a specified rate. The Fund is subject to foreign currency exchange rate risk in the normal course of investing in these transactions. During the period the forward contract is open, changes in the value of the contract are recognized as unrealized gains or losses by ”marking-to-market” such contract on a daily basis to reflect the market value of the contract at the end of each day’s trading. 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 enters into foreign currency forward contracts to reduce currency risk versus the benchmark or for trade settlement.
The use of foreign currency forward contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract amount reflects the extent of the Fund’s involvement in these financial instruments. Risks arise from the possible movements in the foreign exchange rates underlying these instruments. While the Fund may enter into forward contracts to reduce currency exchange risks, changes in currency exchange rates may result in poorer overall performance for the Fund than if it had not engaged in such transactions. Exchange rate movements can be large, depending on the currency, and can last for extended periods of time, affecting the value of the Fund’s assets. Moreover, there may be an imperfect correlation between the Fund’s holdings of securities denominated in a particular currency and the forward contracts entered into by the Fund. Such imperfect correlation may prevent the Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. The unrealized appreciation (depreciation) on forward contracts reflects the Fund’s
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exposure at valuation date to credit loss in the event of a counterparty’s failure to perform its obligations. (See Note 5)
(L) Foreign Currency Transactions. The books and records of the Fund are kept in U.S. dollars. Prices of securities denominated in foreign currency amounts are translated into U.S. dollars at the mean between the buying and selling exchange 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) Mortgage Dollar Rolls. The Fund may enter into mortgage dollar roll (“MDR”) 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 MDR transactions of the Fund are classified as purchase and sale transactions. The securities sold in connection with the MDRs are removed from the portfolio and a realized gain or loss is recognized. The securities the 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. MDRs may be renewed without physical delivery of the securities subject to the contract. The Fund maintains liquid assets from its portfolio having a value not less than the repurchase price, including accrued interest. MDR transactions involve certain risks, including the risk that the MBS returned to the Fund at the end of the roll, while substantially similar, could be inferior to what was initially sold to the counterparty.
(N) Securities Sold Short. The Fund engages in short sales as part of its investment strategy. When the Fund enters into a short sale, it must segregate the cash proceeds from the security sold short or other securities as collateral for its obligation to deliver the security upon conclusion of the sale. A gain, limited to the price at which the Fund sold the security short, or a loss, unlimited as to dollar amount, will be recognized upon termination of a short sale if the market price on the date the short position is closed out is less or greater, respectively, than the proceeds originally received. Any such gain or loss may be offset, completely or in part, by the change in the value of the hedged investments. Interest on short positions held is accrued daily while dividends declared on short positions existing on the record date are recorded on the ex-dividend date. Both the interest and dividends are recorded as expenses on the Statement of Operations.
(O) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act, and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund’s cash collateral in accordance with the Lending Agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue to receive interest and dividends on the securities loaned and any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the account of the Fund.
Although the Fund and New York Life Investments (as defined in Note 3(A)) have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund had no portfolio securities on loan as of October 31, 2011.
(P) Restricted Securities. A restricted security is a security which has been purchased through a private offering and cannot be resold to the general public without prior registration under the Securities Act of 1933, as amended. The Fund may not have the right to demand that such securities be registered. Disposal of these securities may involve time-consuming negotiations and expenses and it may be difficult to obtain a prompt sale at an acceptable price. (See Note 6)
(Q) Concentration of Risk.
The Fund invests in high-yield securities (sometimes called “junk bonds”), which are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities pay investors a premium—a high interest rate or yield—because of the increased risk of loss. These securities can also be subject to greater price volatility.
The Fund invests in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic instruments. These risks include those resulting from currency fluctuations, future adverse political and economic developments and possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. These risks are likely to be greater in emerging markets
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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.
(R) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
(S) Quantitative Disclosure of Derivative Holdings. The following tables show additional disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial positions, performance and cash flows. These derivatives are not accounted for as hedging instruments.
Fair value of derivatives as of October 31, 2011:
Asset Derivatives
Foreign | Interest | |||||||||||||||||||||
Statement of | Credit | Exchange | Equity | Rate | ||||||||||||||||||
Assets and Liabilities | Contracts | Contracts | Contracts | Contracts | ||||||||||||||||||
Location | Risk | Risk | Risk | Risk | Total | |||||||||||||||||
Warrants | Investments in securities, at value | $ | — | $ | — | $ | 994,031 | $ | — | $ | 994,031 | |||||||||||
Futures Contracts | Net Assets—Net unrealized appreciation (depreciation) on investments, swap contracts and futures contracts (a) | — | — | — | 170,737 | 170,737 | ||||||||||||||||
Swap Contracts | Premiums paid for swap contracts | 602,438 | — | — | — | 602,438 | ||||||||||||||||
Forward Contracts | Unrealized appreciation on foreign currency forward contracts | — | 183 | — | — | 183 | ||||||||||||||||
Total Fair Value | $ | 602,438 | $ | 183 | $ | 994,031 | $ | 170,737 | $ | 1,767,389 | ||||||||||||
(a) | Includes cumulative appreciation of futures contracts as reported in the Portfolio of Investments. Only the current day’s variation margin is reported within the Statement of Assets and Liabilities. |
Liability Derivatives
Foreign | ||||||||||||||||||||||
Statement of | Credit | Exchange | Equity | |||||||||||||||||||
Assets and Liabilities | Contracts | Contracts | Contracts | Interest Rate | ||||||||||||||||||
Location | Risk | Risk | Risk | Contracts Risk | Total | |||||||||||||||||
Future Contracts | Net Assets—Net unrealized appreciation (depreciation) on investments, swap contracts and futures contracts (a) | $ | — | $ | — | $ | — | $ | (314,856 | ) | $ | (314,856 | ) | |||||||||
Forward Contracts | Unrealized depreciation on foreign currency forward contracts | — | (576,220 | ) | — | — | (576,220 | ) | ||||||||||||||
Swap Contracts | Unrealized depreciation on swap contracts | (63,990 | ) | — | — | — | (63,990 | ) | ||||||||||||||
Total Fair Value | $ | (63,990 | ) | $ | (576,220 | ) | $ | — | $ | (314,856 | ) | $ | (955,066 | ) | ||||||||
(a) | Includes cumulative depreciation of futures contracts as reported in the Portfolio of Investments. Only the current day’s variation margin is reported within the Statement of Assets and Liabilities. |
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The effect of derivative instruments on the Statement of Operations for the year ended October 31, 2011:
Realized Gain (Loss)
Foreign | ||||||||||||||||||||||
Statement of | Credit | Exchange | Equity | Interest Rate | ||||||||||||||||||
Operations | Contracts | Contracts | Contracts | Contracts | ||||||||||||||||||
Location | Risk | Risk | Risk | Risk | Total | |||||||||||||||||
Warrants | Net realized gain (loss) on security transactions | $ | — | $ | — | $ | 69,427 | $ | — | $ | 69,427 | |||||||||||
Futures Contracts | Net realized gain (loss) on futures transactions | — | — | — | (145,800 | ) | (145,800 | ) | ||||||||||||||
Swap Contracts | Net realized gain (loss) on swap transactions | 801,988 | — | — | — | 801,988 | ||||||||||||||||
Forward Contracts | Net realized gain (loss) on foreign currency transactions | — | 417,911 | — | — | 417,911 | ||||||||||||||||
Total Realized Gain (Loss) | $ | 801,988 | $ | 417,911 | $ | 69,427 | $ | (145,800 | ) | $ | 1,143,526 | |||||||||||
Change in Unrealized Appreciation (Depreciation)
Foreign | ||||||||||||||||||||||
Statement of | Credit | Exchange | Equity | Interest Rate | ||||||||||||||||||
Operations | Contracts | Contracts | Contracts | Contracts | ||||||||||||||||||
Location | Risk | Risk | Risk | Risk | Total | |||||||||||||||||
Warrants | Net change in unrealized appreciation (depreciation) on investments | $ | — | $ | — | $ | (532,437 | ) | $ | — | $ | (532,437 | ) | |||||||||
Futures Contracts | Net change in unrealized appreciation (depreciation) on futures contracts | — | — | — | 188,781 | 188,781 | ||||||||||||||||
Swap Contracts | Net change in unrealized appreciation (depreciation) on swap contracts | (63,990 | ) | — | — | — | (63,990 | ) | ||||||||||||||
Forward Contracts | Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | — | (455,416 | ) | — | — | (455,416 | ) | ||||||||||||||
Total Change in Unrealized Appreciation (Depreciation) | $ | (63,990 | ) | $ | (455,416 | ) | $ | (532,437 | ) | $ | 188,781 | $ | (854,062 | ) | ||||||||
Number of Contracts, Notional Amounts or Shares/Units (1)
Foreign | ||||||||||||||||||||
Credit | Exchange | Equity | Interest Rate | |||||||||||||||||
Contracts | Contracts | Contracts | Contracts | |||||||||||||||||
Risk | Risk | Risk | Risk | Total | ||||||||||||||||
Warrants (2) | — | — | 40,235 | — | 40,235 | |||||||||||||||
Futures Contracts Long (2) | — | — | — | 160 | 160 | |||||||||||||||
Futures Contracts Short (2) | — | — | — | (580 | ) | (580 | ) | |||||||||||||
Swap Contracts (3) | $ | 16,960,000 | — | — | — | $ | 16,960,000 | |||||||||||||
Forward Contracts Long (3) | — | $ | 7,016,074 | — | — | $ | 7,016,074 | |||||||||||||
Forward Contracts Short (3) | — | $ | (20,822,937 | ) | — | — | $ | (20,822,937 | ) | |||||||||||
(1) | Amount disclosed represents the weighted average held during the year ended October 31, 2011. |
(2) | Amount(s) represent(s) number of contracts or number of shares/units. |
(3) | Amount(s) represent(s) notional amount. |
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), 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, including a portion of the total compensation of the Chief Compliance Officer (“CCO”) of the Fund which is the responsibility of all investment companies for which the CCO serves, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. MacKay Shields LLC (“MacKay Shields” or the “Subadvisor”), a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life, serves as Subadvisor to the Fund and is
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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 MacKay Shields, New York Life Investments pays for the services of the Subadvisor.
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.60% up to $500 million; 0.55% from $500 million to $1 billion; and 0.50% in excess of $1 billion, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. The effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.62% for the year ended October 31, 2011, inclusive of a fee for fund accounting services of 0.02% of the Fund’s average daily net assets.
The Manager has contractually agreed to waive fees and/or reimburse expenses so that Total Annual Fund Operating Expenses for Class A shares do not exceed 1.16% of its average daily net assets. New York Life Investments will apply an equivalent waiver or reimbursement, in an equal number of basis points, to the other share classes of the Fund. This agreement expires on February 28, 2012 and may only be amended or terminated prior to that date by action of the Board. Total Annual Fund Operating Expenses excludes taxes, interest, litigation, extraordinary expenses, brokerage and other transaction expenses relating to the purchase or sale of portfolio investments, and acquired (underlying) fund fees and expenses.
For the year ended October 31, 2011, New York Life Investments earned fees from the Fund in the amount of $2,032,464.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution and Service Fees. The Trust, on behalf of the Fund, has entered into a Distribution Agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class and Class A Plans, the Distributor receives a monthly distribution fee from the Investor Class and Class A shares at an annual rate of 0.25% of the average daily net assets of the Investor Class and Class A shares for distribution or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average daily net assets of the Class B and Class C shares along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 1.00%. Class I shares are not subject to a distribution or service fee.
The Plans provide that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund’s shares and service activities.
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $20,615 and $129,908, respectively, for the year ended October 31, 2011. The Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Class B and Class C shares of $4,506, $16,123 and $15,551, respectively, for the year ended October 31, 2011.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2011, were as follows:
Investor Class | $ | 51,798 | ||
Class A | 98,399 | |||
Class B | 50,546 | |||
Class C | 109,717 | |||
Class I | 74,962 | |||
(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. At October 31, 2011, New York Life and its affiliates beneficially held shares of the Fund with the following values and percentages of net assets as follows:
Class A | $ | 10,801,315 | 6.4 | % | ||||
Class C | 136 | 0.0 | ‡ | |||||
Class I | 1,504 | 0.0 | ‡ | |||||
‡ | Less than one-tenth of a percent. |
(G) Other. Pursuant to a Legal Services Agreement, a portion of the cost of legal services provided to the Fund by the Office of the General Counsel of New York Life Investments was payable directly by the Fund through March 17, 2011. For the year ended October 31, 2011, these fees, which are included in professional fees shown on the Statement of Operations, were $4,662. Effective March 18, 2011, the Legal Services Agreement expired and was not renewed. Therefore, the Fund
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Notes to Financial Statements (continued)
is no longer directly responsible for any portion of the cost of legal services.
Note 4–Federal Income Tax
As of October 31, 2011, the components of accumulated gain (loss) on a tax basis were as follows:
Accumulated | ||||||||||||||||||
Capital | Other | Unrealized | Total | |||||||||||||||
Ordinary | and Other | Temporary | Appreciation | Accumulated | ||||||||||||||
Income | Gain (Loss) | Differences | (Depreciation) | Gain (Loss) | ||||||||||||||
$ | 857,513 | $ | (4,460,649 | ) | $ | (333,029 | ) | $ | (8,508,670 | ) | $ | (12,444,835 | ) | |||||
The difference between book-basis and tax basis unrealized depreciation is primarily due to wash sale deferrals, marking to market of foreign currency forward contracts, futures contracts, partnership basis adjustments, straddle loss deferrals and swap contracts.
The other temporary differences are primarily due to dividends payable.
The following table discloses the current year reclassifications between undistributed net investment income, accumulated net realized income (loss) on investments, and additional paid-in capital arising from permanent differences; net assets at October 31, 2011 were not affected.
Accumulated | ||||||||||
Undistributed | Net Realized | Additional | ||||||||
Net Investment | Gain (Loss) on | Paid-In | ||||||||
Income (Loss) | Investments | Capital | ||||||||
$ | 467,424 | $ | (2,269,780 | ) | $ | 1,802,356 | ||||
The reclassifications for the Fund are primarily due to mark to market on foreign currency gain (loss), reclassification of consent fee and amendment fee, modified debt instrument adjustments, reclassification of income from swap contracts, partnership basis adjustments, interest income from defaulted securities and reversal of wash sale deferrals due to a redemption-in-kind.
Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
At October 31, 2011, for federal income tax purposes, capital loss carryforwards of $4,460,649 were available as shown in the table below, to the extent provided by the regulations to offset future realized gains of the Fund through the years indicated. To the extent that these capital loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to shareholders. No capital gain distributions shall be made until any capital loss carryforwards have been fully utilized or expired.
Capital Loss | Capital Loss | |||||
Available Through | Amounts (000’s) | |||||
2016 | $ | 1,790 | ||||
2017 | 2,671 | |||||
Total | $ | 4,461 | ||||
The Fund utilized $3,514,916 of capital loss carryforwards during the year ended October 31, 2011.
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 shown in the Statements of Changes in Net Assets was as follows:
2011 | 2010 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 16,561,241 | $ | 7,918,584 | ||||
Note 5–Foreign Currency Transactions and Foreign Currency Forward Contracts
As of October 31, 2011, the Fund held the following foreign currency forward contracts:
Contract | Contract | Unrealized | ||||||||||||||||||
Amount | Amount | Appreciation | ||||||||||||||||||
Counterparty | Purchased | Sold | (Depreciation) | |||||||||||||||||
Foreign Currency Buy Contracts: | ||||||||||||||||||||
Pound Sterling vs. U.S. Dollar, expiring 11/18/11 | JPMorgan Chase Bank | GBP | 7,000 | USD | 11,071 | USD | 183 | |||||||||||||
Contract | Contract | |||||||||||||||
Amount | Amount | |||||||||||||||
Sold | Purchased | |||||||||||||||
Foreign Currency Sale Contracts: | ||||||||||||||||
Euro vs. U.S. Dollar, expiring 11/18/11 | JPMorgan Chase Bank | EUR | 5,545,000 | 7,380,393 | (290,982 | ) | ||||||||||
Pound Sterling vs. U.S. Dollar, expiring 11/18/11 | JPMorgan Chase Bank | GBP | 5,439,000 | 8,458,740 | (285,238 | ) | ||||||||||
Net unrealized appreciation (depreciation) on foreign currency forward contracts | USD | (576,037 | ) | |||||||||||||
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As of October 31, 2011, the Fund held the following foreign currencies:
Currency | Cost | Value | ||||||||||
Brazilian Real | BRL | 63,452 | USD | 34,682 | USD | 36,959 | ||||||
Canadian Dollar | CAD | 2 | 2 | 2 | ||||||||
Euro | EUR | 108,372 | 143,756 | 149,954 | ||||||||
Pound Sterling | GBP | 119,116 | 186,518 | 191,527 | ||||||||
Total | USD | 364,958 | USD | 378,442 | ||||||||
Note 6–Restricted Securities
As of October 31, 2011, the Fund held the following restricted security:
Date of | Principal | 10/31/11 | Percentage of | |||||||||||||||||
Security | Acquisition | Amount | Cost | Value | Net Assets | |||||||||||||||
At Home Corp. | ||||||||||||||||||||
Convertible Bond 4.75%, due 12/31/49 | 7/25/01 | $ | 504,238 | $ | 8,348 | $ | 50 | 0.0 | %‡ | |||||||||||
‡ | Less than one-tenth of a percent. |
Note 7–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 8–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 31, 2011, under an amended credit agreement, the aggregate commitment amount is $125,000,000 with an optional maximum amount of $175,000,000. The commitment rate is an annual rate of 0.08% of the average commitment amount, payable quarterly, regardless of usage, to The Bank of New York Mellon, which serves as the agent to the syndicate. The commitment fee is allocated among certain MainStay Funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The amended credit agreement expires on August 29, 2012, although the MainStay Funds and the syndicate of banks may renew the amended credit agreement for an additional year on the same or different terms. Prior to August 31, 2011, the commitment rate was an annual rate of 0.10% of the average commitment amount, plus a 0.02% up-front payment. There were no borrowings made or outstanding with respect to the Fund on the amended credit agreement during the year ended October 31, 2011.
Note 9–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2011, purchases and sales of U.S. government securities were $13,463 and $9,418, respectively. Purchases and sales of securities, other than U.S. government securities and short-term securities, were $391,954 and $71,148, respectively.
Note 10–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 732,673 | $ | 6,584,750 | |||||
Shares issued to shareholders in reinvestment of dividends | 99,140 | 885,391 | ||||||
Shares redeemed | (416,607 | ) | (3,722,451 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 415,206 | 3,747,690 | ||||||
Shares converted into Investor Class (See Note 1) | 286,997 | 2,538,354 | ||||||
Shares converted from Investor Class (See Note 1) | (204,553 | ) | (1,834,596 | ) | ||||
Net increase (decrease) | 497,650 | $ | 4,451,448 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 573,513 | $ | 5,068,751 | |||||
Shares issued to shareholders in reinvestment of dividends | 84,589 | 745,421 | ||||||
Shares redeemed | (276,444 | ) | (2,433,704 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 381,658 | 3,380,468 | ||||||
Shares converted into Investor Class (See Note 1) | 176,163 | 1,549,701 | ||||||
Shares converted from Investor Class (See Note 1) | (172,275 | ) | (1,517,207 | ) | ||||
Net increase (decrease) | 385,546 | $ | 3,412,962 | |||||
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Notes to Financial Statements (continued)
Class A | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 11,147,011 | $ | 99,470,341 | |||||
Shares issued to shareholders in reinvestment of dividends | 624,512 | 5,538,122 | ||||||
Shares redeemed | (4,779,519 | ) | (42,055,799 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 6,992,004 | 62,952,664 | ||||||
Shares converted into Class A (See Note 1) | 457,252 | 4,068,740 | ||||||
Shares converted from Class A (See Note 1) | (116,034 | ) | (1,003,656 | ) | ||||
Net increase (decrease) | 7,333,222 | $ | 66,017,748 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 6,310,390 | $ | 55,286,644 | |||||
Shares issued to shareholders in reinvestment of dividends | 427,077 | 3,744,833 | ||||||
Shares redeemed | (2,116,373 | ) | (18,539,960 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 4,621,094 | 40,491,517 | ||||||
Shares converted into Class A (See Note 1) | 448,506 | 3,925,520 | ||||||
Shares converted from Class A (See Note 1) | (54,262 | ) | (484,933 | ) | ||||
Shares converted from Class A | (104,753 | ) | (900,875 | ) | ||||
Net increase (decrease) | 4,910,585 | $ | 43,031,229 | |||||
Class B | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 568,420 | $ | 5,060,244 | |||||
Shares issued to shareholders in reinvestment of dividends | 72,326 | 640,413 | ||||||
Shares redeemed | (431,109 | ) | (3,817,407 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 209,637 | 1,883,250 | ||||||
Shares converted from Class B (See Note 1) | (425,734 | ) | (3,768,842 | ) | ||||
Net increase (decrease) | (216,097 | ) | $ | (1,885,592 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 540,436 | $ | 4,728,077 | |||||
Shares issued to shareholders in reinvestment of dividends | 85,993 | 749,784 | ||||||
Shares redeemed | (369,358 | ) | (3,202,350 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 257,071 | 2,275,511 | ||||||
Shares converted from Class B (See Note 1) | (399,466 | ) | (3,473,081 | ) | ||||
Net increase (decrease) | (142,395 | ) | $ | (1,197,570 | ) | |||
Class C | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 3,601,891 | $ | 32,052,109 | |||||
Shares issued to shareholders in reinvestment of dividends | 118,075 | 1,042,195 | ||||||
Shares redeemed | (1,073,723 | ) | (9,447,059 | ) | ||||
Net increase (decrease) | 2,646,243 | $ | 23,647,245 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 1,956,274 | $ | 17,087,243 | |||||
Shares issued to shareholders in reinvestment of dividends | 69,657 | 609,351 | ||||||
Shares redeemed | (430,620 | ) | (3,747,694 | ) | ||||
Net increase (decrease) | 1,595,311 | $ | 13,948,900 | |||||
Class I | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 30,160,101 | $ | 271,055,879 | |||||
Shares issued to shareholders in reinvestment of dividends | 563,026 | 4,984,280 | ||||||
Shares redeemed | (12,592,913 | ) | (113,288,287 | ) | ||||
Net increase (decrease) | 18,130,214 | $ | 162,751,872 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 472,941 | $ | 4,180,458 | |||||
Shares issued to shareholders in reinvestment of dividends | 8,816 | 77,729 | ||||||
Shares redeemed | (52,808 | ) | (459,524 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 428,949 | 3,798,663 | ||||||
Shares converted into Class I | 104,753 | 900,875 | ||||||
Net increase (decrease) | 533,702 | $ | 4,699,538 | |||||
Note 11–In-Kind Transfer of Securities
During the year ended October 31, 2011, the Fund redeemed shares of beneficial interest in exchange for securities. The securities were transferred at their current value on the date of transaction.
Transaction Date | Shares | Redeemed Value | Gain (Loss) | |||||||||
5/5/11 | 8,805,520 | $ | 79,972,617 | $ | 1,774,490 | |||||||
Note 12–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2011, events and transactions subsequent to October 31, 2011 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.
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Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Flexible Bond Opportunities Fund (formerly the MainStay Diversified Income Fund) (“the Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Flexible Bond Opportunities Fund of The MainStay Funds as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 22, 2011
December 22, 2011
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Federal Income Tax Information (Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders within 60 days of the Fund’s fiscal year end (October 31, 2011) as to the federal tax status of dividends paid by the Fund during such fiscal years.
For the fiscal year ended October 31, 2011, the Fund designated approximately $434,440 under the Internal Revenue Code as qualified dividend income eligible for reduced tax rates.
The dividends paid by the Fund during the fiscal year ended October 31, 2011, should be multiplied by 2.8% to arrive at the amount eligible for the corporate dividends received deduction.
In February 2012, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2011. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2011.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
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Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, Eclipse Funds, Eclipse Funds Inc., MainStay Funds Trust, and MainStay VP Funds Trust) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s). Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation upon reaching age 72. A Board Member reaching the age of 72 may continue for additional one-year periods with the approval of the Board’s Nominating and Governance Committee.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Interested Board Member* | ||||||||
John Y. Kim 9/24/60 | Indefinite; Eclipse Funds: Trustee since 2008 (2 funds); Eclipse Funds Inc.: Director since 2008 (1 fund); The MainStay Funds: Trustee since 2008 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc. since 2008 (21 portfolios). | Member of the Board of Managers (since 2011) of New York Life Enterprises LLC; Chairman (since 2011), Member of the Board of Managers, Chief Executive Officer and President (since 2008) of New York Life Investment Management LLC and New York Life Investment Management Holdings LLC; Executive Vice President (since 2011) of New York Life Foundation; Member of the Board of Managers and Chairman of the Board of Private Advisors, L.L.C. (since 2010); Executive Vice President, New York Life Insurance Company (since 2008); Chairman of the Board (2008-2010) and Member of the Boards of Managers (since 2008) of MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, Madison Square Investors LLC, NYLCAP Manager LLC and McMorgan & Company LLC; Chairman of the Board and Chief Executive Officer, NYLIFE Distributors LLC (2008-2010); Executive Vice President of NYLIFE Insurance Company of Arizona and New York Life Insurance and Annuity Corporation (since 2008); President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 66 | None | ||||
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Susan B. Kerley 8/12/51 | Indefinite; Eclipse Funds: Chairman since 2005, and Trustee since 2000 (2 funds); Eclipse Funds Inc.: Chairman since 2005 and Director since 1990 (1 fund); The MainStay Funds: Chairman and Board Member since 2007 (14 funds); MainStay Funds Trust: Chairman and Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Chairman and Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | President, Strategic Management Advisors LLC (since 1990) | 66 | Trustee, Legg Mason Partners Funds, since 1991 (58 portfolios) | ||||
Alan R. Latshaw 3/27/51 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2006 (14 funds); MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 66 | Trustee, State Farm Associates Funds Trusts since 2005 (4 portfolios); Trustee, State Farm Mutual Fund Trust since 2005 (15 portfolios); Trustee, State Farm Variable Product Trust since 2005 (9 portfolios) | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Peter Meenan 12/5/41 | Indefinite; Eclipse Funds: Trustee since 2002 (2 funds); Eclipse Funds Inc.: Director since 2002 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Independent Consultant; President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 66 | None | ||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2006 (21 portfolios). | Managing Director, ICC Capital Management; President—Shields/Alliance, Alliance Capital Management (1994 to 2004) | 66 | None | ||||
Richard S. Trutanic 2/13/52 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 1994 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 66 | None | ||||
mainstayinvestments.com 51
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Roman L. Weil 5/22/40 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1994 and Audit Committee Financial Expert since 2003 (21 portfolios). | Visiting Professor, NYU Stem School of Business, New York University (since 2011); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School of Business, University of Chicago (1965-2008) | 66 | None | ||||
John A. Weisser 10/22/41 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1997 (21 portfolios). | Retired. Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 66 | Trustee, Direxion Funds since 2007 (27 portfolios); Direxion Insurance Trust since 2007 (1 portfolio); Trustee, Direxion Shares ETF Trust, since 2008 (50 portfolios) | ||||
52 MainStay Flexible Bond Opportunities Fund
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The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.
Positions(s) Held | ||||
Name and | with the Funds | Principal Occupation(s) | ||
Date of Birth | and Length of Service | During Past Five Years | ||
Officers | ||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007); Vice President, Prudential Investments (2000 to 2007); Assistant Treasurer, JennisonDryden Family of Funds, Target Portfolio Trust, The Prudential Series Fund and American Skandia Trust (2006 to 2007); Treasurer and Principal Financial Officer, The Greater China Fund (2007) | ||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance (since 2009), Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Assistant Secretary NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2009); Assistant Secretary, The MainStay Funds and ICAP Funds, Inc. (2006 to 2008); Assistant Secretary, Eclipse Funds, Eclipse Funds, Inc. and MainStay VP Series Fund, Inc. (2005 to 2008) | ||
Stephen P. Fisher 2/22/59 | President, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Director, Senior Vice President, New York Life Insurance and Annuity Corporation (since 2011); Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2007); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007) | ||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2010); Director and Counsel of Credit Suisse, Chief Legal Officer and Secretary of Credit Suisse Asset Management, LLC and Credit Suisse Funds (2003 to 2010) | ||
Scott T. Harrington 2/8/59 | Vice President — Administration, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Director (since 2009), New York Life Trust Company FSB; Vice President—Administration, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2005) | ||
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one-year term. |
mainstayinvestments.com 53
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay offerings is listed here, with information about the manager, subadvisors, legal counsel, and independent registered public accounting firm.
Equity Funds
MainStay 130/30 Core Fund
MainStay Common Stock Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Fund
MainStay Equity Index Fund1
MainStay Growth Equity Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Small Cap Fund
Income Funds
MainStay Cash Reserves Fund2
MainStay Flexible Bond Opportunities Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Municipal Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Money Market Fund
MainStay Principal Preservation Fund
MainStay Short Term Bond Fund
MainStay Tax Free Bond Fund
Blended Funds
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
International Funds
MainStay 130/30 International Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay Global High Income Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
Asset Allocation Funds
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
Retirement Funds
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC3
Chicago, Illinois
MacKay Shields LLC3
New York, New York
Madison Square Investors LLC3
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management, Inc.
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firm
KPMG LLP
1. | Closed to new investors and new purchases as of January 1, 2002. |
2. | Closed to new investors for Class I shares as of October 14, 2011. |
3. | An affiliate of New York Life Investment Management LLC. |
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mainstayinvestments.com
The MainStay Funds are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC,
169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
MainStay Investments is a registered service mark and name under which New York Life Investment Management LLC does business.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York , NY 10010, provides investment
advisory products and services.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York , NY 10010, provides investment
advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
© 2012 by NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency | ||||||||
NYLIM-24957 MS284-11 | MSFB11-12/11 |
N16
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MainStay Global High Income Fund
Message from the President and Annual Report
October 31, 2011
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Message from the President
Volatility was the keynote of the 12 months ended October 31, 2011. U.S. stocks generally advanced, but a variety of domestic and international forces influenced the market.
Early in November 2010, the Federal Open Market Committee (FOMC) announced its intention to extend quantitative easing by purchasing additional longer-term Treasury securities. The stock market reacted positively to this news—and to the midterm elections—and stocks generally advanced through mid-February.
Beginning in December 2010, a wave of protests and civil unrest across North Africa and the Middle East led to a substantial rise in the price of oil. By mid-February, stock prices started to decline. In March, a major earthquake and tsunami in Japan caused manufacturing supply-line interruptions and further setbacks for equity investors. After a sharp decline and a rapid recovery, stocks reached their high point for the 12-month period at the end of April 2011.
Pressed by a weak economy, lackluster employment and widespread concerns about European sovereign debt, the stock market faced wide fluctuations in the coming months. The volatility included a precipitous decline at the end of July into early August. Shortly thereafter, the FOMC expressed its expectation that economic conditions were “likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
After several unsuccessful attempts to recover from their dramatic drop, U.S. stocks reached their low point for the reporting period in early October. Then, buoyed by positive economic data and progress in the European debt situation, the U.S. stock market advanced rapidly in October, to close the reporting period with its best monthly performance in nearly a decade.
International stocks suffered from the turmoil in the Middle East and North Africa, the natural disasters in Japan, the sovereign debt concerns in Europe and the added threat of an economic slowdown in China. For the 12-month period, international stocks declined overall, with particular weakness in Europe.
The bond markets felt the impact of the European debt crisis, and several European nations suffered downgrades. In July, the United States faced a congressional deadlock on raising the debt ceiling and reducing deficit spending. In early August, Standard & Poor’s downgraded the debt of the United States of America to AA+.
Slow progress in resolving the European debt situation led to a flight to quality (or a movement toward securities perceived to carry lower risk). Amid strong demand, U.S. Treasury securities saw prices rise and yields decline, despite the downgrade by Standard & Poor’s. High-grade corporate
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
Throughout the 12-month reporting period, our portfolio managers took note of shifting market forces. But their primary focus was on the investment objectives of their respective Funds and the long-term strategies they were pursuing to achieve them. Some may have sought to capitalize on day-to-day market inefficiencies, but all remained focused on the long-term interests of our shareholders. They sought to apply time-tested investment principles consistently throughout the reporting period.
The information that follows provides specifics about the securities, decisions and market forces that affected your MainStay Fund(s) during the 12 months ended October 31, 2011. Behind the details, we hope you’ll recognize the professionalism and discipline that guided our portfolio managers during this volatile period.
We thank you for investing with MainStay and look forward to serving you for many years to come.
Sincerely,
Stephen P. Fisher
President
President
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Table of Contents
Annual Report | ||
Investment and Performance Comparison | 5 | |
Portfolio Management Discussion and Analysis | 9 | |
Portfolio of Investments | 11 | |
Financial Statements | 16 | |
Notes to Financial Statements | 24 | |
Report of Independent Registered Public Accounting Firm | 35 | |
Federal Income Tax Information | 36 | |
Proxy Voting Policies and Procedures and Proxy Voting Record | 36 | |
Shareholder Reports and Quarterly Portfolio Disclosure | 36 | |
Board Members and Officers | 37 | |
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
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Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2011
Gross | ||||||||||||||||||||
Expense | ||||||||||||||||||||
Class | Sales Charge | One Year | Five Years | Ten Years | Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 4.5% Initial Sales Charge | With sales charges | –2 | .65% | 6 | .51% | 11 | .35% | 1 | .37% | ||||||||||
Excluding sales charges | 1 | .94 | 7 | .49 | 11 | .87 | 1 | .37 | ||||||||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges | –2 | .62 | 6 | .61 | 11 | .41 | 1 | .25 | ||||||||||
Excluding sales charges | 1 | .96 | 7 | .60 | 11 | .92 | 1 | .25 | ||||||||||||
Class B Shares | Maximum 5% CDSC | With sales charges | –3 | .63 | 6 | .39 | 11 | .04 | 2 | .12 | ||||||||||
if Redeemed Within the First Six Years of Purchase | Excluding sales charges | 1 | .13 | 6 | .70 | 11 | .04 | 2 | .12 | |||||||||||
Class C Shares | Maximum 1% CDSC | With sales charges | 0 | .17 | 6 | .71 | 11 | .05 | 2 | .12 | ||||||||||
if Redeemed Within One Year of Purchase | Excluding sales charges | 1 | .13 | 6 | .71 | 11 | .05 | 2 | .12 | |||||||||||
Class I Shares4 | No Sales Charge | 2 | .22 | 7 | .87 | 12 | .21 | 1 | .00 | |||||||||||
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, change in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Investor Class shares might have been lower. |
4. | Performance figures for Class I shares, first offered on August 31, 2007, include the historical performance of Class A shares through August 30, 2007 adjusted for certain fees and expenses. Unadjusted, the performance shown for Class I shares might have been lower. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com 5
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One | Five | Ten | ||||||||||
Benchmark Performance | Year | Years | Years | |||||||||
JPMorgan EMBI Global Diversified Index5 | 3 | .30% | 8 | .21% | 10 | .78% | ||||||
Average Lipper Emerging Markets Debt Fund6 | 1 | .11 | 7 | .20 | 11 | .69 | ||||||
5. | The JPMorgan EMBI Global Diversified Index is a market-capitalization weighted, total return index tracking the traded market for U.S. dollar-denominated Brady bonds, Eurobonds, traded loans and local market debt instruments issued by sovereign and quasi-sovereign entities. The JPMorgan EMBI Global Diversified Index is the Fund’s broad-based securities market index for comparison purposes. Total returns assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an Index. |
6. | The average Lipper emerging markets debt fund is representative of funds that seek either current income or total return by investing at least 65% of total assets in emerging market debt securities, where “emerging market” is defined by a country’s GNP per capita or other economic measures. This benchmark is a product of Lipper Inc. Lipper Inc. is an independent monitor of fund performance. Results are based on average total returns of similar funds with all dividend and capital gain distributions reinvested. |
The footnotes on the preceding page are an integral part of the table and graph and should be carefully read in conjunction with them.
6 MainStay Global High Income Fund
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Cost in Dollars of a $1,000 Investment in MainStay Global High Income Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2011, to October 31, 2011, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2011, to October 31, 2011.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2011. 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.
Ending Account | ||||||||||||||||||||||
Ending Account | Value (Based | |||||||||||||||||||||
Value (Based | on Hypothetical | |||||||||||||||||||||
Beginning | on Actual | Expenses | 5% Annualized | Expenses | ||||||||||||||||||
Account | Returns and | Paid | Return and | Paid | ||||||||||||||||||
Value | Expenses) | During | Actual Expenses) | During | ||||||||||||||||||
Share Class | 5/1/11 | 10/31/11 | Period1 | 10/31/11 | Period1 | |||||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,010.10 | $ | 6.69 | $ | 1,018.60 | $ | 6.72 | ||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,010.60 | $ | 6.23 | $ | 1,019.00 | $ | 6.26 | ||||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,006.50 | $ | 10.42 | $ | 1,014.80 | $ | 10.46 | ||||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,006.50 | $ | 10.47 | $ | 1,014.80 | $ | 10.51 | ||||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,011.90 | $ | 4.97 | $ | 1,020.30 | $ | 4.99 | ||||||||||||
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.32% for Investor Class, 1.23% for Class A, 2.06% for Class B, 2.07% for Class C and 0.98% for Class I) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the one-half year period). The table above represents the actual expenses incurred during the one-half year period. |
mainstayinvestments.com 7
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Portfolio Composition as of October 31, 2011 (Unaudited)
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
‡ | Less than one-tenth of a percent. |
Top Ten Issuers Held as of October 31, 2011 (excluding short-term investment)
1. | Republic of Philippines, 4.00%–9.50%, due 6/17/19–2/2/30 | |
2. | Republic of Turkey, 5.125%–16.00%, due 3/7/12–1/14/41 | |
3. | Republic of Venezuela, 6.00%–9.25%, due 12/9/20–5/7/28 | |
4. | Republic of Indonesia, 4.875%–6.625%, due 5/5/21–2/17/37 | |
5. | Republic of Colombia, 4.375%, due 7/12/21 | |
6. | Majapahit Holding B.V., 8.00%, due 8/7/19 | |
7. | Government of the Cayman Islands, 5.95%, due 11/24/19 | |
8. | United Mexican States, 7.25%, due 12/15/16 | |
9. | Republic of Panama, 6.70%–9.375%, due 4/1/29–1/26/36 | |
10. | KazMunaiGaz Finance Sub B.V., 11.75%, due 1/23/15 |
8 MainStay Global High Income Fund
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Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Gary Goodenough, Dan Roberts, PhD, Michael Kimble and Jakob Bak, PhD, CFA, of MacKay Shields LLC, the Fund’s Subadvisor.
How did MainStay Global High Income Fund perform relative to its peers and its benchmark during the 12 months ended October 31, 2011?
Excluding all sales charges, MainStay Global High Income Fund returned 1.94% for Investor Class shares, 1.96% for Class A shares and 1.13% for both Class B and Class C shares for the 12 months ended October 31, 2011. Over the same period, the Fund’s Class I shares returned 2.22%. All share classes out-performed the 1.11% return of the average Lipper1 emerging markets debt fund for the 12 months ended October 31, 2011. All share classes underperformed the 3.30% return of the JPMorgan EMBI Global Diversified Index2 for the reporting period. The JPMorgan EMBI Global Diversified Index is the Fund’s broad-based securities-market index. See page 5 for Fund returns with sales charges.
Were there any changes to the Fund’s day-to-day management during the reporting period?
Effective October 25, 2011, Howard Booth was removed as a portfolio manager of the Fund and Jakob Bak, PhD, CFA, was added as a portfolio manager. More information about this change is available in the Prospectus Supplement dated October 25, 2011.
What factors affected the Fund’s relative performance during the reporting period?
Fears about the European sovereign debt crisis, coupled with slower global growth, had a significant impact on emerging-market debt, as sovereign debt has outperformed emerging-market corporate debt since the beginning of 2011. With increased volatility in the markets, investors fled to the relative safety of sovereign debt, which tends to have a higher credit quality than emerging-market corporate debt. This detracted from the Fund’s relative performance, given the Fund’s overweight positions relative to the JPMorgan EMBI Global Diversified Index in quasi-sovereign bonds (bonds that may have implicit backing by a foreign government) and in corporate bonds. Although we trimmed the Fund’s corporate holdings in the second half of the reporting period, the Fund retained its overweight position relative to the benchmark in corporate debt because we felt that the yield premium offered by corporate bonds relative to sovereign debt may add value to the Fund.
During the reporting period, how was the Fund’s performance materially affected by investments in derivatives?
During the reporting period, the Fund utilized currency forwards,3 U.S. Treasury futures4 and credit default swaps.5 Currency forwards were used primarily to gain exposure to currencies where the local-currency bonds were either unavailable or unattractive; foreign currency exposure was a slight hindrance to performance. U.S. Treasury futures were used to hedge the Fund’s duration,6 while credit default swaps were used to hedge the Fund against the European sovereign debt crisis. The U.S. Treasury futures had a slightly negative impact on performance while the credit default swaps were positive contributors to performance. (Contributions take weightings and total returns into account.)
During the reporting period, what was the Fund’s duration strategy and what impact did this have on the Fund’s performance?
During the reporting period, we viewed the risk that the Federal Reserve’s quantitative easing program would lead to higher interest rates as real, and we positioned the Fund accordingly. (Quantitative easing is the direct purchase of securities by the Federal Reserve.) We chose to overweight credit risk relative to the JPMorgan EMBI Global Diversified Index but slightly underweight interest-rate risk. Our credit risk exposure detracted from the Fund’s performance. The Fund’s shorter-than-benchmark duration also detracted, but to a lesser degree.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
As mentioned, toward the beginning of the reporting period we positioned the Fund for a rising interest-rate environment by overweighting credit and underweighting duration risk. During the second quarter of 2011 into the third quarter, sluggish developed-market import demand produced a slowdown in emerging-market export growth. Risky assets sold off around the world, and commodity prices fell. In turn, economic activity decelerated in most emerging countries. As investors became increasingly risk-averse, we trimmed the Fund’s position in corporate debt. We also decreased the amount of foreign currency exposure in the Fund. By the end of the reporting period, 90% of the Fund’s assets were in U.S. dollar denominated securities.
1. See footnote on page 6 for more information on Lipper Inc.
2. See footnote on page 6 for more information on the JPMorgan EMBI Global Diversified Index.
3. A currency forward is a forward contract in the foreign exchange market that locks in the price at which an entity can buy or sell a currency on a future date.
4. A U.S. Treasury future is a futures contract with U.S. Treasurys as the underlying instrument that pays interest. An interest rate future is a contract between a buyer and a seller who agree to the future delivery of any interest-bearing asset, including U.S. Treasurys. The interest rate future allows the buyer and seller to lock in the price of the interest-bearing asset for a future date.
5. A credit default swap is a way to transfer credit exposure from the holder of a fixed-income security to the seller of a swap. The buyer of the swap gains credit protection, and the seller of the swap guarantees the creditworthiness of the instrument in the event of a default.
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.
mainstayinvestments.com 9
Table of Contents
How was the Fund affected by shifting currency values during the reporting period?
Toward the beginning of the reporting period, the Federal Reserve’s accommodative policies were used to stimulate the weak U.S. economy and encourage job growth. As a result of these policies, the Fund held foreign currency positions that we considered to have better growth prospects relative to the U.S. dollar. We began to pare back the Fund’s foreign currency exposure as the European sovereign debt crisis magnified and investors flocked to the safety of the U.S. dollar. During the reporting period, the dollar was a bit stronger than other currencies so any non-dollar exposure was a slight drag on performance. We trimmed that exposure back toward the end of the reporting period, which was helpful.
During the reporting period, which countries were significant contributors to the Fund’s performance and which countries were weak?
We favored solid credits such as Brazil and Russia. Although U.S. dollar-denominated Brazilian sovereign debt securities appeared fully valued, we maintained an overweight to the country through holdings of local-currency, quasi-sovereign and corporate bonds. Russian prospects continued to improve with strong oil prices. Within the country, we favored quasi-sovereign names such as Gazprom, the largest extractor of natural gas in the world. During the reporting period, the Fund’s Brazilian and Russian holdings contributed positively to the Fund’s absolute performance. The Fund’s positions in Turkey and Argentina detracted from absolute performance.
During the reporting period, which sectors or securities made the strongest contributions to the Fund’s performance and which sectors made the weakest contributions?
Positions in Brazil and Russia made the strongest contributions to the Fund’s absolute performance. The Fund’s foreign currency exposure detracted from performance. By lowering the Fund’s exposure to foreign currency, however, we were able to reduce the negative effects. The Fund’s overweight position in credit was the largest detractor on both an absolute and relative basis, followed by the Fund’s slight underweight position in interest-rate risk.
Did the Fund make any significant purchases or sales during the reporting period?
We reduced the Fund’s exposure to Indonesian and Russian bonds during the reporting period, as spreads7 tightened toward what we considered to be fair value. As part of our effort to decrease the Fund’s foreign currency exposure, we slightly increased exposure to U.S. corporate debt. During the reporting period, we found the spreads on debt of the Cayman Islands compelling, and we increased the Fund’s exposure to that por-tion of the market.
How did the Fund’s country or sector weightings change during the reporting period?
The Fund began the reporting period with an overweight pos-ition relative to the JPMorgan EMBI Global Diversified Index in quasi-sovereign and corporate bonds. During the second half of the reporting period, we trimmed the Fund’s corporate bond holdings, but remained overweight relative to the benchmark. During the reporting period, we reduced the Fund’s exposure to Indonesian and Russian bonds and increased exposure to U.S. corporate bonds and to Cayman Islands debt. Increasing exposure to U.S. dollar denominated securities helped us reduce the Fund’s foreign currency exposure to approximately 10% of the Fund’s net assets.
How was the Fund positioned at the end of the reporting period?
As of October 31, 2011, the Fund maintained overweight positions relative to the JPMorgan EMBI Global Diversified Index in the United States, Korea and the Cayman Islands. As of the same date, the Fund was underweight relative to the benchmark in Poland, Malaysia and Hungary. Though we trimmed the Fund’s exposure to corporate bonds and foreign currency, the Fund was overweight in both at the end of the reporting period. Because of the Fund’s overweight in corporate bonds, the Fund was underweight in sovereign bonds.
7. 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 opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
10 MainStay Global High Income Fund
Table of Contents
Portfolio of Investments††† October 31, 2011
Principal | ||||||||
Amount | Value | |||||||
Long-Term Bonds 94.1%† Corporate Bonds 26.0% | ||||||||
Bermuda 0.5% | ||||||||
CITIC Resources Finance, Ltd. 6.75%, due 5/15/14 (a) | $ | 1,475,000 | $ | 1,467,625 | ||||
Brazil 1.2% | ||||||||
CSN Resources S.A. 6.50%, due 7/21/20 (a) | 1,500,000 | 1,608,750 | ||||||
Itau Unibanco Holding S.A. 6.20%, due 4/15/20 (a) | 2,000,000 | 2,040,000 | ||||||
3,648,750 | ||||||||
Cayman Islands 2.6% | ||||||||
Braskem Finance, Ltd. 7.00%, due 5/7/20 (a) | 1,500,000 | 1,620,000 | ||||||
CCL Finance, Ltd. 9.50%, due 8/15/14 (a) | 2,500,000 | 2,812,500 | ||||||
Independencia International, Ltd. Series Reg S 12.00%, due 12/30/16 (b)(c)(d) | 224,111 | 280 | ||||||
Odebrecht Finance, Ltd. 6.00%, due 4/5/23 (a) | 500,000 | 502,000 | ||||||
7.00%, due 4/21/20 (a) | 3,000,000 | 3,210,000 | ||||||
8,144,780 | ||||||||
Chile 1.0% | ||||||||
Inversiones CMPC S.A. 4.75%, due 1/19/18 (a) | 3,000,000 | 3,129,201 | ||||||
Colombia 1.2% | ||||||||
Ecopetrol S.A. 7.625%, due 7/23/19 | 3,000,000 | 3,579,000 | ||||||
France 1.0% | ||||||||
Societe Generale S.A. 5.75%, due 3/29/49 (e) | £ | 2,175,000 | 3,007,578 | |||||
Jamaica 2.8% | ||||||||
X KazMunaiGaz Finance Sub B.V. 11.75%, due 1/23/15 (a) | $ | 7,000,000 | 8,505,000 | |||||
Luxembourg 2.9% | ||||||||
ALROSA Finance S.A. 7.75%, due 11/3/20 (a) | 1,500,000 | 1,554,375 | ||||||
Gaz Capital S.A. for Gazprom Series Reg S 9.25%, due 4/23/19 | 6,000,000 | 7,432,800 | ||||||
8,987,175 | ||||||||
Mexico 1.4% | ||||||||
Controladora Mabe S.A. C.V. 7.875%, due 10/28/19 (a) | 1,600,000 | 1,600,000 | ||||||
7.875%, due 10/28/19 | 1,160,000 | 1,160,000 | ||||||
Grupo Petrotemex S.A. de C.V. 9.50%, due 8/19/14 (a) | 1,500,000 | 1,582,500 | ||||||
4,342,500 | ||||||||
Netherlands 3.9% | ||||||||
Lukoil International Finance B.V. 7.25%, due 11/5/19 (a) | 2,000,000 | 2,182,500 | ||||||
X Majapahit Holding B.V. 8.00%, due 8/7/19 (a) | 8,300,000 | 9,752,500 | ||||||
�� | 11,935,000 | |||||||
Qatar 1.4% | ||||||||
Qatari Diar Finance QSC 5.00%, due 7/21/20 (a) | 4,000,000 | 4,285,000 | ||||||
Republic of Korea 0.6% | ||||||||
National Agricultural Cooperative Federation 3.50%, due 2/8/17 (a) | 2,000,000 | 1,956,586 | ||||||
Russia 0.7% | ||||||||
Novatek Finance, Ltd. 6.604%, due 2/3/21 (a) | 2,000,000 | 2,082,500 | ||||||
Trinidad And Tobago 1.1% | ||||||||
Petroleum Co. of Trinidad & Tobago, Ltd. 9.75%, due 8/14/19 (a) | 2,840,000 | 3,302,267 | ||||||
United Arab Emirates 1.1% | ||||||||
Abu Dhabi National Energy Co. 6.25%, due 9/16/19 (a) | 3,000,000 | 3,322,500 | ||||||
United States 2.6% | ||||||||
AES Corp. (The) 8.00%, due 10/15/17 | 3,000,000 | 3,292,500 | ||||||
AgriBank FCB 9.125%, due 7/15/19 | 2,300,000 | 2,980,306 |
† | Percentages indicated are based on Fund net assets. |
X | Among the Fund’s 10 largest issuers held, as of October 31, 2011, excluding short-term investment. May be subject to change daily. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 11 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
United States (continued) | ||||||||
Frontier Communications Corp. 8.75%, due 4/15/22 | $ | 1,500,000 | $ | 1,590,000 | ||||
7,862,806 | ||||||||
Total Corporate Bonds (Cost $76,374,319) | 79,558,268 | |||||||
Government & Federal Agencies 68.1% | ||||||||
Argentina 2.6% | ||||||||
Republic of Argentina 2.50%, due 12/31/38 | 17,360,000 | 6,466,600 | ||||||
8.28%, due 12/31/33 | 1,975,917 | 1,551,095 | ||||||
8,017,695 | ||||||||
Barbados 0.7% | ||||||||
Barbados Government 7.00%, due 8/4/22 (a) | 2,000,000 | 2,010,000 | ||||||
Belize 0.5% | ||||||||
Belize Government Series Reg S 6.00%, due 2/20/29 | 2,500,000 | 1,500,000 | ||||||
Bermuda 1.4% | ||||||||
Government of Bermuda 5.603%, due 7/20/20 (a) | 4,000,000 | 4,405,720 | ||||||
Brazil 3.1% | ||||||||
Brazil Notas do Tesouro Nacional Series F 10.00%, due 1/1/14 | B$ | 10,210,000 | 6,047,435 | |||||
Federal Republic of Brazil 4.875%, due 1/22/21 | $ | 3,000,000 | 3,313,500 | |||||
9,360,935 | ||||||||
Cayman Islands 4.0% | ||||||||
Banco Bradesco S.A. 5.90%, due 1/16/21 (a) | 3,000,000 | 3,030,000 | ||||||
X Government of the Cayman Islands 5.95%, due 11/24/19 (a) | 8,800,000 | 9,200,198 | ||||||
12,230,198 | ||||||||
Chile 0.7% | ||||||||
Empresa Nacional del Petroleo 5.25%, due 8/10/20 (a) | 2,000,000 | 2,103,858 | ||||||
Colombia 3.2% | ||||||||
X Republic of Colombia 4.375%, due 7/12/21 | 9,500,000 | 9,927,500 | ||||||
Croatia 0.8% | ||||||||
Republic of Croatia 6.375%, due 3/24/21 (a) | 1,000,000 | 977,526 | ||||||
6.625%, due 7/14/20 (a) | 1,500,000 | 1,479,375 | ||||||
2,456,901 | ||||||||
Dominican Republic 1.2% | ||||||||
Dominican Republic Series Reg S 7.50%, due 5/6/21 | 3,500,000 | 3,633,000 | ||||||
El Salvador 2.4% | ||||||||
Republic of El Salvador | ||||||||
Series Reg S 7.375%, due 12/1/19 (a) | 3,000,000 | 3,270,000 | ||||||
7.65%, due 6/15/35 | 2,450,000 | 2,474,500 | ||||||
8.25%, due 4/10/32 (a) | 1,550,000 | 1,689,500 | ||||||
7,434,000 | ||||||||
Gabon 0.8% | ||||||||
Gabonese Republic 8.20%, due 12/12/17 (a) | 2,200,000 | 2,530,000 | ||||||
Ghana 0.9% | ||||||||
Republic of Ghana Series Reg S 8.50%, due 10/4/17 | 2,500,000 | 2,800,000 | ||||||
Indonesia 3.6% | ||||||||
X Republic of Indonesia | ||||||||
4.875%, due 5/5/21 (a) | 8,000,000 | 8,580,000 | ||||||
6.625%, due 2/17/37 (a) | 2,000,000 | 2,415,000 | ||||||
10,995,000 | ||||||||
Ivory Coast 0.9% | ||||||||
Ivory Coast Government International Bond 2.50%, due 12/31/32 (a)(b) | 5,000,000 | 2,712,500 | ||||||
Jamaica 0.2% | ||||||||
Jamaica Government 8.00%, due 6/24/19 | 650,000 | 666,250 | ||||||
The notes to the financial statements are an integral part of,
12 MainStay Global High Income Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Government & Federal Agencies (continued) | ||||||||
Lebanon 2.2% | ||||||||
Lebanon Government International Bond Series Reg S 6.00%, due 5/20/19 | $ | 6,500,000 | $ | 6,695,000 | ||||
Lithuania 1.2% | ||||||||
Republic of Lithuania 5.125%, due 9/14/17 (a) | 3,500,000 | 3,517,500 | ||||||
Mexico 3.3% | ||||||||
Petroleos Mexicanos 6.50%, due 6/2/41 (a) | 1,000,000 | 1,072,500 | ||||||
X United Mexican States 7.25%, due 12/15/16 | M$ | 111,250,000 | 9,153,170 | |||||
10,225,670 | ||||||||
Netherlands 0.5% | ||||||||
Kazakhstan Temir Zholy Finance B.V. 6.375%, due 10/6/20 (a) | $ | 1,000,000 | 1,051,250 | |||||
WPE International Cooperatief UA 10.375%, due 9/30/20 (a) | 500,000 | 450,250 | ||||||
1,501,500 | ||||||||
Nigeria 0.7% | ||||||||
Nigeria Government International Bond Series Reg S 6.75%, due 1/28/21 | 2,000,000 | 2,130,000 | ||||||
Panama 2.9% | ||||||||
X Republic of Panama | ||||||||
6.70%, due 1/26/36 | 3,058,000 | 3,860,725 | ||||||
9.375%, due 4/1/29 | 3,252,000 | 5,024,340 | ||||||
8,885,065 | ||||||||
Peru 2.6% | ||||||||
Republic of Peru 7.35%, due 7/21/25 | 6,000,000 | 7,830,000 | ||||||
Philippines 5.9% | ||||||||
X Republic of Philippines | ||||||||
4.00%, due 1/15/21 | 3,500,000 | 3,561,250 | ||||||
4.95%, due 1/15/21 | PHP | 100,000,000 | 2,257,535 | |||||
8.375%, due 6/17/19 | $ | 4,000,000 | 5,215,000 | |||||
9.50%, due 2/2/30 | 4,660,000 | 7,112,325 | ||||||
18,146,110 | ||||||||
Republic of Korea 2.3% | ||||||||
Export-Import Bank of Korea 4.375%, due 9/15/21 | 2,000,000 | 1,999,908 | ||||||
Korea Housing Finance Corp. 3.50%, due 12/15/16 (a) | 5,000,000 | 5,067,865 | ||||||
7,067,773 | ||||||||
Senegal 0.4% | ||||||||
Republic of Senegal 8.75%, due 5/13/21 (a) | 1,250,000 | 1,287,500 | ||||||
South Africa 2.7% | ||||||||
Eskom Holdings, Ltd. 5.75%, due 1/26/21 (a) | 2,500,000 | 2,637,500 | ||||||
Republic of South Africa 5.50%, due 3/9/20 | 5,000,000 | 5,562,500 | ||||||
8,200,000 | ||||||||
Sri Lanka 1.0% | ||||||||
Republic of Sri Lanka 6.25%, due 10/4/20 (a) | 3,000,000 | 3,037,500 | ||||||
Thailand 1.2% | ||||||||
Bangkok Bank PCL 4.80%, due 10/18/20 (a) | 3,750,000 | 3,663,236 | ||||||
Turkey 5.4% | ||||||||
X Republic of Turkey | ||||||||
5.125%, due 3/25/22 | 1,800,000 | 1,802,250 | ||||||
6.00%, due 1/14/41 | 5,000,000 | 4,968,750 | ||||||
7.375%, due 2/5/25 | 6,225,000 | 7,392,187 | ||||||
16.00%, due 3/7/12 | YTL | 4,050,000 | 2,336,010 | |||||
16,499,197 | ||||||||
Ukraine 2.5% | ||||||||
Financing of Inrastrucural Projects State Enterprise 8.375%, due 11/3/17 (a) | $ | 2,000,000 | 1,840,000 | |||||
Ukraine Government 7.65%, due 6/11/13 (a) | 3,000,000 | 2,955,000 | ||||||
7.75%, due 9/23/20 (a) | 3,000,000 | 2,872,500 | ||||||
7,667,500 | ||||||||
Uruguay 1.7% | ||||||||
Republic of Uruguay 8.00%, due 11/18/22 | 4,000,000 | 5,300,000 | ||||||
Venezuela 3.9% | ||||||||
X Republic of Venezuela | ||||||||
6.00%, due 12/9/20 | 7,800,000 | 4,660,500 | ||||||
Series Reg S 9.25%, due 5/7/28 | 11,095,000 | 7,378,175 | ||||||
12,038,675 | ||||||||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 13 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Government & Federal Agencies (continued) | ||||||||
Vietnam 0.7% | ||||||||
Socialist Republic of Vietnam 6.75%, due 1/29/20 (a) | $ | 2,000,000 | $ | 2,020,000 | ||||
Total Government & Federal Agencies (Cost $198,276,054) | 208,495,783 | |||||||
Total Long-Term Bonds (Cost $274,650,373) | 288,054,051 | |||||||
Short-Term Investment 4.9% | ||||||||
Repurchase Agreement 4.9% | ||||||||
State Street Bank and Trust Co. 0.01%, dated 10/31/11 due 11/1/11 Proceeds at Maturity $14,840,461 (Collateralized by a Federal Home Loan Mortgage Corp. security with a rate of 0.90% and a maturity date of 9/12/14, with a Principal Amount of $15,110,000 and a Market Value of $15,140,447) | 14,840,457 | 14,840,457 | ||||||
Total Short-Term Investment (Cost $14,840,457) | 14,840,457 | |||||||
Total Investments (Cost $289,490,830) (f) | 99.0 | % | 302,894,508 | |||||
Other Assets, Less Liabilities | 1.0 | 3,155,428 | ||||||
Net Assets | 100.0 | % | $ | 306,049,936 | ||||
††† | On a daily basis New York Life Investments confirms that the value of the Fund’s liquid assets (liquid portfolio securities and cash) is sufficient to cover its potential senior securities (e.g., futures, swaps, options). | |
(a) | May be sold to institutional investors only under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended. | |
(b) | Issue in default. | |
(c) | Illiquid security—The total market value of this security at October 31, 2011 is $280, which represents less than one-tenth of a percent of the Fund’s net assets. | |
(d) | Fair valued security—The total market value of this security at October 31, 2011 is $280, which represents less than one-tenth of a percent of the Fund’s net assets. | |
(e) | Floating rate—Rate shown is the rate in effect at October 31, 2011. | |
(f) | At October 31, 2011, cost is $289,490,830 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 17,817,625 | ||
Gross unrealized depreciation | (4,413,947 | ) | ||
Net unrealized appreciation | $ | 13,403,678 | ||
The following abbreviations are used in the above portfolio:
£—British Pound Sterling
B$—Brazilian Real
M$—Mexican Peso
PHP—Philippine Peso
YTL—Turkish Lira
At October 31, 2011, the Fund held the following credit default swap contracts:
(Pay)/ | Upfront | ||||||||||||||||||||||||||||||
Notional | Receive | Premiums | Unrealized | ||||||||||||||||||||||||||||
Reference | Termination | Buy/Sell | Amount | Fixed | (Received)/ | Appreciation | |||||||||||||||||||||||||
Entity | Counterparty | Date | Protection1 | (000)2 | Rate3 | Paid | Value | (Depreciation)4 | |||||||||||||||||||||||
Republic of France 4.25%, due 4/25/19 | Credit Suisse First Boston | 12/20/16 | Buy | $ | 6,450 | (0.25)% | $ | 504,640 | $ | 451,038 | $ | (53,602) | |||||||||||||||||||
1 | Buy—Fund pays premium and buys credit protection. If a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. | |
Sell—Fund receives premium and sells credit protection. If a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. | ||
2 | The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap contract. | |
3 | The annual fixed rate represents the interest received by the Fund (as a seller of protection) or paid by the Fund (as a buyer of protection) annually on the notional amount of the credit default swap contract. | |
4 | Represents the difference between the value of the credit default swap contract at the time they were opened and the value at October 31, 2011. |
The notes to the financial statements are an integral part of,
14 MainStay Global High Income Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
The following is a summary of the fair valuations according to the inputs used as of October 31, 2011, for valuing the Fund’s assets and liabilities.
Asset Valuation Inputs
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Long-Term Bonds | ||||||||||||||||
Corporate Bonds (b) | $ | — | $ | 79,557,988 | $ | 280 | $ | 79,558,268 | ||||||||
Government & Federal Agencies | — | 208,495,783 | — | 208,495,783 | ||||||||||||
Total Long-Term Bonds | — | 288,053,771 | 280 | 288,054,051 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 14,840,457 | — | 14,840,457 | ||||||||||||
Total Investments in Securities | — | 302,894,228 | 280 | 302,894,508 | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Foreign Currency Forward Contracts (c) | — | 282,989 | — | 282,989 | ||||||||||||
Total Investments in Securities and Other Financial Instruments | $ | — | $ | 303,177,217 | $ | 280 | $ | 303,177,497 | ||||||||
Liability Valuation Inputs
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Credit Default Swap Contracts (d) | $ | — | $ | (53,602 | ) | $ | — | $ | (53,602 | ) | ||||||
Foreign Currency Forward Contracts (c) | — | (182,105 | ) | — | (182,105 | ) | ||||||||||
Total Other Financial Instruments | $ | — | $ | (235,707 | ) | $ | — | $ | (235,707 | ) | ||||||
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The Level 3 security valued at $280 is held in Cayman Islands within the Corporate Bonds section of the Portfolio of Investments. |
(c) | The value listed for these securities reflects unrealized appreciation (depreciation) as shown on the table of foreign currency forward contracts. (See Note 5) |
(d) | The value listed for these securities reflects unrealized appreciation (depreciation) as shown on the table of credit default swap contracts. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended October 31, 2011, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
Change in | ||||||||||||||||||||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||||||||||||||||||
Appreciation | ||||||||||||||||||||||||||||||||||||||||
(Depreciation) | ||||||||||||||||||||||||||||||||||||||||
from | ||||||||||||||||||||||||||||||||||||||||
Balance | Change in | Balance | Investments | |||||||||||||||||||||||||||||||||||||
as of | Accrued | Realized | Unrealized | Transfers | Transfers | as of | Still Held at | |||||||||||||||||||||||||||||||||
October 31, | Discounts | Gain | Appreciation | in to | out of | October 31, | October 31, | |||||||||||||||||||||||||||||||||
Investments in Securities | 2010 | (Premiums) | (Loss) | (Depreciation) | Purchases | Sales | Level 3 | Level 3 | 2011 | 2011 (a) | ||||||||||||||||||||||||||||||
Long-Term Bonds | ||||||||||||||||||||||||||||||||||||||||
Corporate Bonds | ||||||||||||||||||||||||||||||||||||||||
Cayman Islands | $ | — | $ | (4,123 | ) | $ | — | $ | (2,321 | ) | $ | — | $ | — | $ | 6,724 | $ | — | $ | 280 | $ | (2,321 | ) | |||||||||||||||||
Total | $ | — | $ | (4,123 | ) | $ | — | $ | (2,321 | ) | $ | — | $ | — | $ | 6,724 | $ | — | $ | 280 | $ | (2,321 | ) | |||||||||||||||||
(a) | Included in “Net change in unrealized appreciation (depreciation) on investments” in the Statement of Operations. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 15 |
Table of Contents
Statement of Assets and Liabilities as of October 31, 2011
Assets | ||||
Investment in securities, at value (identified cost $289,490,830) | $ | 302,894,508 | ||
Cash denominated in foreign currencies (identified cost $715,081) | 727,658 | |||
Receivables: | ||||
Interest | 5,049,164 | |||
Fund shares sold | 962,430 | |||
Investment securities sold | 560,566 | |||
Premiums paid for swap contracts | 504,640 | |||
Other assets | 42,034 | |||
Unrealized appreciation on foreign currency forward contracts | 282,989 | |||
Total assets | 311,023,989 | |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 3,130,107 | |||
Fund shares redeemed | 783,078 | |||
Manager (See Note 3) | 182,297 | |||
NYLIFE Distributors (See Note 3) | 119,591 | |||
Transfer agent (See Note 3) | 98,220 | |||
Shareholder communication | 35,716 | |||
Professional fees | 17,447 | |||
Custodian | 1,767 | |||
Trustees | 1,309 | |||
Accrued expenses | 4,682 | |||
Dividend payable | 364,132 | |||
Unrealized depreciation on foreign currency forward contracts | 182,105 | |||
Unrealized depreciation on swap contracts | 53,602 | |||
Total liabilities | 4,974,053 | |||
Net assets | $ | 306,049,936 | ||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 259,579 | ||
Additional paid-in capital | 284,067,836 | |||
284,327,415 | ||||
Distributions in excess of net investment income | (175,816 | ) | ||
Accumulated net realized gain (loss) on investments, futures transactions, swap transactions and foreign currency transactions | 8,444,483 | |||
Net unrealized appreciation (depreciation) on investments and swap contracts | 13,350,076 | |||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | 103,778 | |||
Net assets | $ | 306,049,936 | ||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 23,439,126 | ||
Shares of beneficial interest outstanding | 1,968,854 | |||
Net asset value per share outstanding | $ | 11.90 | ||
Maximum sales charge (4.50% of offering price) | 0.56 | |||
Maximum offering price per share outstanding | $ | 12.46 | ||
Class A | ||||
Net assets applicable to outstanding shares | $ | 144,271,642 | ||
Shares of beneficial interest outstanding | 12,195,216 | |||
Net asset value per share outstanding | $ | 11.83 | ||
Maximum sales charge (4.50% of offering price) | 0.56 | |||
Maximum offering price per share outstanding | $ | 12.39 | ||
Class B | ||||
Net assets applicable to outstanding shares | $ | 21,960,899 | ||
Shares of beneficial interest outstanding | 1,879,562 | |||
Net asset value and offering price per share outstanding | $ | 11.68 | ||
Class C | ||||
Net assets applicable to outstanding shares | $ | 80,351,139 | ||
Shares of beneficial interest outstanding | 6,871,087 | |||
Net asset value and offering price per share outstanding | $ | 11.69 | ||
Class I | ||||
Net assets applicable to outstanding shares | $ | 36,027,130 | ||
Shares of beneficial interest outstanding | 3,043,135 | |||
Net asset value and offering price per share outstanding | $ | 11.84 | ||
The notes to the financial statements are an integral part of,
16 MainStay Global High Income Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statement of Operations for the year ended October 31, 2011
Investment Income (Loss) | ||||
Income | ||||
Interest (a) | $ | 19,786,032 | ||
Expenses | ||||
Manager (See Note 3) | 2,269,891 | |||
Distribution/Service—Investor Class (See Note 3) | 55,577 | |||
Distribution/Service—Class A (See Note 3) | 363,935 | |||
Distribution/Service—Class B (See Note 3) | 244,742 | |||
Distribution/Service—Class C (See Note 3) | 830,188 | |||
Transfer agent (See Note 3) | 596,170 | |||
Registration | 107,922 | |||
Shareholder communication | 85,183 | |||
Professional fees | 73,739 | |||
Custodian | 45,859 | |||
Trustees | 8,600 | |||
Miscellaneous | 15,544 | |||
Total expenses | 4,697,350 | |||
Net investment income (loss) | 15,088,682 | |||
Realized and Unrealized Gain (Loss) on Investments, Swap Contracts and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Security transactions | 7,782,075 | |||
Futures transactions | (133,572 | ) | ||
Swap transactions | 697,967 | |||
Foreign currency transactions | 545,457 | |||
Net realized gain (loss) on investments, swap transactions, futures transactions and foreign currency transactions | 8,891,927 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (20,348,905 | ) | ||
Swap contracts | (53,602 | ) | ||
Futures contracts | 43,900 | |||
Translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | 316,489 | |||
Net change in unrealized appreciation (depreciation) on investments, swap contracts, futures contracts and foreign currency transactions | (20,042,118 | ) | ||
Net realized and unrealized gain (loss) on investments, futures transactions, swap transactions and foreign currency transactions | (11,150,191 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | 3,938,491 | ||
(a) | Interest recorded net of foreign withholding taxes in the amount of $17,470. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 17 |
Table of Contents
Statements of Changes in Net Assets
for the years ended October 31, 2011 and October 31, 2010
2011 | 2010 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 15,088,682 | $ | 15,031,541 | ||||
Net realized gain (loss) on investments, futures transactions, swap transactions and foreign currency transactions | 8,891,927 | 12,845,068 | ||||||
Net change in unrealized appreciation (depreciation) on investments, futures contracts, swap contracts and foreign currency transactions | (20,042,118 | ) | 20,204,236 | |||||
Net increase (decrease) in net assets resulting from operations | 3,938,491 | 48,080,845 | ||||||
Dividends and distributions to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (1,173,686 | ) | (1,167,322 | ) | ||||
Class A | (7,882,513 | ) | (8,356,113 | ) | ||||
Class B | (1,135,158 | ) | (1,407,051 | ) | ||||
Class C | (3,844,514 | ) | (3,873,710 | ) | ||||
Class I | (2,356,918 | ) | (1,561,687 | ) | ||||
(16,392,789 | ) | (16,365,883 | ) | |||||
From net realized gain on investments: | ||||||||
Investor Class | (291,094 | ) | — | |||||
Class A | (2,027,880 | ) | — | |||||
Class B | (351,875 | ) | — | |||||
Class C | (1,164,949 | ) | — | |||||
Class I | (693,290 | ) | — | |||||
(4,529,088 | ) | — | ||||||
Total dividends and distributions to shareholders | (20,921,877 | ) | (16,365,883 | ) | ||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 97,940,571 | 158,458,944 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 13,660,011 | 10,080,950 | ||||||
Cost of shares redeemed | (137,334,007 | ) | (75,554,151 | ) | ||||
Increase (decrease) in net assets derived from capital share transactions | (25,733,425 | ) | 92,985,743 | |||||
Net increase (decrease) in net assets | (42,716,811 | ) | 124,700,705 | |||||
Net Assets | ||||||||
Beginning of year | 348,766,747 | 224,066,042 | ||||||
End of year | $ | 306,049,936 | $ | 348,766,747 | ||||
Undistributed (distributions in excess of) net investment income at end of year | $ | (175,816 | ) | $ | 1,011,637 | |||
The notes to the financial statements are an integral part of,
18 MainStay Global High Income Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Investor Class | ||||||||||||||||||
February 28, | ||||||||||||||||||
2008** | ||||||||||||||||||
through | ||||||||||||||||||
Year ended October 31, | October 31, | |||||||||||||||||
2011 | 2010 | 2009 | 2008 | |||||||||||||||
Net asset value at beginning of period | $ | 12.49 | $ | 11.16 | $ | 8.07 | $ | 11.27 | ||||||||||
Net investment income (loss) (a) | 0.59 | 0.66 | 0.65 | 0.42 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.41 | ) | 1.33 | 3.00 | (3.23 | ) | ||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.03 | 0.05 | 0.13 | 0.02 | ||||||||||||||
Total from investment operations | 0.21 | 2.04 | 3.78 | (2.79 | ) | |||||||||||||
Less dividends and distributions: | ||||||||||||||||||
From net investment income | (0.64 | ) | (0.71 | ) | (0.69 | ) | (0.41 | ) | ||||||||||
From net realized gain on investments | (0.16 | ) | — | — | — | |||||||||||||
Total dividends and distributions | (0.80 | ) | (0.71 | ) | (0.69 | ) | (0.41 | ) | ||||||||||
Net asset value at end of period | $ | 11.90 | $ | 12.49 | $ | 11.16 | $ | 8.07 | ||||||||||
Total investment return (b) | 1.94 | % | 18.95 | % | 48.62 | % | (25.54 | %)(c) | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||
Net investment income (loss) | 4.93 | % | 5.65 | % | 6.69 | % | 5.79 | % †† | ||||||||||
Net expenses | 1.32 | % | 1.37 | % | 1.49 | % | 1.50 | % †† | ||||||||||
Expenses (before waiver/reimbursement) | 1.32 | % | 1.37 | % | 1.57 | % | 1.53 | % †† | ||||||||||
Portfolio turnover rate | 65 | % | 92 | % | 133 | % | 55 | % | ||||||||||
Net assets at end of period (in 000’s) | $ | 23,439 | $ | 21,834 | $ | 17,581 | $ | 12,662 |
** | 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. | |
(c) | Total investment return is not annualized. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 19 |
Table of Contents
Financial Highlights selected per share data and ratios
Class A | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 12.42 | $ | 11.09 | $ | 8.02 | $ | 11.81 | $ | 11.82 | ||||||||||||
Net investment income (loss) (a) | 0.60 | 0.67 | 0.66 | 0.67 | 0.67 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.41 | ) | 1.33 | 2.99 | (3.59 | ) | 0.24 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.03 | 0.05 | 0.12 | 0.02 | 0.01 | |||||||||||||||||
Total from investment operations | 0.22 | 2.05 | 3.77 | (2.90 | ) | 0.92 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.65 | ) | (0.72 | ) | (0.70 | ) | (0.66 | ) | (0.67 | ) | ||||||||||||
From net realized gain on investments | (0.16 | ) | — | — | (0.23 | ) | (0.26 | ) | ||||||||||||||
Total dividends and distributions | (0.81 | ) | (0.72 | ) | (0.70 | ) | (0.89 | ) | (0.93 | ) | ||||||||||||
Net asset value at end of year | $ | 11.83 | $ | 12.42 | $ | 11.09 | $ | 8.02 | $ | 11.81 | ||||||||||||
Total investment return (b) | 1.96 | % | 19.09 | % | 49.04 | % | (26.29 | %) | 8.11 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 5.03 | % | 5.77 | % | 6.77 | % | 6.08 | % | 5.70 | % | ||||||||||||
Net expenses | 1.22 | % | 1.25 | % | 1.32 | % | 1.34 | % | 1.40 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.22 | % | 1.25 | % | 1.40 | % | 1.37 | % | 1.37 | % | ||||||||||||
Portfolio turnover rate | 65 | % | 92 | % | 133 | % | 55 | % | 30 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 144,272 | $ | 159,834 | $ | 119,132 | $ | 59,843 | $ | 135,321 |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of,
20 MainStay Global High Income Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class B | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 12.28 | $ | 10.97 | $ | 7.94 | $ | 11.70 | $ | 11.72 | ||||||||||||
Net investment income (loss) (a) | 0.49 | 0.56 | 0.57 | 0.56 | 0.58 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.41 | ) | 1.32 | 2.96 | (3.54 | ) | 0.23 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.03 | 0.05 | 0.12 | 0.02 | 0.01 | |||||||||||||||||
Total from investment operations | 0.11 | 1.93 | 3.65 | (2.96 | ) | 0.82 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.55 | ) | (0.62 | ) | (0.62 | ) | (0.57 | ) | (0.58 | ) | ||||||||||||
From net realized gain on investments | (0.16 | ) | — | — | (0.23 | ) | (0.26 | ) | ||||||||||||||
Total dividends and distributions | (0.71 | ) | (0.62 | ) | (0.62 | ) | (0.80 | ) | (0.84 | ) | ||||||||||||
Net asset value at end of year | $ | 11.68 | $ | 12.28 | $ | 10.97 | $ | 7.94 | $ | 11.70 | ||||||||||||
Total investment return (b) | 1.13 | % | 18.11 | % | 47.69 | % | (26.92 | %) | 7.28 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 4.18 | % | 4.90 | % | 5.98 | % | 5.21 | % | 4.95 | % | ||||||||||||
Net expenses | 2.07 | % | 2.12 | % | 2.24 | % | 2.20 | % | 2.15 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 2.07 | % | 2.12 | % | 2.32 | % | 2.19 | % | 2.12 | % | ||||||||||||
Portfolio turnover rate | 65 | % | 92 | % | 133 | % | 55 | % | 30 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 21,961 | $ | 27,314 | $ | 25,651 | $ | 21,006 | $ | 37,913 |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 21 |
Table of Contents
Financial Highlights selected per share data and ratios
Class C | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 12.29 | $ | 10.98 | $ | 7.95 | $ | 11.70 | $ | 11.72 | ||||||||||||
Net investment income (loss) (a) | 0.49 | 0.56 | 0.56 | 0.57 | 0.58 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.41 | ) | 1.32 | 2.97 | (3.54 | ) | 0.23 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.03 | 0.05 | 0.12 | 0.02 | 0.01 | |||||||||||||||||
Total from investment operations | 0.11 | 1.93 | 3.65 | (2.95 | ) | 0.82 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.55 | ) | (0.62 | ) | (0.62 | ) | (0.57 | ) | (0.58 | ) | ||||||||||||
From net realized gain on investments | (0.16 | ) | — | — | (0.23 | ) | (0.26 | ) | ||||||||||||||
Total dividends and distributions | (0.71 | ) | (0.62 | ) | (0.62 | ) | (0.80 | ) | (0.84 | ) | ||||||||||||
Net asset value at end of year | $ | 11.69 | $ | 12.29 | $ | 10.98 | $ | 7.95 | $ | 11.70 | ||||||||||||
Total investment return (b) | 1.13 | % | 18.20 | % | 47.50 | % | (26.83 | %) | 7.28 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 4.18 | % | 4.89 | % | 5.85 | % | 5.22 | % | 4.95 | % | ||||||||||||
Net expenses | 2.07 | % | 2.12 | % | 2.23 | % | 2.19 | % | 2.15 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 2.07 | % | 2.12 | % | 2.31 | % | 2.20 | % | 2.12 | % | ||||||||||||
Portfolio turnover rate | 65 | % | 92 | % | 133 | % | 55 | % | 30 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 80,351 | $ | 87,597 | $ | 57,731 | $ | 27,377 | $ | 45,786 |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of,
22 MainStay Global High Income Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class I | ||||||||||||||||||||||
August 31, | ||||||||||||||||||||||
2007** | ||||||||||||||||||||||
through | ||||||||||||||||||||||
Year ended October 31, | October 31, | |||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of period | $ | 12.43 | $ | 11.10 | $ | 8.02 | $ | 11.81 | $ | 11.26 | ||||||||||||
Net investment income (loss) (a) | 0.63 | 0.69 | 0.66 | 0.69 | 0.11 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.41 | ) | 1.34 | 3.01 | (3.58 | ) | 0.52 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.03 | 0.05 | 0.13 | 0.02 | 0.04 | |||||||||||||||||
Total from investment operations | 0.25 | 2.08 | 3.80 | (2.87 | ) | 0.67 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.68 | ) | (0.75 | ) | (0.72 | ) | (0.69 | ) | (0.12 | ) | ||||||||||||
From net realized gain on investments | (0.16 | ) | — | — | (0.23 | ) | — | |||||||||||||||
Total dividends and distributions | (0.84 | ) | (0.75 | ) | (0.72 | ) | (0.92 | ) | (0.12 | ) | ||||||||||||
Net asset value at end of period | $ | 11.84 | $ | 12.43 | $ | 11.10 | $ | 8.02 | $ | 11.81 | ||||||||||||
Total investment return (b) | 2.22 | % | 19.48 | % | 49.31 | % | (26.11 | %) | 5.95 | % (c) | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 5.31 | % | 5.89 | % | 6.32 | % | 6.28 | % | 6.12 | %†† | ||||||||||||
Net expenses | 0.97 | % | 1.00 | % | 1.12 | % | 1.14 | % | 1.15 | %†† | ||||||||||||
Expenses (before reimbursement/waiver) | 0.97 | % | 1.00 | % | 1.12 | % | 1.15 | % | 0.99 | %†† | ||||||||||||
Portfolio turnover rate | 65 | % | 92 | % | 133 | % | 55 | % | 30 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 36,027 | $ | 52,188 | $ | 3,972 | $ | 27 | $ | 57 |
** | Commencement of operations. | |
†† | Annualized. | |
(a) | Per share data based on average shares outstanding during the period. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. | |
(c) | Total investment return is not annualized. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 23 |
Table of Contents
Notes to Financial Statements
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of fourteen funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay Global High Income Fund (the “Fund”), a non-diversified fund.
The Fund currently offers five classes of shares. Class A and Class B shares commenced operations on June 1, 1998. Class C shares commenced operations on September 1, 1998. Class I shares commenced operations on August 31, 2007. Investor Class shares commenced operations on February 28, 2008. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies on investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The five classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class and Class A shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I shares are not subject to a distribution and/or service fee.
The Fund’s investment objective is to seek to provide maximum current income by investing in high-yield debt securities of non-U.S. issuers. Capital appreciation is a secondary objective.
The Fund is “non-diversified,” which means that it may invest a greater percentage of its assets than diversified funds in a particular issuer. This may make it more susceptible than diversified funds to risks associated with an individual issuer, and to single economic, political or regulatory occurrences.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (usually 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are determined within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish 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 developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in determining the fair value of investments) |
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may utilize some of the following fair value techniques: multi-dimensional relational pricing models, option adjusted spread pricing and estimating the price that would have prevailed in a liquid market for an international equity security given information available at the time of evaluation, when there are significant events after the close of local foreign markets.
The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2011, there have been no changes to the fair value methodologies.
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The aggregate value by input level, as of October 31, 2011, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
Futures contracts are valued at the last posted settlement price on the market where such futures are primarily traded. Options contracts are valued at the last posted settlement price on the market where such options are principally traded. Investments in other mutual funds are valued at their 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 are valued at the evaluated bid prices supplied by a pricing agent or brokers selected by the Fund’s Manager (as defined in Note 3(A)) in consultation with the Fund’s Subadvisor (as defined in Note 3(A)) whose prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Fund’s Manager, in consultation with the Fund’s Subadvisor, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities, including corporate bonds, U.S. government & federal agency bonds, municipal bonds, foreign bonds, Yankee bonds, convertible bonds, asset-backed securities, and mortgage-backed securities, are generally categorized as Level 2 in the hierarchy.
Temporary cash investments acquired over 60 days prior to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of the difference between such cost and the value on maturity date. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not obtained from a quoted price in an active market. These securities are all generally categorized as Level 2 in the hierarchy.
Foreign currency forward contracts are valued at their fair market values determined on the basis of the mean between the last current bid and ask prices based on dealer or exchange quotations and are generally categorized as Level 2 in the hierarchy.
Credit default swaps are valued at prices supplied by a pricing agent or brokers selected by the Fund’s Manager in consultation with the Fund’s Subadvisor whose prices reflect broker/dealer supplied valuations and electronic data processing techniques. Swaps are marked-to-market daily and the change in value, if any, is recorded as unrealized appreciation or depreciation. These securities are generally categorized as Level 2 in the hierarchy.
Securities for which market quotations are not readily available are valued by methods deemed in good faith by the Fund’s Board to represent fair value. Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security the trading for which 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 the market price of which is not available from an independent pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor reflect the security’s market value; and (vi) a security where the trading on that security’s principal market is temporarily closed at a time when, under normal conditions, it would be open. These securities are generally categorized as Level 3 in the hierarchy. At October 31, 2011, the Fund held securities with a value of $280 that were fair valued in such a manner.
Certain events may occur between the time that foreign markets close, on which securities held by the Fund principally trade, and the time at which the Fund’s NAV is calculated. These events may include, but are not limited to, situations relating to a single issuer in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. Should the Manager or Subadvisor conclude that such events may have affected the accuracy of the last price reported on the local foreign market, the Manager or Subadvisor may, pursuant to procedures adopted by the Fund’s Board, adjust the value of the local price to reflect the 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, 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 the Fund’s policies and procedures and are generally categorized as Level 2 in the hierarchy. As of October 31, 2011, the Fund did not hold any foreign equity securities.
Generally, a security is considered illiquid if it cannot be sold or disposed of in the ordinary course of business at approximately the price at which it is valued. Its illiquidity might prevent the sale of such security at a time when the Manager or Subadvisor might wish to sell, and these securities could have the effect of decreasing the overall level of a Fund’s liquidity. Further, the lack of an established secondary market may make it more difficult to value illiquid securities, requiring the Fund to rely on judgments that may be somewhat subjective in determining value, which could vary from the amount that the Fund could realize upon disposition. Difficulty in selling illiquid securities may result in a loss or may be costly to the Fund. Under the supervision of the Board, the Manager or Subadvisor 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 generally will be valued in such manner as the Board in good faith deems appropriate to reflect their fair market value.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provision is required.
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Notes to Financial Statements (continued)
Investment income received by the Fund from foreign sources may be subject to foreign income taxes. These foreign income taxes are generally withheld at the source.
Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provision for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income monthly and distributions of net realized capital and currency gains, if any, annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(D) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Interest income is accrued as earned using the effective interest rate method. Discounts and premiums on securities purchased, other than Short-Term Investments, for the Fund are accreted and amortized, respectively, on the effective interest rate method over the life of the respective securities or, in the case of a callable security, over the period to the first date of call. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
(E) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(F) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(G) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisor to be creditworthy, pursuant to guidelines established by the Fund’s Board. Repurchase agreements are considered under the 1940 Act to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in such repurchase agreements. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default of 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, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(H) Futures Contracts. A futures contract is an agreement to purchase or sell a specified quantity of an underlying instrument at a specified future date and price, or to make or receive a cash payment based on the value of a financial instrument (e.g., foreign currency, interest rate, security, or securities index). The Fund is subject to equity price risk and interest rate risk in the normal course of investing in these transactions. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by “marking to market” such contract on a daily basis to reflect the market value of the contract at the end of each day’s trading. The Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as “variation margin.” When the futures contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract.
The use of futures contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract or notional amounts and variation margin reflect the extent of the Fund’s involvement in open futures positions. Risks arise from the possible imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets, and the possible inability of counterparties to meet the terms of their contracts. However, the Fund’s activities in futures contracts have minimal counterparty risk as they are conducted through regulated exchanges that guarantee the futures against default by the counterparty. In the event of a bankruptcy or insolvency of a broker that holds margin on behalf of the Fund, the Fund may not be entitled to the return of all of the margin owed to the Fund, potentially resulting in a loss. The Fund may also invest in futures contracts to help manage the duration and yield curve of the portfolio while minimizing the exposure to wider bid/ask spreads in traditional bonds. The Fund’s investment in futures contracts and other derivatives may increase the volatility of the Fund’s NAV and may result in a loss to
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the Fund. As of October 31, 2011, the Fund did not hold any futures contracts.
(I) Foreign Currency Forward Contracts. The Fund may enter into foreign currency forward contracts, which are agreements to buy or sell currencies of different countries on a specified future date at a specified rate. The Fund is subject to foreign currency exchange rate risk in the normal course of investing in these transactions. During the period the forward contract is open, changes in the value of the contract are recognized as unrealized gains or losses by “marking-to-market” such contract on a daily basis to reflect the market value of the contract at the end of each day’s trading. 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 enters into foreign currency forward contracts to reduce currency risk versus the benchmark or for trade settlement.
The use of foreign currency forward contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract amount reflects the extent of the Fund’s involvement in these financial instruments. Risks arise from the possible movements in the foreign exchange rates underlying these instruments. While the Fund may enter into forward contracts to reduce currency exchange risks, changes in currency exchange rates may result in poorer overall performance for the Fund than if it had not engaged in such transactions. Exchange rate movements can be large, depending on the currency, and can last for extended periods of time, affecting the value of the Fund’s assets. Moreover, there may be an imperfect correlation between the Fund’s holdings of securities denominated in a particular currency and the forward contracts entered into by the Fund. Such imperfect correlation may prevent the Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. The unrealized appreciation (depreciation) on forward contracts reflects the Fund’s exposure at valuation date to credit loss in the event of a counterparty’s failure to perform its obligations. (See Note 5)
(J) Foreign Currency Transactions. The books and records of the Fund are kept in U.S. dollars. Prices of securities denominated in foreign currency amounts are translated into U.S. dollars at the mean between the buying and selling exchange 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.
(K) Swap Contracts. The Fund may enter into credit default, interest rate, index and currency exchange rate contracts (“swaps”) for the purpose of attempting to obtain a desired return at a lower cost to the Fund, rather than directly investing in an instrument yielding that desired return or to hedge against credit risk. In a typical swap transaction, two parties agree to exchange the returns (or differentials in rates of returns) earned or realized on a particular investment or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a notional amount. The payments may be adjusted for transaction costs, interest payments, the amount of interest paid on the investment or instrument or other factors. Collateral, in the form of cash or securities, may be required to be held in segregated accounts with the custodian bank or broker in accordance with the swap.
Credit default swaps, in particular, are contracts whereby one party makes periodic payments to a counterparty in exchange for the right to receive a specified return in the event of a default by a third party on its obligation. Such periodic payments are accrued daily and recorded as a realized gain or loss. Credit default swaps may be used to provide a measure of protection against defaults of sovereign or corporate issuers.
Swaps are “marked-to-market” daily based upon quotations from pricing agents, brokers, or market makers and the change in value, if any, is recorded as unrealized appreciation or depreciation. Any payments made or received upon entering a swap would be amortized or accreted over the life of the swap and recorded as a realized gain or loss. Early termination of a swap is recorded as a realized gain or loss.
The Fund bears the risk of loss of the amount expected to be received under a swap in the event of the default or bankruptcy of the swap counterparty. The Fund may be able to eliminate its exposure under a swap either by assignment or other disposition, or by entering into an offsetting swap with the same party or a similar creditworthy party. Swaps are not actively traded on financial markets. Entering into swaps involves elements of credit, market, and documentation risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibilities that there will be no liquid market for these swaps, that the counterparty to the swaps may default on its obligation to perform or disagree as to the meaning of the contractual terms in the swaps and that there may be unfavorable changes in interest rates, the price of the index or the security underlying these transactions.
(L) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act, and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will
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Notes to Financial Statements (continued)
manage the Fund’s cash collateral in accordance with the Lending Agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue to receive interest and dividends on the securities loaned and any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the account of the Fund.
Although the Fund and New York Life Investments (as defined in Note 3(A)) have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund had no portfolio securities on loan as of October 31, 2011.
(M) Concentration of Risk. The Fund’s principal investments include high yield securities (sometimes called “junk bonds”), which are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities pay investors a premium—a high interest rate or yield—because of the increased risk of loss. These securities can also be subject to greater price volatility.
The Fund invests in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic instruments. These risks include those resulting from currency fluctuations, future adverse political and economic developments and possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. These risks are likely to be greater in emerging markets than in developed markets. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic or political developments in a specific country, industry or region.
(N) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
(O) Quantitative Disclosure of Derivative Holdings. The following tables show additional disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial positions, performance and cash flows. These derivatives are not accounted for as hedging instruments.
Fair value of derivatives as of October 31, 2011:
Asset Derivatives
Foreign | Interest | |||||||||||||||||
Statement of | Credit | Exchange | Rate | |||||||||||||||
Assets and Liabilities | Contracts | Contracts | Contracts | |||||||||||||||
Location | Risk | Risk | Risk | Total | ||||||||||||||
Forward Contracts | Unrealized appreciation (depreciation) on foreign currency forward contracts | $ | — | $ | 282,989 | $ | — | $ | 282,989 | |||||||||
Swap Contracts | Premiums paid for swap contracts | 504,640 | — | — | 504,640 | |||||||||||||
Total Fair Value | $ | 504,640 | $ | 282,989 | $ | — | $ | 787,629 | ||||||||||
Liability Derivatives
Foreign | Interest | |||||||||||||||||
Statement of | Credit | Exchange | Rate | |||||||||||||||
Assets and Liabilities | Contracts | Contracts | Contracts | |||||||||||||||
Location | Risk | Risk | Risk | Total | ||||||||||||||
Forward Contracts | Unrealized appreciation (depreciation) on foreign currency forward contracts | $ | — | $ | (182,105 | ) | $ | — | $ | (182,105 | ) | |||||||
Swap Contracts | Unrealized appreciation (depreciation) on swap contracts | (53,602 | ) | — | — | (53,602 | ) | |||||||||||
Total Fair Value | $ | (53,602 | ) | $ | (182,105 | ) | $ | — | $ | (235,707 | ) | |||||||
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The effect of derivative instruments on the Statement of Operations for the year ended October 31, 2011:
Realized Gain (Loss)
Foreign | Interest | |||||||||||||||||
Statement of | Credit | Exchange | Rate | |||||||||||||||
Operations | Contracts | Contracts | Contracts | |||||||||||||||
Location | Risk | Risk | Risk | Total | ||||||||||||||
Swap Contracts | Net realized gain (loss) on swap contracts | $ | 697,967 | $ | — | $ | — | $ | 697,967 | |||||||||
Futures Contracts | Net realized gain (loss) on futures transactions | — | — | (133,572 | ) | (133,572 | ) | |||||||||||
Forward Contracts | Net realized gain (loss) on foreign currency transactions | — | 606,813 | — | 606,813 | |||||||||||||
Total Realized Gain (Loss) | $ | 697,967 | $ | 606,813 | $ | — | $ | 1,171,208 | ||||||||||
Change in Unrealized Appreciation (Depreciation)
Foreign | Interest | |||||||||||||||||
Statement of | Credit | Exchange | Rate | |||||||||||||||
Operations | Contracts | Contracts | Contracts | |||||||||||||||
Location | Risk | Risk | Risk | Total | ||||||||||||||
Futures Contracts | Net change in unrealized appreciation (depreciation) on futures contracts | $ | — | $ | — | $ | 43,900 | $ | 43,900 | |||||||||
Swap Contracts | Net change in unrealized appreciation (depreciation) on swap contracts | (53,602 | ) | — | — | (53,602 | ) | |||||||||||
Forward Contracts | Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | — | 334,434 | — | 334,434 | |||||||||||||
Total Change in Unrealized Appreciation (Depreciation) | $ | (53,602 | ) | $ | 334,434 | $ | 43,900 | $ | 324,732 | |||||||||
Number of Contracts, Notional Amounts or Shares/Units (1)
Foreign | Interest | |||||||||||||||
Credit | Exchange | Rate | ||||||||||||||
Contracts | Contracts | Contract | ||||||||||||||
Risk | Risk | Risk | Total | |||||||||||||
Futures Contracts Short (2) | — | — | (21 | ) | (21 | ) | ||||||||||
Swap Contracts (3) | $ | 14,660,000 | — | — | $ | 14,660,000 | ||||||||||
Forward Contracts Long (3) | — | $ | 59,299,275 | — | $ | 59,299,275 | ||||||||||
Forward Contracts Short (3) | — | $ | (15,968,445 | ) | — | $ | (15,968,445 | ) | ||||||||
(1) | Amount disclosed represents the weighted average held during the year ended October 31, 2011. |
(2) | Amount(s) represent(s) number of contracts or number of shares/units. |
(3) | Amount(s) represent(s) notional amount. |
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), 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, including a portion of the total compensation of the Chief Compliance Officer (“CCO”) of the Fund which is the responsibility of all investment companies for which the CCO serves, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. MacKay Shields LLC (“MacKay Shields” or the “Subadvisor”), a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life, serves as Subadvisor to the Fund and is responsible for the day-to-day portfolio management of the Fund. Pursuant to the terms of an 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.
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Notes to Financial Statements (continued)
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.70% to $500 million and 0.65% in excess of $500 million, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement furnished at an annual rate of the Fund’s average net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. The effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.72% for the year ended October 31, 2011, inclusive of a fee for fund accounting services of 0.02% of the Fund’s average daily net assets.
The Manager had contractually agreed to waive fees and/or reimburse expenses so that Total Ordinary Operating Expenses for Class A shares did not exceed 1.35% of its average daily net assets. New York Life Investments agreed to apply an equivalent waiver or reimbursement, in an equal number of basis points, to the other share classes of the Fund. This agreement expired on February 28, 2011. Total Annual Fund Operating Expenses excludes taxes, interest, litigation, extraordinary expenses, brokerage and other transaction expenses relating to the purchase or sale of portfolio investments, and acquired (underlying) fund fees and expenses.
For the year ended October 31, 2011, New York Life Investments earned fees from the Fund in the amount of $2,269,891.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution and Service Fees. The Trust, on behalf of the Fund, has entered into a Distribution Agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class and Class A Plans, the Distributor receives a monthly distribution fee from the Investor Class and Class A shares at an annual rate of 0.25% of the average daily net assets of the Investor Class and Class A shares for distribution or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average daily net assets of the Class B and Class C shares along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 1.00%. Class I shares are not subject to a distribution or service fee.
The Plans provide that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund’s shares and service activities.
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $12,544 and $64,209, respectively, for the year ended October 31, 2011. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $8, $2,571, $36,825 and $17,581, respectively, for the year ended October 31, 2011.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2011, were as follows:
Investor Class | $ | 54,691 | ||
Class A | 217,368 | |||
Class B | 60,155 | |||
Class C | 204,102 | |||
Class I | 59,854 | |||
(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. At October 31, 2011, New York Life and its affiliates beneficially held shares of the Fund with the following values and percentages of net assets as follows:
Class A | $ | 7,056,285 | 4.9 | % | ||||
Class C | 435 | 0.0 | ‡ | |||||
Class I | 35,557 | 0.1 | ||||||
‡ | Less than one-tenth of a percent. |
(G) Other. Pursuant to a Legal Services Agreement, a portion of the cost of legal services provided to the Fund by the Office of the General Counsel of New York Life Investments was payable directly by the Fund through March 17, 2011. For the year ended October 31, 2011, these fees, which are included in professional fees shown on the Statement of Operations, were $4,875. Effective March 18, 2011, the Legal Services Agreement expired and was not renewed. Therefore, the Fund is no longer directly responsible for any portion of the cost of legal services.
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Note 4–Federal Income Tax
As of October 31, 2011, the components of accumulated gain (loss) on a tax basis were as follows:
Accumulated | ||||||||||||||||||
Capital | Other | Unrealized | Total | |||||||||||||||
Ordinary | and Other | Temporary | Appreciation | Accumulated | ||||||||||||||
Income | Gain (Loss) | Differences | (Depreciation) | Gain (Loss) | ||||||||||||||
$ | 2,310,780 | $ | 6,561,606 | $ | (711,106 | ) | $ | 13,561,241 | $ | 21,722,521 | ||||||||
The difference between book-basis and tax basis unrealized appreciation (depreciation) is primarily due to marking to market of foreign currency forward contracts and swap contracts.
The other temporary differences are primarily due to dividends payable and interest income on defaulted securities.
The following table discloses the current year reclassifications between accumulated undistributed net investment income, accumulated net realized loss on investments, and additional paid-in capital arising from permanent differences; net assets at October 31, 2011 are not affected.
Accumulated | Accumulated | |||||||||
Undistributed Net | Net Realized | Additional | ||||||||
Investment | Gain (Loss) on | Paid-In | ||||||||
Income (Loss) | Investments | Capital | ||||||||
$ | 116,654 | $ | (116,654 | ) | $ | — | ||||
The reclassifications for the Fund are primarily due to foreign currency gain (loss) and reclassification of income from swap contracts.
Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 shown in the Statements of Changes in Net Assets, was as follows:
2011 | 2010 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 17,885,269 | $ | 16,365,883 | ||||
Long-Term Capital Gain | 3,036,608 | — | ||||||
Total | $ | 20,921,877 | $ | 16,365,883 | ||||
Note 5–Foreign Currency Transactions and Foreign Currency Forward Contracts
As of October 31, 2011, the Fund held the following foreign currency forward contracts:
Contract | Contract | Unrealized | ||||||||||||||
Amount | Amount | Appreciation | ||||||||||||||
Counterparty | Purchased | Sold | (Depreciation) | |||||||||||||
Foreign Currency Buy Contracts: | ||||||||||||||||
Euro vs. U.S. Dollar, expiring 11/21/11 | JPMorgan Chase Bank | EUR | 3,000,000 | USD | 4,122,480 | USD | 27,822 | |||||||||
Indonesia Rupiah vs. U.S. Dollar, expiring 11/7/11 | JPMorgan Chase Bank | IDR | 34,000,000,000 | 3,743,257 | 95,371 | |||||||||||
Malaysian Ringgit vs. U.S. Dollar, expiring 12/1/11 | JPMorgan Chase Bank | MYR | 12,000,000 | 3,920,287 | (15,588 | ) | ||||||||||
Norwegian Krone vs. U.S. Dollar, expiring 11/21/11 | JPMorgan Chase Bank | NOK | 18,000,000 | 3,171,247 | 57,792 | |||||||||||
Singapore Dollar vs. U.S. Dollar, expiring 12/19/11 | JPMorgan Chase Bank | SGD | 11,000,000 | 8,691,530 | 74,886 | |||||||||||
Swedish Krona vs. U.S. Dollar, expiring 11/7/11 | JPMorgan Chase Bank | SEK | 20,000,000 | 3,114,925 | (47,064 | ) | ||||||||||
Yuan Renminbi vs. U.S. Dollar, expiring 1/18/12 | JPMorgan Chase Bank | CNY | 30,000,000 | 4,696,306 | 27,118 | |||||||||||
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Notes to Financial Statements (continued)
Contract | Contract | Unrealized | ||||||||||||||
Amount | Amount | Appreciation/ | ||||||||||||||
Counterparty | Sold | Purchased | (Depreciation) | |||||||||||||
Foreign Currency Sale Contracts: | ||||||||||||||||
Euro vs. U.S. Dollar, expiring 11/21/11 | JPMorgan Chase Bank | EUR | 3,000,000 | USD | 4,144,800 | USD | (5,502 | ) | ||||||||
Norwegian Krone vs. U.S. Dollar, expiring 11/21/11 | JPMorgan Chase Bank | NOK | 18,000,000 | 3,191,206 | (37,833 | ) | ||||||||||
Swedish Krona vs. U.S. Dollar, expiring 11/7/11 | JPMorgan Chase Bank | SEK | 20,000,000 | 3,011,867 | (55,994 | ) | ||||||||||
Yuan Renminbi vs. U.S. Dollar, expiring 1/18/12 | JPMorgan Chase Bank | CNY | 30,000,000 | 4,703,300 | (20,124 | ) | ||||||||||
Net unrealized appreciation (depreciation) on foreign currency forward contracts | USD | 100,884 | ||||||||||||||
As of October 31, 2011, the Fund held the following foreign currencies:
Currency | Cost | Value | ||||||||||||||
Australian Dollar | AUD | 1,108 | USD | 991 | USD | 1,168 | ||||||||||
Euro | EUR | 69 | 92 | 96 | ||||||||||||
Mexican Peso | MXN | 7,238,924 | 540,634 | 543,177 | ||||||||||||
Turkish Lira | YTL | 324,000 | 173,364 | 183,217 | ||||||||||||
Total | USD | 715,081 | USD | 727,658 | ||||||||||||
Note 6–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 7–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 31, 2011, under an amended credit agreement, the aggregate commitment amount is $125,000,000 with an optional maximum amount of $175,000,000. The commitment rate is an annual rate of 0.08% of the average commitment amount, payable quarterly, regardless of usage, to The Bank of New York Mellon, which serves as the agent to the syndicate. The commitment fee is allocated among certain MainStay Funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The amended credit agreement expires on August 29, 2012, although the MainStay Funds and the syndicate of banks may renew the amended credit agreement for an additional year on the same or different terms. Prior to August 31, 2011, the commitment rate was an annual rate of 0.10% of the average commitment amount, plus a 0.02% up-front payment. There were no borrowings made or outstanding with respect to the Fund on the amended credit agreement during the year ended October 31, 2011.
Note 8–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2011, purchases and sales of securities, other than short-term securities, were $193,061 and $226,041, respectively.
Note 9–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 320,111 | $ | 3,842,246 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 120,590 | 1,432,277 | ||||||
Shares redeemed | (323,886 | ) | (3,879,385 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 116,815 | 1,395,138 | ||||||
Shares converted into Investor Class (See Note 1) | 231,170 | 2,750,835 | ||||||
Shares converted from Investor Class (See Note 1) | (126,642 | ) | (1,511,546 | ) | ||||
Net increase (decrease) | 221,343 | $ | 2,634,427 | |||||
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Investor Class | Shares | Amount | ||||||
Year ended October 31, 2010: | ||||||||
Shares sold | 371,119 | $ | 4,343,021 | |||||
Shares issued to shareholders in reinvestment of dividends | 98,368 | 1,138,845 | ||||||
Shares redeemed | (268,529 | ) | (3,118,307 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 200,958 | 2,363,559 | ||||||
Shares converted into Investor Class (See Note 1) | 137,320 | 1,594,288 | ||||||
Shares converted from Investor Class (See Note 1) | (166,602 | ) | (1,955,870 | ) | ||||
Net increase (decrease) | 171,676 | $ | 2,001,977 | |||||
Class A | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 4,367,359 | $ | 52,252,654 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 566,677 | 6,688,120 | ||||||
Shares redeemed | (5,850,444 | ) | (69,677,320 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (916,408 | ) | (10,736,546 | ) | ||||
Shares converted into Class A (See Note 1) | 322,665 | 3,833,422 | ||||||
Shares converted from Class A (See Note 1) | (78,823 | ) | (909,011 | ) | ||||
Net increase (decrease) | (672,566 | ) | $ | (7,812,135 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 7,292,426 | $ | 84,691,593 | |||||
Shares issued to shareholders in reinvestment of dividends | 453,214 | 5,225,014 | ||||||
Shares redeemed | (4,335,307 | ) | (49,826,408 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 3,410,333 | 40,090,199 | ||||||
Shares converted into Class A (See Note 1) | 360,595 | 4,178,468 | ||||||
Shares converted from Class A (See Note 1) | (29,994 | ) | (356,670 | ) | ||||
Shares converted from Class A (a) | (1,610,930 | ) | (17,881,323 | ) | ||||
Net increase (decrease) | 2,130,004 | $ | 26,030,674 | |||||
Class B | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 298,891 | $ | 3,526,416 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 104,140 | 1,213,553 | ||||||
Shares redeemed | (394,873 | ) | (4,631,002 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 8,158 | 108,967 | ||||||
Shares converted from Class B (See Note 1) | (353,297 | ) | (4,163,700 | ) | ||||
Net increase (decrease) | (345,139 | ) | $ | (4,054,733 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 455,475 | $ | 5,263,440 | |||||
Shares issued to shareholders in reinvestment of dividends | 98,048 | 1,113,582 | ||||||
Shares redeemed | (361,454 | ) | (4,117,802 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 192,069 | 2,259,220 | ||||||
Shares converted from Class B (See Note 1) | (304,620 | ) | (3,460,216 | ) | ||||
Net increase (decrease) | (112,551 | ) | $ | (1,200,996 | ) | |||
Class C | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 1,581,342 | $ | 18,636,471 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 246,670 | 2,877,700 | ||||||
Shares redeemed | (2,086,275 | ) | (24,429,250 | ) | ||||
Net increase (decrease) | (258,263 | ) | $ | (2,915,079 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 2,685,921 | $ | 30,737,955 | |||||
Shares issued to shareholders in reinvestment of dividends | 174,967 | 1,995,386 | ||||||
Shares redeemed | (988,281 | ) | (11,246,077 | ) | ||||
Net increase (decrease) | 1,872,607 | $ | 21,487,264 | |||||
Class I | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 1,645,798 | $ | 19,682,784 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 122,866 | 1,448,361 | ||||||
Shares redeemed | (2,924,110 | ) | (34,717,050 | ) | ||||
Net increase (decrease) | (1,155,446 | ) | $ | (13,585,905 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 2,799,804 | $ | 33,422,935 | |||||
Shares issued to shareholders in reinvestment of dividends | 51,805 | 608,123 | ||||||
Shares redeemed | (620,282 | ) | (7,245,557 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 2,231,327 | 26,785,501 | ||||||
Shares converted into Class I (a) | 1,609,480 | 17,881,323 | ||||||
Net increase (decrease) | 3,840,807 | $ | 44,666,824 | |||||
(a) | In addition to any automatic conversion features described above in Note 1 with respect to Investor Class, Class A and Class B shares, investors generally may also elect to convert their shares on a voluntary basis into another share class of the same MainStay Fund subject to satisfying the eligibility requirements of the new share class, if any. However, the following limitations apply: |
• | Investor Class, Class A and Class C shares that remain subject to a CDSC are ineligible for a voluntary conversion; and | |
• | All Class B shares are ineligible for a voluntary conversion. |
These limitations do not impact any automatic conversion features described elsewhere in Note 1 with respect to Investor Class, Class A and Class B shares.
An investor or an investor’s financial intermediary may contact the MainStay Funds to request a voluntary conversion between share classes of the same MainStay Fund. Investors may be required to provide sufficient information to establish eligibility to convert to the new share class. All permissible conversions will be made on the basis of the relevant NAVs of the two classes without the imposition of any sales load, fee or other charge. If an investor fails to remain eligible for the new share class, they may be converted automatically back to their original share class, or into another share class, if appropriate. Although the MainStay Funds expect that a conversion between share classes of the same MainStay Fund should not result in the recognition of a gain or loss for tax purposes, shareholders should consult with their own tax adviser with respect to the tax treatment of their investment in a MainStay Fund. The MainStay Funds may change, suspend or terminate this conversion feature at any time.
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Notes to Financial Statements (continued)
Note 10–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2011, events and transactions subsequent to October 31, 2011 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.
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Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Global High Income Fund (“the Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Global High Income Fund of The MainStay Funds as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 22, 2011
December 22, 2011
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Federal Income Tax Information (Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders within 60 days of the Fund’s fiscal year end (October 31, 2011) as to the federal tax status of dividends paid by the Fund during such fiscal years. Accordingly, the Fund paid $3,036,608 as a long term capital gain distribution.
In February 2012, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2011. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2011.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
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Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, Eclipse Funds, Eclipse Funds Inc., MainStay Funds Trust, and MainStay VP Funds Trust) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s). Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation upon reaching age 72. A Board Member reaching the age of 72 may continue for additional one-year periods with the approval of the Board’s Nominating and Governance Committee.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Interested Board Member* | ||||||||
John Y. Kim 9/24/60 | Indefinite; Eclipse Funds: Trustee since 2008 (2 funds); Eclipse Funds Inc.: Director since 2008 (1 fund); The MainStay Funds: Trustee since 2008 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc. since 2008 (21 portfolios). | Member of the Board of Managers (since 2011) of New York Life Enterprises LLC; Chairman (since 2011), Member of the Board of Managers, Chief Executive Officer and President (since 2008) of New York Life Investment Management LLC and New York Life Investment Management Holdings LLC; Executive Vice President (since 2011) of New York Life Foundation; Member of the Board of Managers and Chairman of the Board of Private Advisors, L.L.C. (since 2010); Executive Vice President, New York Life Insurance Company (since 2008); Chairman of the Board (2008-2010) and Member of the Boards of Managers (since 2008) of MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, Madison Square Investors LLC, NYLCAP Manager LLC and McMorgan & Company LLC; Chairman of the Board and Chief Executive Officer, NYLIFE Distributors LLC (2008-2010); Executive Vice President of NYLIFE Insurance Company of Arizona and New York Life Insurance and Annuity Corporation (since 2008); President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 66 | None | ||||
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Susan B. Kerley 8/12/51 | Indefinite; Eclipse Funds: Chairman since 2005, and Trustee since 2000 (2 funds); Eclipse Funds Inc.: Chairman since 2005 and Director since 1990 (1 fund); The MainStay Funds: Chairman and Board Member since 2007 (14 funds); MainStay Funds Trust: Chairman and Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Chairman and Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | President, Strategic Management Advisors LLC (since 1990) | 66 | Trustee, Legg Mason Partners Funds, since 1991 (58 portfolios) | ||||
Alan R. Latshaw 3/27/51 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2006 (14 funds); MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 66 | Trustee, State Farm Associates Funds Trusts since 2005 (4 portfolios); Trustee, State Farm Mutual Fund Trust since 2005 (15 portfolios); Trustee, State Farm Variable Product Trust since 2005 (9 portfolios) | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Peter Meenan 12/5/41 | Indefinite; Eclipse Funds: Trustee since 2002 (2 funds); Eclipse Funds Inc.: Director since 2002 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Independent Consultant; President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 66 | None | ||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2006 (21 portfolios). | Managing Director, ICC Capital Management; President—Shields/Alliance, Alliance Capital Management (1994 to 2004) | 66 | None | ||||
Richard S. Trutanic 2/13/52 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 1994 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 66 | None | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Roman L. Weil 5/22/40 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1994 and Audit Committee Financial Expert since 2003 (21 portfolios). | Visiting Professor, NYU Stem School of Business, New York University (since 2011); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School of Business, University of Chicago (1965-2008) | 66 | None | ||||
John A. Weisser 10/22/41 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1997 (21 portfolios). | Retired. Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 66 | Trustee, Direxion Funds since 2007 (27 portfolios); Direxion Insurance Trust since 2007 (1 portfolio); Trustee, Direxion Shares ETF Trust, since 2008 (50 portfolios) | ||||
40 MainStay Global High Income Fund
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The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.
Positions(s) Held | ||||
Name and | with the Funds | Principal Occupation(s) | ||
Date of Birth | and Length of Service | During Past Five Years | ||
Officers | ||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007); Vice President, Prudential Investments (2000 to 2007); Assistant Treasurer, JennisonDryden Family of Funds, Target Portfolio Trust, The Prudential Series Fund and American Skandia Trust (2006 to 2007); Treasurer and Principal Financial Officer, The Greater China Fund (2007) | ||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance (since 2009), Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Assistant Secretary NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2009); Assistant Secretary, The MainStay Funds and ICAP Funds, Inc. (2006 to 2008); Assistant Secretary, Eclipse Funds, Eclipse Funds, Inc. and MainStay VP Series Fund, Inc. (2005 to 2008) | ||
Stephen P. Fisher 2/22/59 | President, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Director, Senior Vice President, New York Life Insurance and Annuity Corporation (since 2011); Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2007); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007) | ||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2010); Director and Counsel of Credit Suisse, Chief Legal Officer and Secretary of Credit Suisse Asset Management, LLC and Credit Suisse Funds (2003 to 2010) | ||
Scott T. Harrington 2/8/59 | Vice President — Administration, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Director (since 2009), New York Life Trust Company FSB; Vice President—Administration, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2005) | ||
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one-year term. |
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay offerings is listed here, with information about the manager, subadvisors, legal counsel, and independent registered public accounting firm.
Equity Funds
MainStay 130/30 Core Fund
MainStay Common Stock Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Fund
MainStay Equity Index Fund1
MainStay Growth Equity Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Small Cap Fund
Income Funds
MainStay Flexible Bond Opportunities Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Municipal Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Money Market Fund
MainStay Principal Preservation Fund
MainStay Short Term Bond Fund
MainStay Tax Free Bond Fund
Blended Funds
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
International Funds
MainStay 130/30 International Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay Global High Income Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
Asset Allocation Funds
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
Retirement Funds
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC2
Chicago, Illinois
MacKay Shields LLC2
New York, New York
Madison Square Investors LLC2
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management, Inc.
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firm
KPMG LLP
1. | Closed to new investors and new purchases as of January 1, 2002. |
2. | An affiliate of New York Life Investment Management LLC. |
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mainstayinvestments.com
The MainStay Funds are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors
LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
MainStay Investments is a registered service mark and name under which New York Life Investment Management LLC does business.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment
advisory products and services.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment
advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
© 2012 by NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency | ||||||||
NYLIM-25009 MS184-11 | MSGH11-12/11 |
N20
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MainStay Government Fund
Message from the President and Annual Report
October 31, 2011
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Message from the President
Volatility was the keynote of the 12 months ended October 31, 2011. U.S. stocks generally advanced, but a variety of domestic and international forces influenced the market.
Early in November 2010, the Federal Open Market Committee (FOMC) announced its intention to extend quantitative easing by purchasing additional longer-term Treasury securities. The stock market reacted positively to this news—and to the midterm elections—and stocks generally advanced through mid-February.
Beginning in December 2010, a wave of protests and civil unrest across North Africa and the Middle East led to a substantial rise in the price of oil. By mid-February, stock prices started to decline. In March, a major earthquake and tsunami in Japan caused manufacturing supply-line interruptions and further setbacks for equity investors. After a sharp decline and a rapid recovery, stocks reached their high point for the 12-month period at the end of April 2011.
Pressed by a weak economy, lackluster employment and widespread concerns about European sovereign debt, the stock market faced wide fluctuations in the coming months. The volatility included a precipitous decline at the end of July into early August. Shortly thereafter, the FOMC expressed its expectation that economic conditions were “likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
After several unsuccessful attempts to recover from their dramatic drop, U.S. stocks reached their low point for the reporting period in early October. Then, buoyed by positive economic data and progress in the European debt situation, the U.S. stock market advanced rapidly in October, to close the reporting period with its best monthly performance in nearly a decade.
International stocks suffered from the turmoil in the Middle East and North Africa, the natural disasters in Japan, the sovereign debt concerns in Europe and the added threat of an economic slowdown in China. For the 12-month period, international stocks declined overall, with particular weakness in Europe.
The bond markets felt the impact of the European debt crisis, and several European nations suffered downgrades. In July, the United States faced a congressional deadlock on raising the debt ceiling and reducing deficit spending. In early August, Standard & Poor’s downgraded the debt of the United States of America to AA+.
Slow progress in resolving the European debt situation led to a flight to quality (or a movement toward securities perceived to carry lower risk). Amid strong demand, U.S. Treasury securities saw prices rise and yields decline, despite the downgrade by Standard & Poor’s. High-grade corporate bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
Throughout the 12-month reporting period, our portfolio managers took note of shifting market forces. But their primary focus was on the investment objectives of their respective Funds and the long-term strategies they were pursuing to achieve them. Some may have sought to capitalize on day-to-day market inefficiencies, but all remained focused on the long-term interests of our shareholders. They sought to apply time-tested investment principles consistently throughout the reporting period.
The information that follows provides specifics about the securities, decisions and market forces that affected your MainStay Fund(s) during the 12 months ended October 31, 2011. Behind the details, we hope you’ll recognize the professionalism and discipline that guided our portfolio managers during this volatile period.
We thank you for investing with MainStay and look forward to serving you for many years to come.
Sincerely,
Stephen P. Fisher
President
President
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Annual Report | ||
Investment and Performance Comparison | 5 | |
Portfolio Management Discussion and Analysis | 9 | |
Portfolio of Investments | 11 | |
Financial Statements | 15 | |
Notes to Financial Statements | 23 | |
Report of Independent Registered Public Accounting Firm | 30 | |
Federal Income Tax Information | 31 | |
Proxy Voting Policies and Procedures and Proxy Voting Record | 31 | |
Shareholder Reports and Quarterly Portfolio Disclosure | 31 | |
Board Members and Officers | 32 | |
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
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Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2011
Gross | ||||||||||||||||||||
Expense | ||||||||||||||||||||
Class | Sales Charge | One Year | Five Years | Ten Years | Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 4.5% Initial Sales Charge | With sales charges | –1 | .90% | 4 | .33% | 3 | .67% | 1 | .32% | ||||||||||
Excluding sales charges | 2 | .73 | 5 | .30 | 4 | .14 | 1 | .32 | ||||||||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges | –1 | .87 | 4 | .41 | 3 | .71 | 1 | .20 | ||||||||||
Excluding sales charges | 2 | .76 | 5 | .38 | 4 | .18 | 1 | .20 | ||||||||||||
Class B Shares | Maximum 5% CDSC | With sales charges | –3 | .07 | 4 | .16 | 3 | .37 | 2 | .07 | ||||||||||
if Redeemed Within the First Six Years of Purchase | Excluding sales charges | 1 | .85 | 4 | .50 | 3 | .37 | 2 | .07 | |||||||||||
Class C Shares | Maximum 1% CDSC | With sales charges | 0 | .87 | 4 | .52 | 3 | .37 | 2 | .07 | ||||||||||
if Redeemed Within One Year of Purchase | Excluding sales charges | 1 | .85 | 4 | .52 | 3 | .37 | 2 | .07 | |||||||||||
Class I Shares4 | No Sales Charge | 2 | .99 | 5 | .83 | 4 | .58 | 0 | .95 | |||||||||||
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, change in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain expenses and fees. Unadjusted the performance shown for Investor Class shares might have been lower. |
4. | Performance figures for Class I shares, first offered on January 2, 2004, include the historical performance of Class B shares through January 1, 2004, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class I shares might have been lower. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
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One | Five | Ten | ||||||||||
Benchmark Performance | Year | Years | Years | |||||||||
Barclays Capital U.S. Government Bond Index5 | 4 | .89% | 6 | .30% | 5 | .10% | ||||||
Average Lipper General U.S. Government Fund6 | 5 | .16 | 5 | .72 | 4 | .41 | ||||||
5. | The Barclays Capital U.S. Government Bond Index is comprised of publicly issued, non-convertible, domestic debt of the U.S. government or any of its agencies, quasi-federal corporations, or corporate debt guaranteed by the U.S. government. The Barclays Capital U.S. Government Bond Index is the Fund’s broad-based securities market index for comparison purposes. Total returns assume the reinvestment of all income and capital gains. An investment cannot be made directly in an Index. |
6. | The average Lipper general U.S. government fund is representative of funds that invest primarily in U.S. government and agency issues. This benchmark is a product of Lipper Inc. Lipper Inc. is an independent monitor of fund performance. Results are based on average total returns of similar funds with all dividend and capital gain distributions reinvested. |
The footnotes on the preceding page are an integral part of the table and graph and should be carefully read in conjunction with them.
6 MainStay Government Fund
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Cost in Dollars of a $1,000 Investment in MainStay Government Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2011, to October 31, 2011, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2011, to October 31, 2011.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2011. 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.
Ending Account | ||||||||||||||||||||||
Ending Account | Value (Based | |||||||||||||||||||||
Value (Based | on Hypothetical | |||||||||||||||||||||
Beginning | on Actual | Expenses | 5% Annualized | Expenses | ||||||||||||||||||
Account | Returns and | Paid | Return and | Paid | ||||||||||||||||||
Value | Expenses) | During | Actual Expenses) | During | ||||||||||||||||||
Share Class | 5/1/11 | 10/31/11 | Period1 | 10/31/11 | Period1 | |||||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,033.00 | $ | 5.94 | $ | 1,019.40 | $ | 5.90 | ||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,032.70 | $ | 5.28 | $ | 1,020.00 | $ | 5.24 | ||||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,028.10 | $ | 9.76 | $ | 1,015.60 | $ | 9.70 | ||||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,029.30 | $ | 9.77 | $ | 1,015.60 | $ | 9.70 | ||||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,033.70 | $ | 4.00 | $ | 1,021.30 | $ | 3.97 | ||||||||||||
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.16% for Investor Class, 1.03% for Class A, 1.91% for Class B and Class C and 0.78% for Class I) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the one-half year period). The table above represents the actual expenses incurred during the one-half year period. |
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Portfolio Composition as of October 31, 2011 (Unaudited)
U.S. Government & Federal Agencies | 87.30 | |||
Short-Term Investment | 6.50 | |||
Corporate Bonds | 5.50 | |||
Mortgage-Backed Securities | 4.10 | |||
Asset-Backed Securities | 1.60 | |||
Other Assets, Less Liabilities | (5.00 | ) |
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
Top Ten Holdings as of October 31, 2011 (excluding short-term investment)
1. | Federal National Mortgage Association (Mortgage Pass-Through Securities), 3.50%, due 11/1/25 | |
2. | Federal Home Loan Mortgage Corporation (Mortgage Pass-Through Securities), 4.00%, due 3/1/41 | |
3. | Federal Home Loan Mortgage Corporation (Mortgage Pass-Through Securities), 4.00%, due 2/1/41 | |
4. | Overseas Private Investment Corporation, 5.142%, due 12/15/23 | |
5. | Federal National Mortgage Association (Mortgage Pass-Through Securities), 5.50%, due 6/1/33 | |
6. | Federal National Mortgage Association (Mortgage Pass-Through Securities), 3.50%, due 11/1/20 | |
7. | Government National Mortgage Association (Mortgage Pass-Through Securities), 4.50%, due 5/20/40 | |
8. | Tennessee Valley Authority, 4.65%, due 6/15/35 | |
9. | Federal National Mortgage Association (Mortgage Pass-Through Securities), 4.50%, due 1/1/41 | |
10. | Federal National Mortgage Association (Mortgage Pass-Through Securities), 4.50%, due 7/1/18 |
8 MainStay Government Fund
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Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Gary Goodenough, Dan Roberts, PhD, and Louis N. Cohen of MacKay Shields LLC, the Fund’s Subadvisor.
How did MainStay Government Fund perform relative to its peers and its benchmark during the 12 months ended October 31, 2011?
Excluding all sales charges, MainStay Government Fund returned 2.73% for Investor Class shares, 2.76% for Class A shares, 1.85% for Class B shares and 1.85% for Class C shares for the 12 months ended October 31, 2011. Over the same period, the Fund’s Class I shares returned 2.99%. All share classes underperformed the 5.16% return of the average Lipper1 general U.S. government fund and the 4.89% return of the Barclays Capital U.S. Government Bond Index2 for the 12 months ended October 31, 2011. The Barclays Capital U.S. Government Bond Index is the Fund’s broad-based securities market index. See page 5 for Fund returns with sales charges.
What factors affected the Fund’s relative performance during the reporting period?
The Fund underperformed the Barclays Capital U.S. Government Bond Index during the reporting period, primarily because of our shorter duration3 positioning. Lipper peer funds with longer durations, especially those with asset concentrations in the back-end of the yield curve,4 benefited relative to the Fund as U.S. Treasury yields fell and the yield curve flattened.5
The Fund’s largest sector allocation was to agency mortgage pass-throughs.6 Their 3.5 year average duration is shorter than the 5.5 year duration of the Barclays Capital U.S. Government Bond Index. As a result, the Fund had a shorter duration and less sensitivity to change in Treasury yields than the benchmark. This contributed to the Fund’s underperformance of the Barclays Capital U.S. Government Bond Index as yields fell during the reporting period.
Our commitment to agency mortgage pass-throughs imparts a yield advantage relative to lower-yielding government-related securities, such as Treasury securities and agency debentures. This effect was a positive contributor to the Fund’s absolute return. However, during the reporting period, the yield advantage was insufficient to compensate for the Fund’s shorter duration.
To partially offset the shorter durations of the Fund’s mortgage-backed securities, we allocated a portion of the Fund to longer-duration agency debentures. This position contributed about a tenth of the Fund’s duration and imparted a bias to a flatter Treasury yield curve compared to an all-mortgage fund. During the reporting period, the Fund benefited from this bias. Lipper peer funds with a stronger bias to a flatter yield curve (by shifting more assets to the long end of the yield curve) would have enjoyed an even greater advantage. Since the Barclays Capital U.S. Government Bond Index has more exposure to the long end of the yield curve than the Fund does, the Fund’s yield-curve posture detracted from the Fund’s performance relative to the benchmark.
For diversification purposes, the Fund held a moderate exposure to non-government-related securities, such as investment-grade corporate bonds, asset-backed securities and commercial mortgage-backed securities. The cautious tone of the market during the reporting period caused spreads7 to widen. As a result, the Fund’s non-government bonds tended to underperform duration-matched Treasury securities, except when the yield cushion was particularly strong. Lipper peer funds with less exposure to non-government-related securities would have been better aligned with the market’s defensive posture. Since the Barclays Capital U.S. Government Bond Index consists entirely of Treasury securities and agency debentures, it was not affected by the subdued performance of credit-related securities.
During the reporting period, Lipper peer funds with large allocations to Ginnie Mae securities enjoyed an advantage. Ginnie Maes outperformed similar-coupon securities issued by Fannie Mae and Freddie Mac because their longer durations amplified price sensitivity to falling Treasury yields. Ginnie Mae borrowers tend to be less responsive to interest-rate changes than borrowers whose loans are pooled into Fannie Mae and Freddie Mac securities, which explains the longer duration (and lower prepayment rate) of Ginnie Maes. This call protection, along with the explicit government guarantee associated with Ginnie Maes, attracted investors. Together these factors helped Ginnie Maes see faster price appreciation than Fannie Maes and Freddie Macs as a flight to safety (or movement toward securities perceived to carry lower risk) caused interest rates to decline and investors to become defensive. During the reporting period, the Fund’s allocation to Ginnie Mae securities was smaller than its allocation to Fannie Mae and Freddie Mac mortgage-backed securities.
What was the Fund’s duration strategy during the reporting period?
The Fund normally maintains an intermediate duration between 3.5 and 4.5 years. During the reporting period, the Fund’s
1. See footnote on page 6 for more information on Lipper Inc.
2. See footnote on page 6 for more information on the Barclays Capital U.S. Government Bond Index.
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. A flattening yield curve implies that the difference in yield between longer-dated Treasury securities and shorter-dated Treasury securities became smaller.
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 investment bank to investors.
7. 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.
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duration fell by four-tenths of a year. The shortening is explained by the drift in mortgage durations as Treasury yields and mortgage rates fell. Homeowners have more opportunities to refinance when mortgage rates are lower. This tends to accelerate the prepayment rates of the securities in which the mortgage loans are pooled.
Lower mortgage rates expand opportunities for outstanding loans to refinance and the durations of mortgage-backed securities usually shorten as mortgage rates follow Treasury yields lower. We often allow the Fund’s duration to drift with the change in mortgage duration rather than compensate by buying or selling U.S. Treasurys. Given the vagaries of Treasury yields, this approach typically avoids the need to swiftly react to rate changes, and then reverse the trade should Treasury yields abruptly turn around. In hindsight, with Treasury yields persistently trending lower for much of the reporting period, it would have been advisable to purchase Treasury securities to offset the Fund’s mortgage-related duration drift.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
We increased the Fund’s allocation to agency mortgage pass-throughs and funded the adjustment with Treasury securities and agency debentures. The rebalancing responded to the improving relative value between mortgage-backed securities and comparable-duration government-related product. Attractive carry8 and balanced supply/demand technicals worked to the sector’s advantage. The adjustment also had a meaningful impact on yield-curve posture, as we pared the Fund’s allocations to the shorter- and longer-term portions of the curve and increased the Fund’s allocation to the center of the yield curve. Initially, the trade had minimal effect on the Fund’s duration, but as the period progressed, the negative convexity9 of the mortgage-backed securities pulled the Fund’s duration shorter as Treasury yields fell.
We maintained our moderate exposure to credit risk as a secondary driver of Fund performance for two reasons. First, we believed that the prospects of the credit-related sectors (investment-grade corporate bonds, commercial mortgage-backed securities and asset-backed securities) were aligned with the decision of the Federal Reserve’s monetary policymaking committee to maintain the federal funds target rate in a range close to zero. Second, we felt that low interest rates would be likely to spark healthy demand for higher-yield products. The Fund ended the period with close to a 12% allocation to non-government-related securities.
During the reporting period, which market segments were the strongest contributors to the Fund’s perfor-
mance and which market segments were particularly weak?
mance and which market segments were particularly weak?
Agency mortgage pass-throughs produced the best total return among the sectors in the Fund. This was especially true of the Fund’s lower-coupon securities, whose durations are longer than average and, for that reason, benefited the most from falling Treasury yields. In light of their longer durations, Ginnie Mae securities were also among the Fund’s best performers.
During the reporting period, the Fund’s weakest performers were investment-grade corporate bonds, whose spreads widened as investors became more risk-averse. Several of the Fund’s government-related agency debentures from less mainstream issuers, such as Tennessee Valley Authority, also struggled during the reporting period. Investors placed a premium on liquidity during the reporting period and preferred more conventional names such as Fannie Mae.
How did the Fund’s sector weightings change during the reporting period?
As mentioned earlier, we increased the Fund’s allocation to agency mortgage pass-throughs, funding the trade with Treasury securities, agency debentures and cash. In addition to the attractive carry and balanced supply/demand technicals previously discussed, the emergence of the Federal Reserve as a new large-scale buyer of agency mortgage pass-throughs improved the sector’s prospects. The increased allocation also introduced incremental yield to the Fund and positioned it to benefit should the yield spread between mortgage-backed securities and comparable-duration Treasury securities narrow.
How was the Fund positioned at the end of the reporting period?
As of October 31, 2011, the Fund held underweight positions in U.S. Treasurys and agency debentures and an overweight position in agency mortgage pass-throughs. There were also modest overweight positions in asset-backed securities, corporate bonds and commercial mortgage-backed securities. The majority of the Fund’s assets have durations between three and seven years. To maintain a Fund duration between four and five years, about 3% of the Fund’s total net assets were invested in longer-duration agency debentures to balance the Fund’s allocation to assets shorter than three years. The short-duration investments consist mostly of seasoned mortgage-backed securities.
8. Carry is the interest cost of financing securities. A positive carry occurs when the return from a security exceeds the financing cost. A negative carry occurs when the financing cost exceeds the return on the security that has been financed.
9. Convexity is a mathematical measure of the sensitivity of an interest-bearing bond to changes in interest rates.
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
10 MainStay Government Fund
Table of Contents
Portfolio of Investments††† October 31, 2011
Principal | ||||||||
Amount | Value | |||||||
Long-Term Bonds 98.5%† Asset-Backed Securities 1.6% | ||||||||
Diversified Financial Services 0.5% | ||||||||
Massachusetts RRB Special Purpose Trust Series 2001-1, Class A 6.53%, due 6/1/15 | $ | 1,315,311 | $ | 1,378,061 | ||||
Home Equity 0.1% | ||||||||
Citicorp Residential Mortgage Securities, Inc. Series 2006-1, Class A3 5.706%, due 7/25/36 (a) | 271,863 | 272,463 | ||||||
Utilities 1.0% | ||||||||
Atlantic City Electric Transition Funding LLC Series 2002-1, Class A4 5.55%, due 10/20/23 | 2,525,000 | 3,041,044 | ||||||
Total Asset-Backed Securities (Cost $4,142,711) | 4,691,568 | |||||||
Corporate Bonds 5.5% | ||||||||
Agriculture 1.6% | ||||||||
Altria Group, Inc. 9.70%, due 11/10/18 | 3,400,000 | 4,569,672 | ||||||
Auto Manufacturers 1.1% | ||||||||
DaimlerChrysler N.A. Holding Corp. 6.50%, due 11/15/13 | 2,920,000 | 3,201,278 | ||||||
Electric 1.0% | ||||||||
Great Plains Energy, Inc. 2.75%, due 8/15/13 | 3,030,000 | 3,074,262 | ||||||
Pipelines 0.8% | ||||||||
Plains All American Pipeline, L.P./PAA Finance Corp. 5.00%, due 2/1/21 | 2,300,000 | 2,471,543 | ||||||
Real Estate Investment Trusts 1.0% | ||||||||
Duke Realty, L.P. 6.75%, due 3/15/20 | 2,150,000 | 2,339,374 | ||||||
ProLogis, L.P. 7.375%, due 10/30/19 | 600,000 | 681,300 | ||||||
3,020,674 | ||||||||
Total Corporate Bonds (Cost $15,276,613) | 16,337,429 | |||||||
Mortgage-Backed Securities 4.1% | ||||||||
Commercial Mortgage Loans (Collateralized Mortgage Obligations) 4.1% | ||||||||
Banc of America Commercial Mortgage, Inc. Series 2005-5, Class A2 5.001%, due 10/10/45 | 113,592 | 113,610 | ||||||
Bear Stearns Commercial Mortgage Securities Series 2005-PW10, Class A4 5.405%, due 12/11/40 (b) | 1,970,000 | 2,165,852 | ||||||
Citigroup Mortgage Loan Trust, Inc. Series 2006-AR6, Class 1A1 5.902%, due 8/25/36 (c) | 642,202 | 522,730 | ||||||
Citigroup/Deutsche Bank Commercial Mortgage Trust | ||||||||
Series 2006-CD3, Class A5 5.617%, due 10/15/48 | 710,000 | 770,657 | ||||||
Series 2007-CD5, Class A4 5.886%, due 11/15/44 (b) | 1,464,000 | 1,594,542 | ||||||
Four Times Square Trust Series 2006-4TS, Class A 5.401%, due 12/13/28 (d) | 620,000 | 665,552 | ||||||
GE Capital Commercial Mortgage Corp. Series 2004-C2, Class A4 4.893%, due 3/10/40 | 1,000,000 | 1,062,269 | ||||||
GS Mortgage Securities Corp. II Series 2011-GC5, Class A2 2.999%, due 8/10/44 | 800,000 | 801,802 | ||||||
JP Morgan Chase Commercial Mortgage Securities Corp. | ||||||||
Series 2011-C4, Class A3 4.106%, due 7/15/46 (d) | 655,000 | 662,835 | ||||||
Series 2007-CB20, Class A3 5.819%, due 2/12/51 | 600,000 | 638,972 | ||||||
Merrill Lynch Mortgage Trust Series 2003-KEY1, Class A4 5.236%, due 11/12/35 (b) | 950,000 | 1,006,536 | ||||||
Mortgage Equity Conversion Asset Trust Series 2007-FF2, Class A 0.59%, due 2/25/42 (b)(d)(e)(f) | 1,423,631 | 1,281,268 | ||||||
RBSCF Trust Series 2010-MB1, Class A2 3.686%, due 4/15/24 (d) | 800,000 | 839,839 | ||||||
Total Mortgage-Backed Securities (Cost $12,055,162) | 12,126,464 | |||||||
† | Percentages indicated are based on Fund net assets. |
X | Among the Fund’s 10 largest holdings, as of October 31, 2011, excluding short-term investment. May be subject to change daily. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 11 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
U.S. Government & Federal Agencies 87.3% | ||||||||
Fannie Mae (Collateralized Mortgage Obligation) 0.0%‡ | ||||||||
Series 2006-B1, Class AB 6.00%, due 6/25/16 | $ | 116,468 | $ | 116,904 | ||||
Fannie Mae Grantor Trust (Collateralized Mortgage Obligation) 1.4% | ||||||||
Series 2003-T1, Class B 4.491%, due 11/25/12 | 3,865,000 | 4,012,429 | ||||||
Fannie Mae Strip (Collateralized Mortgage Obligations) 0.1% | ||||||||
Series 360, Class 2, IO 5.00%, due 8/1/35 (g) | 1,176,052 | 184,704 | ||||||
Series 361, Class 2, IO 6.00%, due 10/1/35 (g) | 194,746 | 32,555 | ||||||
217,259 | ||||||||
Federal Home Loan Mortgage Corporation (Mortgage Pass-Through Securities) 17.6% | ||||||||
2.375%, due 3/1/35 (b) | 65,369 | 68,734 | ||||||
3.50%, due 10/1/25 | 1,171,842 | 1,216,738 | ||||||
3.50%, due 11/1/25 | 5,529,834 | 5,741,695 | ||||||
4.00%, due 3/1/25 | 3,688,254 | 3,903,671 | ||||||
4.00%, due 7/1/25 | 1,416,676 | 1,498,091 | ||||||
4.00%, due 12/1/40 | 4,868,818 | 5,090,102 | ||||||
X 4.00%, due 2/1/41 | 8,436,453 | 8,808,820 | ||||||
X 4.00%, due 3/1/41 | 9,710,647 | 10,151,989 | ||||||
4.00%, due 4/1/41 | 939,834 | 978,877 | ||||||
4.50%, due 3/1/41 | 1,381,673 | 1,465,248 | ||||||
5.00%, due 1/1/20 | 463,627 | 499,770 | ||||||
5.00%, due 6/1/33 | 2,061,637 | 2,223,950 | ||||||
5.00%, due 8/1/33 | 1,765,248 | 1,899,676 | ||||||
5.00%, due 5/1/36 | 1,938,765 | 2,081,257 | ||||||
5.00%, due 10/1/39 | 2,082,714 | 2,272,558 | ||||||
5.06%, due 6/1/35 (b) | 622,065 | 661,039 | ||||||
5.371%, due 2/1/37 (b) | 129,011 | 135,966 | ||||||
5.50%, due 1/1/21 | 1,109,995 | 1,200,170 | ||||||
5.50%, due 11/1/35 | 1,189,605 | 1,309,518 | ||||||
5.50%, due 11/1/36 | 397,439 | 439,985 | ||||||
6.50%, due 4/1/37 | 284,115 | 315,994 | ||||||
51,963,848 | ||||||||
Federal National Mortgage Association 1.1% | ||||||||
4.625%, due 5/1/13 | 2,990,000 | 3,167,495 | ||||||
Federal National Mortgage Association (Mortgage Pass-Through Securities) 50.5% | ||||||||
2.028%, due 11/1/34 (b) | 347,968 | 364,446 | ||||||
2.356%, due 4/1/34 (b) | 693,907 | 729,323 | ||||||
X 3.50%, due 11/1/20 | 6,515,203 | 6,830,308 | ||||||
3.50%, due 10/1/25 | 2,684,511 | 2,793,121 | ||||||
X 3.50%, due 11/1/25 | 19,384,397 | 20,168,656 | ||||||
3.50%, due 2/1/41 | 4,559,360 | 4,639,059 | ||||||
4.00%, due 9/1/31 | 4,459,962 | 4,680,086 | ||||||
4.00%, due 2/1/41 | 1,390,959 | 1,457,220 | ||||||
4.00%, due 3/1/41 | 3,525,056 | 3,698,486 | ||||||
X 4.50%, due 7/1/18 | 5,456,137 | 5,846,081 | ||||||
4.50%, due 11/1/18 | 3,696,865 | 3,961,076 | ||||||
4.50%, due 6/1/23 | 3,231,014 | 3,445,775 | ||||||
4.50%, due 7/1/39 | 4,428,271 | 4,763,851 | ||||||
4.50%, due 9/1/40 | 2,541,347 | 2,733,933 | ||||||
4.50%, due 12/1/40 | 3,971,777 | 4,222,495 | ||||||
X 4.50%, due 1/1/41 | 5,605,007 | 6,029,762 | ||||||
5.00%, due 9/1/17 | 1,754,782 | 1,895,859 | ||||||
5.00%, due 9/1/20 | 184,533 | 199,254 | ||||||
5.00%, due 11/1/33 | 1,679,209 | 1,812,234 | ||||||
5.00%, due 6/1/35 | 2,090,969 | 2,255,959 | ||||||
5.00%, due 10/1/35 | 988,508 | 1,065,889 | ||||||
5.00%, due 1/1/36 | 508,271 | 548,059 | ||||||
5.00%, due 2/1/36 | 3,728,455 | 4,020,323 | ||||||
5.00%, due 5/1/36 | 2,594,648 | 2,797,760 | ||||||
5.00%, due 6/1/36 | 720,493 | 776,894 | ||||||
5.00%, due 9/1/36 | 663,255 | 715,175 | ||||||
5.00%, due 3/1/40 | 3,016,380 | 3,289,740 | ||||||
5.00%, due 2/1/41 | 4,236,410 | 4,651,446 | ||||||
5.50%, due 1/1/17 | 129,896 | 141,057 | ||||||
5.50%, due 2/1/17 | 2,751,761 | 2,987,301 | ||||||
5.50%, due 6/1/19 | 1,341,140 | 1,472,306 | ||||||
5.50%, due 11/1/19 | 1,410,685 | 1,548,653 | ||||||
5.50%, due 4/1/21 | 2,366,320 | 2,572,608 | ||||||
X 5.50%, due 6/1/33 | 6,333,667 | 6,913,593 | ||||||
5.50%, due 11/1/33 | 3,427,111 | 3,740,905 | ||||||
5.50%, due 12/1/33 | 4,089,978 | 4,464,467 | ||||||
5.50%, due 6/1/34 | 908,313 | 991,339 | ||||||
5.50%, due 12/1/34 | 488,814 | 533,495 | ||||||
5.50%, due 3/1/35 | 1,654,232 | 1,805,439 | ||||||
5.50%, due 12/1/35 | 479,790 | 523,571 | ||||||
5.50%, due 4/1/36 | 1,648,090 | 1,798,478 | ||||||
5.50%, due 9/1/36 | 453,668 | 495,207 | ||||||
5.50%, due 7/1/37 | 576,482 | 640,886 | ||||||
6.00%, due 12/1/16 | 222,555 | 241,630 | ||||||
6.00%, due 11/1/32 | 930,928 | 1,033,330 | ||||||
6.00%, due 1/1/33 | 652,846 | 724,659 | ||||||
6.00%, due 3/1/33 | 800,471 | 888,022 | ||||||
6.00%, due 9/1/34 | 240,026 | 265,454 | ||||||
6.00%, due 8/1/35 TBA (h) | 5,300,000 | 5,807,640 | ||||||
6.00%, due 9/1/35 | 2,715,717 | 3,033,047 | ||||||
6.00%, due 10/1/35 | 615,371 | 686,803 | ||||||
6.00%, due 6/1/36 | 1,584,737 | 1,742,716 | ||||||
6.00%, due 11/1/36 | 1,974,096 | 2,188,779 |
The notes to the financial statements are an integral part of,
12 MainStay Government Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
U.S. Government & Federal Agencies (continued) | ||||||||
Federal National Mortgage Association (Mortgage Pass-Through Securities) (continued) | ||||||||
6.00%, due 4/1/37 | $ | 419,831 | $ | 458,403 | ||||
6.50%, due 10/1/31 | 487,474 | 549,599 | ||||||
6.50%, due 2/1/37 | 236,317 | 262,003 | ||||||
148,903,660 | ||||||||
Government National Mortgage Association (Mortgage Pass-Through Securities) 7.9% | ||||||||
4.00%, due 7/15/39 | 1,394,830 | 1,490,534 | ||||||
4.00%, due 9/20/40 | 3,414,793 | 3,648,026 | ||||||
4.00%, due 1/15/41 | 3,847,918 | 4,111,936 | ||||||
X 4.50%, due 5/20/40 | 5,930,818 | 6,440,324 | ||||||
5.00%, due 5/1/38 TBA (h) | 1,500,000 | 1,645,313 | ||||||
5.50%, due 3/1/36 TBA (h) | 2,950,000 | 3,268,969 | ||||||
6.00%, due 8/15/32 | 881,182 | 990,228 | ||||||
6.00%, due 12/15/32 | 408,909 | 459,164 | ||||||
6.50%, due 8/15/28 | 351,651 | 402,102 | ||||||
6.50%, due 4/15/31 | 794,823 | 909,102 | ||||||
23,365,698 | ||||||||
X Overseas Private Investment Corporation 2.6% | ||||||||
5.142%, due 12/15/23 (i) | 6,735,969 | 7,794,324 | ||||||
Tennessee Valley Authority 4.3% | ||||||||
3.875%, due 2/15/21 | 2,250,000 | 2,503,845 | ||||||
X 4.65%, due 6/15/35 (i) | 5,605,000 | 6,304,633 | ||||||
6.25%, due 12/15/17 (i) | 2,980,000 | 3,732,974 | ||||||
12,541,452 | ||||||||
United States Treasury Notes 1.8% | ||||||||
2.00%, due 7/15/14 T.I.P.S. (j) | 4,806,960 | 5,232,828 | ||||||
Total U.S. Government & Federal Agencies (Cost $244,506,621) | 257,315,897 | |||||||
Total Long-Term Bonds (Cost $275,981,107) | 290,471,358 | |||||||
Short-Term Investment 6.5% | ||||||||
Repurchase Agreement 6.5% | ||||||||
State Street Bank and Trust Co. 0.01%, dated 10/31/11 due 11/1/11 Proceeds at Maturity $19,067,467 (Collateralized by a Federal Home Loan Mortgage Corp. security with a rate of 0.78% and a maturity date of 9/8/14, with a Principal Amount of $19,440,000 and a Market Value of $19,451,042) | 19,067,462 | 19,067,462 | ||||||
Total Short-Term Investment (Cost $19,067,462) | 19,067,462 | |||||||
Total Investments (Cost $295,048,569) (k) | 105.0 | % | 309,538,820 | |||||
Other Assets, Less Liabilities | (5.0 | ) | (14,670,470 | ) | ||||
Net Assets | 100.0 | % | $ | 294,868,350 | ||||
††† | On a daily basis New York Life Investments confirms that the value of the Fund’s liquid assets (liquid portfolio securities and cash) is sufficient to cover its potential senior securities (e.g., futures, swaps, options). | |
‡ | Less than one-tenth of a percent. | |
(a) | Subprime mortgage investment and other asset-backed securities—The total market value of these securities at October 31, 2011 is $272,463, which represents 0.1% of the Fund’s net assets. | |
(b) | Floating rate—Rate shown is the rate in effect at October 31, 2011. | |
(c) | Collateral strip rate—Bond whose interest is based on the weighted net interest rate of the collateral. Coupon rate adjusts periodically based on a predetermined schedule. Rate shown is the rate in effect at October 31, 2011. | |
(d) | May be sold to institutional investors only under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended. | |
(e) | Illiquid security—The total market value of this security at October 31, 2011 is $1,281,268, which represents 0.4% of the Fund’s net assets. | |
(f) | Fair valued security—The total market value of this security at October 31, 2011 is $1,281,268, which represents 0.4% of the Fund’s net assets. | |
(g) | Collateralized Mortgage Obligation Interest Only Strip—Pays a fixed or variable rate of interest based on mortgage loans or mortgage pass-through securities. The principal amount of the underlying pool represents the notional amount on which the current interest is calculated. The value of these stripped securities may be particularly sensitive to changes in prevailing interest rates and are typically more sensitive to changes in prepayment rates than traditional mortgage-backed securities. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 13 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
(h) | TBA—Securities purchased on a forward commitment basis with an approximate principal amount and maturity date. The actual principal amount and maturity date will be determined upon settlement. The market value of these securities at October 31, 2011 is $10,721,922, which represents 3.6% of the Fund’s net assets. All or a portion of these securities were acquired under a mortgage dollar roll agreement. | |
(i) | United States Government Guaranteed Security. | |
(j) | Treasury Inflation Protected Security—Pays a fixed rate of interest on a principal amount that is continuously adjusted for inflation based on the Consumer Price Index-Urban Consumers. | |
(k) | At October 31, 2011, cost is $295,048,569 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 14,840,025 | ||
Gross unrealized depreciation | (349,774 | ) | ||
Net unrealized appreciation | $ | 14,490,251 | ||
The following is a summary of the fair valuations according to the inputs used as of October 31, 2011, for valuing the Fund’s assets.
Asset Valuation Inputs
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Long-Term Bonds | ||||||||||||||||
Asset-Backed Securities | $ | — | $ | 4,691,568 | $ | — | $ | 4,691,568 | ||||||||
Corporate Bonds | — | 16,337,429 | — | 16,337,429 | ||||||||||||
Mortgage-Backed Securities (b) | — | 10,845,196 | 1,281,268 | 12,126,464 | ||||||||||||
U.S. Government & Federal Agencies | — | 257,315,897 | — | 257,315,897 | ||||||||||||
Total Long-Term Bonds | — | 289,190,090 | 1,281,268 | 290,471,358 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 19,067,462 | — | 19,067,462 | ||||||||||||
Total Investments in Securities | $ | — | $ | 308,257,552 | $ | 1,281,268 | $ | 309,538,820 | ||||||||
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The Level 3 security valued at $1,281,268 is held in Commercial Mortgage Loans (Collateralized Mortgage Obligations) within the Mortgage-Backed Securities section of the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended October 31, 2011, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
Change in | ||||||||||||||||||||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||||||||||||||||||
Appreciation | ||||||||||||||||||||||||||||||||||||||||
(Depreciation) | ||||||||||||||||||||||||||||||||||||||||
from | ||||||||||||||||||||||||||||||||||||||||
Balance | Change in | Balance | Investments | |||||||||||||||||||||||||||||||||||||
as of | Accrued | Realized | Unrealized | Transfers | Transfers | as of | Still Held at | |||||||||||||||||||||||||||||||||
October 31, | Discounts | Gain | Appreciation | in to | out of | October 31, | October 31, | |||||||||||||||||||||||||||||||||
Investments in Securities | 2010 | (Premiums) | (Loss) | (Depreciation) | Purchases | Sales | Level 3 | Level 3 | 2011 | 2011 (a) | ||||||||||||||||||||||||||||||
Long-Term Bonds | ||||||||||||||||||||||||||||||||||||||||
Mortgage-Backed Securities | ||||||||||||||||||||||||||||||||||||||||
Commercial Mortgage Loans (Collateralized Mortgage Obligations) | ||||||||||||||||||||||||||||||||||||||||
$ | 1,412,917 | $ | 638 | $ | 960 | $ | (70,379 | ) | $ | — | $ | (62,868) | (b) | $ | — | $ | — | $ | 1,281,268 | $ | (72,531 | ) | ||||||||||||||||||
Total | $ | 1,412,917 | $ | 638 | $ | 960 | $ | (70,379 | ) | $ | — | $ | (62,868) | $ | — | $ | — | $ | 1,281,268 | $ | (72,531 | ) | ||||||||||||||||||
(a) | Included in “Net change in unrealized appreciation (depreciation) on investments” in the Statement of Operations. |
(b) | Sales include principal reductions. |
The notes to the financial statements are an integral part of,
14 MainStay Government Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statement of Assets and Liabilities as of October 31, 2011
Assets | ||||
Investment in securities, at value (identified cost $295,048,569) | $ | 309,538,820 | ||
Receivables: | ||||
Interest | 1,481,239 | |||
Fund shares sold | 240,129 | |||
Investment securities sold | 47,476 | |||
Other assets | 31,481 | |||
Total assets | 311,339,145 | |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 15,680,116 | |||
Fund shares redeemed | 289,234 | |||
Manager (See Note 3) | 133,175 | |||
Transfer agent (See Note 3) | 132,117 | |||
NYLIFE Distributors (See Note 3) | 96,184 | |||
Shareholder communication | 37,265 | |||
Professional fees | 15,426 | |||
Custodian | 1,135 | |||
Trustees | 1,078 | |||
Accrued expenses | 4,647 | |||
Dividend payable | 80,418 | |||
Total liabilities | 16,470,795 | |||
Net assets | $ | 294,868,350 | ||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 332,398 | ||
Additional paid-in capital | 279,131,132 | |||
279,463,530 | ||||
Undistributed net investment income | 114,418 | |||
Accumulated net realized gain (loss) on investments | 800,151 | |||
Net unrealized appreciation (depreciation) on investments | 14,490,251 | |||
Net assets | $ | 294,868,350 | ||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 59,532,792 | ||
Shares of beneficial interest outstanding | 6,692,335 | |||
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 A | ||||
Net assets applicable to outstanding shares | $ | 176,253,470 | ||
Shares of beneficial interest outstanding | 19,883,096 | |||
Net asset value per share outstanding | $ | 8.86 | ||
Maximum sales charge (4.50% of offering price) | 0.42 | |||
Maximum offering price per share outstanding | $ | 9.28 | ||
Class B | ||||
Net assets applicable to outstanding shares | $ | 25,643,582 | ||
Shares of beneficial interest outstanding | 2,893,726 | |||
Net asset value and offering price per share outstanding | $ | 8.86 | ||
Class C | ||||
Net assets applicable to outstanding shares | $ | 29,440,719 | ||
Shares of beneficial interest outstanding | 3,323,625 | |||
Net asset value and offering price per share outstanding | $ | 8.86 | ||
Class I | ||||
Net assets applicable to outstanding shares | $ | 3,997,787 | ||
Shares of beneficial interest outstanding | 447,008 | |||
Net asset value and offering price per share outstanding | $ | 8.94 | ||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 15 |
Table of Contents
Statement of Operations for the year ended October 31, 2011
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 11,073,630 | ||
Expenses | ||||
Manager (See Note 3) | 1,821,295 | |||
Distribution/Service—Investor Class (See Note 3) | 149,562 | |||
Distribution/Service—Class A (See Note 3) | 437,806 | |||
Distribution/Service—Class B (See Note 3) | 296,223 | |||
Distribution/Service—Class C (See Note 3) | 263,845 | |||
Transfer agent (See Note 3) | 795,386 | |||
Registration | 83,159 | |||
Shareholder communication | 67,779 | |||
Professional fees | 67,211 | |||
Custodian | 16,887 | |||
Trustees | 7,746 | |||
Miscellaneous | 15,341 | |||
Total expenses before waiver/reimbursement | 4,022,240 | |||
Expense waiver/reimbursement from Manager (See Note 3) | (424,366 | ) | ||
Net expenses | 3,597,874 | |||
Net investment income (loss) | 7,475,756 | |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments | 987,044 | |||
Net change in unrealized appreciation (depreciation) on investments | (1,949,853 | ) | ||
Net realized and unrealized gain (loss) on investments | (962,809 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | 6,512,947 | ||
The notes to the financial statements are an integral part of,
16 MainStay Government Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statements of Changes in Net Assets
for the years ended October 31, 2011 and October 31, 2010
2011 | 2010 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 7,475,756 | $ | 7,377,183 | ||||
Net realized gain (loss) on investments and futures transactions | 987,044 | 4,949,454 | ||||||
Net change in unrealized appreciation (depreciation) on investments and futures contracts | (1,949,853 | ) | 5,295,334 | |||||
Net increase (decrease) in net assets resulting from operations | 6,512,947 | 17,621,971 | ||||||
Dividends and distributions to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (1,848,261 | ) | (1,482,338 | ) | ||||
Class A | (5,676,902 | ) | (4,608,640 | ) | ||||
Class B | (703,945 | ) | (655,007 | ) | ||||
Class C | (634,595 | ) | (537,566 | ) | ||||
Class I | (116,464 | ) | (87,752 | ) | ||||
(8,980,167 | ) | (7,371,303 | ) | |||||
From net realized gain on investments: | ||||||||
Investor Class | (627,647 | ) | — | |||||
Class A | (1,869,468 | ) | — | |||||
Class B | (346,140 | ) | — | |||||
Class C | (314,704 | ) | — | |||||
Class I | (40,882 | ) | — | |||||
(3,198,841 | ) | — | ||||||
Total dividends and distributions to shareholders | (12,179,008 | ) | (7,371,303 | ) | ||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 36,073,606 | 44,606,523 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 10,603,969 | 6,259,349 | ||||||
Cost of shares redeemed | (70,986,403 | ) | (67,218,092 | ) | ||||
Increase (decrease) in net assets derived from capital share transactions | (24,308,828 | ) | (16,352,220 | ) | ||||
Net increase (decrease) in net assets | (29,974,889 | ) | (6,101,552 | ) | ||||
Net Assets | ||||||||
Beginning of year | 324,843,239 | 330,944,791 | ||||||
End of year | $ | 294,868,350 | $ | 324,843,239 | ||||
Undistributed net investment income at end of year | $ | 114,418 | $ | 1,431,993 | ||||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 17 |
Table of Contents
Financial Highlights selected per share data and ratios
Investor Class | ||||||||||||||||||
February 28, | ||||||||||||||||||
2008** | ||||||||||||||||||
through | ||||||||||||||||||
Year ended October 31, | October 31, | |||||||||||||||||
2011 | 2010 | 2009 | 2008 | |||||||||||||||
Net asset value at beginning of period | $ | 9.03 | $ | 8.75 | $ | 8.16 | $ | 8.41 | ||||||||||
Net investment income (loss) (a) | 0.23 | 0.21 | 0.26 | 0.22 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.00 | )‡ | 0.28 | 0.59 | (0.26 | ) | ||||||||||||
Total from investment operations | 0.23 | 0.49 | 0.85 | (0.04 | ) | |||||||||||||
Less dividends and distributions: | ||||||||||||||||||
From net investment income | (0.27 | ) | (0.21 | ) | (0.26 | ) | (0.21 | ) | ||||||||||
From net realized gain on investments | (0.09 | ) | — | — | — | |||||||||||||
Total dividends and distributions | (0.36 | ) | (0.21 | ) | (0.26 | ) | (0.21 | ) | ||||||||||
Net asset value at end of period | $ | 8.90 | $ | 9.03 | $ | 8.75 | $ | 8.16 | ||||||||||
Total investment return (b) | 2.73 | % | 5.67 | % | 10.67 | % | (0.57 | %)(c) | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||
Net investment income (loss) | 2.61 | % | 2.37 | % | 2.99 | % | 3.89 | % †† | ||||||||||
Net expenses | 1.17 | % | 1.15 | % | 1.04 | % | 1.07 | % †† | ||||||||||
Expenses (before waiver/reimbursement) | 1.31 | % | 1.32 | % | 1.34 | % | 1.38 | % †† | ||||||||||
Portfolio turnover rate | 62 | % (d) | 132 | % (d) | 103 | % (d) | 51 | % (d) | ||||||||||
Net assets at end of period (in 000’s) | $ | 59,533 | $ | 62,350 | $ | 63,591 | $ | 61,147 |
** | Commencement of operations. | |
†† | Annualized. | |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the period. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. | |
(c) | Total investment return is not annualized. | |
(d) | The portfolio turnover rates not including mortgage dollar rolls were 43%, 19%, 45% and 43% for the years ended October 31, 2011, 2010, 2009 and 2008, respectively. |
The notes to the financial statements are an integral part of,
18 MainStay Government Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class A | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 9.00 | $ | 8.72 | $ | 8.13 | $ | 8.21 | $ | 8.19 | ||||||||||||
Net investment income (loss) (a) | 0.24 | 0.22 | 0.27 | 0.33 | 0.34 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.01 | ) | 0.28 | 0.59 | (0.07 | ) | 0.03 | |||||||||||||||
Total from investment operations | 0.23 | 0.50 | 0.86 | 0.26 | 0.37 | |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.28 | ) | (0.22 | ) | (0.27 | ) | (0.34 | ) | (0.35 | ) | ||||||||||||
From net realized gain on investments | (0.09 | ) | — | — | — | — | ||||||||||||||||
Total dividends and distributions | (0.37 | ) | (0.22 | ) | (0.27 | ) | (0.34 | ) | (0.35 | ) | ||||||||||||
Net asset value at end of year | $ | 8.86 | $ | 9.00 | $ | 8.72 | $ | 8.13 | $ | 8.21 | ||||||||||||
Total investment return (b) | 2.76 | % | 5.81 | % | 10.71 | % | 3.12 | % | 4.67 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 2.74 | % | 2.49 | % | 3.11 | % | 4.00 | % | 4.16 | % | ||||||||||||
Net expenses | 1.03 | % | 1.03 | % | 0.92 | % | 0.97 | % | 1.05 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.17 | % | 1.20 | % | 1.21 | % | 1.28 | % | 1.35 | % | ||||||||||||
Portfolio turnover rate | 62 | % (c) | 132 | % (c) | 103 | % (c) | 51 | % (c) | 11 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 176,253 | $ | 187,828 | $ | 187,771 | $ | 182,621 | $ | 227,896 |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. | |
(c) | The portfolio turnover rates not including mortgage dollar rolls were 43%, 19%, 45% and 43% for the years ended October 31, 2011, 2010, 2009 and 2008, respectively. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 19 |
Table of Contents
Financial Highlights selected per share data and ratios
Class B | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 9.00 | $ | 8.71 | $ | 8.13 | $ | 8.20 | $ | 8.19 | ||||||||||||
Net investment income (loss) (a) | 0.16 | 0.14 | 0.19 | 0.26 | 0.28 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.00 | )‡ | 0.29 | 0.59 | (0.06 | ) | 0.02 | |||||||||||||||
Total from investment operations | 0.16 | 0.43 | 0.78 | 0.20 | 0.30 | |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.21 | ) | (0.14 | ) | (0.20 | ) | (0.27 | ) | (0.29 | ) | ||||||||||||
From net realized gain on investments | (0.09 | ) | — | — | — | — | ||||||||||||||||
Total dividends and distributions | (0.30 | ) | (0.14 | ) | (0.20 | ) | (0.27 | ) | (0.29 | ) | ||||||||||||
Net asset value at end of year | $ | 8.86 | $ | 9.00 | $ | 8.71 | $ | 8.13 | $ | 8.20 | ||||||||||||
Total investment return (b) | 1.85 | % | 5.02 | % | 9.62 | % | 2.41 | % | 3.77 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 1.85 | % | 1.62 | % | 2.24 | % | 3.18 | % | 3.41 | % | ||||||||||||
Net expenses | 1.92 | % | 1.90 | % | 1.79 | % | 1.79 | % | 1.80 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 2.06 | % | 2.07 | % | 2.09 | % | 2.10 | % | 2.10 | % | ||||||||||||
Portfolio turnover rate | 62 | % (c) | 132 | % (c) | 103 | % (c) | 51 | % (c) | 11 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 25,644 | $ | 36,859 | $ | 45,178 | $ | 51,826 | $ | 50,123 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. | |
(c) | The portfolio turnover rates not including mortgage dollar rolls were 43%, 19%, 45% and 43% for the years ended October 31, 2011, 2010, 2009 and 2008, respectively. |
The notes to the financial statements are an integral part of,
20 MainStay Government Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class C | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 9.00 | $ | 8.71 | $ | 8.12 | $ | 8.20 | $ | 8.18 | ||||||||||||
Net investment income (loss) (a) | 0.16 | 0.14 | 0.19 | 0.26 | 0.28 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.00 | )‡ | 0.29 | 0.60 | (0.07 | ) | 0.03 | |||||||||||||||
Total from investment operations | 0.16 | 0.43 | 0.79 | 0.19 | 0.31 | |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.21 | ) | (0.14 | ) | (0.20 | ) | (0.27 | ) | (0.29 | ) | ||||||||||||
From net realized gain on investments | (0.09 | ) | — | — | — | — | ||||||||||||||||
Total dividends and distributions | (0.30 | ) | (0.14 | ) | (0.20 | ) | (0.27 | ) | (0.29 | ) | ||||||||||||
Net asset value at end of year | $ | 8.86 | $ | 9.00 | $ | 8.71 | $ | 8.12 | $ | 8.20 | ||||||||||||
Total investment return (b) | 1.85 | % | 5.02 | % | 9.75 | % | 2.28 | % | 3.89 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 1.86 | % | 1.62 | % | 2.23 | % | 3.16 | % | 3.41 | % | ||||||||||||
Net expenses | 1.92 | % | 1.90 | % | 1.80 | % | 1.80 | % | 1.80 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 2.06 | % | 2.07 | % | 2.09 | % | 2.11 | % | 2.10 | % | ||||||||||||
Portfolio turnover rate | 62 | % (c) | 132 | % (c) | 103 | % (c) | 51 | % (c) | 11 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 29,441 | $ | 33,523 | $ | 32,659 | $ | 25,967 | $ | 7,621 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. | |
(c) | The portfolio turnover rates not including mortgage dollar rolls were 43%, 19%, 45% and 43% for the years ended October 31, 2011, 2010, 2009 and 2008, respectively. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 21 |
Table of Contents
Financial Highlights selected per share data and ratios
Class I | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 9.08 | $ | 8.79 | $ | 8.19 | $ | 8.26 | $ | 8.24 | ||||||||||||
Net investment income (loss) (a) | 0.26 | 0.24 | 0.30 | 0.35 | 0.40 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.00 | )‡ | 0.29 | 0.61 | (0.04 | ) | 0.02 | |||||||||||||||
Total from investment operations | 0.26 | 0.53 | 0.91 | 0.31 | 0.42 | |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.31 | ) | (0.24 | ) | (0.31 | ) | (0.38 | ) | (0.40 | ) | ||||||||||||
From net realized gain on investments | (0.09 | ) | — | — | — | — | ||||||||||||||||
Total dividends and distributions | (0.40 | ) | (0.24 | ) | (0.31 | ) | (0.38 | ) | (0.40 | ) | ||||||||||||
Net asset value at end of year | $ | 8.94 | $ | 9.08 | $ | 8.79 | $ | 8.19 | $ | 8.26 | ||||||||||||
Total investment return (b) | 2.99 | % | 6.14 | % | 11.21 | % | 3.68 | % | 5.31 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 2.99 | % | 2.74 | % | 3.52 | % | 4.24 | % | 4.84 | % | ||||||||||||
Net expenses | 0.78 | % | 0.78 | % | 0.51 | % | 0.40 | % | 0.42 | % | ||||||||||||
Expenses (before reimbursement/waiver) | 0.92 | % | 0.95 | % | 0.97 | % | 0.99 | % | 1.00 | % | ||||||||||||
Portfolio turnover rate | 62 | % (c) | 132 | % (c) | 103 | % (c) | 51 | % (c) | 11 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 3,998 | $ | 4,284 | $ | 1,746 | $ | 1,332 | $ | 7 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. | |
(c) | The portfolio turnover rates not including mortgage dollar rolls were 43%, 19%, 45% and 43% for the years ended October 31, 2011, 2010, 2009 and 2008, respectively. |
The notes to the financial statements are an integral part of,
22 MainStay Government Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Notes to Financial Statements
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of fourteen funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay Government Fund (the “Fund”), a diversified fund.
The Fund currently offers five classes of shares. Class A shares commenced operations on January 3, 1995. Class B shares commenced operations on May 1, 1986. Class C shares commenced operations on September 1, 1998. Class I shares commenced operations on January 2, 2004. Investor Class shares commenced operations on February 28, 2008. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies on investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The five classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class and Class A shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I shares are not subject to a distribution and/or service fee.
The Fund’s investment objective is to seek a high level of current income, consistent with safety of principal.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (usually 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are determined within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish 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 developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in determining the fair value of investments) |
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may utilize some of the following fair value techniques: multi-dimensional relational pricing models, option adjusted spread pricing and estimating the price that would have prevailed in a liquid market for an international equity security given information available at the time of evaluation, when there are significant events after the close of local foreign markets.
The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2011, there have been no changes to the fair value methodologies.
The aggregate value by input level, as of October 31, 2011, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
Debt securities are valued at the evaluated bid prices supplied by a pricing agent or brokers selected by the Fund’s Manager (as defined in Note 3(A)) in consultation with the Fund’s Subadvisor (as defined in Note 3(A)) whose prices reflect broker/dealer supplied valuations and
mainstayinvestments.com 23
Table of Contents
Notes to Financial Statements (continued)
electronic data processing techniques, if such prices are deemed by the Fund’s Manager, in consultation with the Fund’s Subadvisor, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities, including corporate bonds, U.S. government & federal agency bonds, municipal bonds, foreign bonds, Yankee bonds, convertible bonds, asset-backed securities, and mortgage-backed securities, are generally categorized as Level 2 in the hierarchy.
Temporary cash investments acquired over 60 days prior to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of the difference between such cost and the value on maturity date. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not obtained from a quoted price in an active market. These securities are all generally categorized as Level 2 in the hierarchy.
Securities for which market quotations are not readily available are valued by methods deemed in good faith by the Fund’s Board to represent fair value. Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security the trading for which 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 the market price of which is not available from an independent pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor reflect the security’s market value; and (vi) a security where the trading on that security’s principal market is temporarily closed at a time when, under normal conditions, it would be open. These securities are generally categorized as Level 3 in the hierarchy. At October 31, 2011, the Fund held securities with a value of $1,281,268 that were fair valued in such a manner.
Generally, a security is considered illiquid if it cannot be sold or disposed of in the ordinary course of business at approximately the price at which it is valued. Its illiquidity might prevent the sale of such security at a time when the Manager or Subadvisor might wish to sell, and these securities could have the effect of decreasing the overall level of a Fund’s liquidity. Further, the lack of an established secondary market may make it more difficult to value illiquid securities, requiring the Fund to rely on judgments that may be somewhat subjective in determining value, which could vary from the amount that the Fund could realize upon disposition. Difficulty in selling illiquid securities may result in a loss or may be costly to the Fund. Under the supervision of the Board, the Manager or Subadvisor 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 generally will be valued in such manner as the Board in good faith deems appropriate to reflect their fair market value.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provision is required.
Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provision for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income monthly and distributions of net realized capital and currency gains, if any, annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(D) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method and include gains and losses from repayments of principal on mortgage-backed securities. Interest income is accrued as earned using the effective interest rate method. Discounts and premiums on securities purchased, other than Short-Term Investments, for the Fund are accreted and amortized, respectively, on the effective interest rate method over the life of the respective securities or, in the case of a callable security, over the period to the first date of call. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method. Income from payment-in-kind securities is recorded daily based on the effective interest method of accrual.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
(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
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can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(F) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(G) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisor to be creditworthy, pursuant to guidelines established by the Fund’s Board. Repurchase agreements are considered under the 1940 Act to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in such repurchase agreements. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default of 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, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(H) Mortgage Dollar Rolls. The Fund may enter into mortgage dollar roll (“MDR”) 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 MDR transactions of the Fund are classified as purchase and sale transactions. The securities sold in connection with the MDRs are removed from the portfolio and a realized gain or loss is recognized. The securities the 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. MDRs may be renewed without physical delivery of the securities subject to the contract. The Fund maintains liquid assets from its portfolio having a value not less than the repurchase price, including accrued interest. MDR transactions involve certain risks, including the risk that the MBS returned to the Fund at the end of the roll, while substantially similar, could be inferior to what was initially sold to the counterparty.
(I) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act, and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund’s cash collateral in accordance with the Lending Agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue to receive interest and dividends on the securities loaned and any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the account of the Fund.
Although the Fund and New York Life Investments (as defined in Note 3(A)) have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund had no portfolio securities on loan as of October 31, 2011.
(J) Concentration of Risk. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic or political developments in a specific country, industry or region.
(K) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), 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, including a portion of the total compensation of the Chief Compliance Officer (“CCO”) of the Fund which is the responsibility of all investment companies for which the CCO serves, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of
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Notes to Financial Statements (continued)
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 an 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.
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; 0.575% from $500 million to $1 billion; and 0.55% in excess of $1 billion, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement, furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. New York Life Investments has contractually agreed to waive fees and/or reimburse expenses so that the management fee does not exceed 0.50% up to $500 million; 0.475% from $500 million to $1 billion; and 0.45% in excess of $1 billion. This agreement expires on February 28, 2012 and may only be amended or terminated prior to that date by action of the Board. The effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.62% for the year ended October 31, 2011, inclusive of a fee for fund accounting services of 0.02% of the Fund’s average daily net assets.
The Manager has contractually agreed to waive fees and/or reimburse expenses so that Total Annual Fund Operating Expenses for the Fund’s Class A shares do not exceed 1.03% of its average daily net assets. New York Life Investments will apply an equivalent waiver or reimbursement, in an equal number of basis points, to the other share classes of the Fund. This agreement expires on February 28, 2012 and may only be amended or terminated prior to that date by action of the Board. Total Annual Fund Operating Expenses excludes taxes, interest, litigation, extraordinary expenses, brokerage and other transaction expenses relating to the purchase or sale of portfolio investments, and acquired (underlying) fund fees and expenses.
For the year ended October 31, 2011, New York Life Investments earned fees from the Fund in the amount of $1,821,295 and waived its fees and/or reimbursed expenses in the amount of $424,366.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution and Service Fees. The Trust, on behalf of the Fund, has entered into a Distribution Agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class and Class A Plans, the Distributor receives a monthly distribution fee from the Investor Class and Class A shares at an annual rate of 0.25% of the average daily net assets of the Investor Class and Class A shares for distribution or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average daily net assets of the Class B and Class C shares along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 1.00%. Class I shares are not subject to a distribution or service fee.
The Plans provide that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund’s shares and service activities.
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $9,065 and $18,089, respectively, for the year ended October 31, 2011. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $18, $186, $36,342 and $4,460, respectively, for the year ended October 31, 2011.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2011, were as follows:
Investor Class | $ | 210,173 | ||
Class A | 381,142 | |||
Class B | 104,387 | |||
Class C | 92,635 | |||
Class I | 7,049 | |||
(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. At October 31, 2011, New York Life and its affiliates beneficially held shares of the Fund with the following values and percentages of net assets as follows:
Class A | $ | 223 | 0 | .0%‡ | ||||||
Class C | 134 | 0 | .0‡ | |||||||
Class I | 1,406 | 0 | .0‡ | |||||||
‡ | Less than one-tenth of a percent. |
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(G) Other. Pursuant to a Legal Services Agreement, a portion of the cost of legal services provided to the Fund by the Office of the General Counsel of New York Life Investments was payable directly by the Fund through March 17, 2011. For the year ended October 31, 2011, these fees, which are included in professional fees shown on the Statement of Operations, were $4,556. Effective March 18, 2011, the Legal Services Agreement expired and was not renewed. Therefore, the Fund is no longer directly responsible for any portion of the cost of legal services.
Note 4–Federal Income Tax
As of October 31, 2011, the components of accumulated gain (loss) on a tax basis were as follows:
Accumulated | ||||||||||||||||||
Capital | Other | Unrealized | Total | |||||||||||||||
Ordinary | and Other | Temporary | Appreciation | Accumulated | ||||||||||||||
Income | Gain (Loss) | Differences | (Depreciation) | Gain (Loss) | ||||||||||||||
$ | 194,836 | $ | 800,151 | $ | (80,418 | ) | $ | 14,490,251 | $ | 15,404,820 | ||||||||
The other temporary differences are primarily due to dividends payable.
The following table discloses the current year reclassifications between undistributed net investment income, accumulated net realized loss on investments and additional paid-in capital arising from permanent differences; net assets at October 31, 2011 were not affected.
Accumulated | ||||||||||
Undistributed | Net Realized | |||||||||
Net Investment | Gain (Loss) on | Additional | ||||||||
Income (Loss) | Investments | Paid-In Capital | ||||||||
$ | 186,836 | $ | (186,836 | ) | $ | — | ||||
The reclassifications for the Fund are primarily due to reclassifications of distributions, reclassification of consent fee and reclassification of mortgage dollar roll income.
Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 shown in the Statements of Changes in Net Assets was as follows:
2011 | 2010 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 10,772,458 | $ | 7,371,303 | ||||
Long-Term Capital Gain | 1,406,550 | |||||||
Total | $ | 12,179,008 | $ | 7,371,303 | ||||
Note 5–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 6–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 31, 2011, under an amended credit agreement, the aggregate commitment amount is $125,000,000 with an optional maximum amount of $175,000,000. The commitment rate is an annual rate of 0.08% of the average commitment amount, payable quarterly, regardless of usage, to The Bank of New York Mellon, which serves as the agent to the syndicate. The commitment fee is allocated among certain MainStay Funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The amended credit agreement expires on August 29, 2012, although the MainStay Funds and the syndicate of banks may renew the amended credit agreement for an additional year on the same or different terms. Prior to August 31, 2011, the commitment rate was an annual rate of 0.10% of the average commitment amount, plus a 0.02% up-front payment. There were no borrowings made or outstanding with respect to the Fund on the amended credit agreement during the year ended October 31, 2011.
Note 7–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2011, purchases and sales of U.S. government securities were $170,729 and $194,836, respectively. Purchases and sales of securities, other than U.S. government securities and short-term securities, were $8,539 and $7,180, respectively.
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Notes to Financial Statements (continued)
Note 8–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 343,721 | $ | 3,025,097 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 267,408 | 2,336,563 | ||||||
Shares redeemed | (1,100,521 | ) | (9,665,253 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (489,392 | ) | (4,303,593 | ) | ||||
Shares converted into Investor Class (See Note 1) | 608,534 | 5,358,070 | ||||||
Shares converted from Investor Class (See Note 1) | (328,281 | ) | (2,896,937 | ) | ||||
Net increase (decrease) | (209,139 | ) | $ | (1,842,460 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 569,341 | $ | 5,062,853 | |||||
Shares issued to shareholders in reinvestment of dividends | 155,988 | 1,382,025 | ||||||
Shares redeemed | (1,148,151 | ) | (10,141,750 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (422,822 | ) | (3,696,872 | ) | ||||
Shares converted into Investor Class (See Note 1) | 490,439 | 4,330,699 | ||||||
Shares converted from Investor Class (See Note 1) | (436,619 | ) | (3,880,711 | ) | ||||
Net increase (decrease) | (369,002 | ) | $ | (3,246,884 | ) | |||
Class A | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 1,914,964 | $ | 16,878,805 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 757,731 | 6,598,175 | ||||||
Shares redeemed | (4,207,878 | ) | (36,808,755 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (1,535,183 | ) | (13,331,775 | ) | ||||
Shares converted into Class A (See Note 1) | 710,048 | 6,229,812 | ||||||
Shares converted from Class A (See Note 1) | (151,756 | ) | (1,336,414 | ) | ||||
Net increase (decrease) | (976,891 | ) | $ | (8,438,377 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 2,181,501 | $ | 19,309,383 | |||||
Shares issued to shareholders in reinvestment of dividends | 443,278 | 3,915,689 | ||||||
Shares redeemed | (3,905,060 | ) | (34,386,342 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (1,280,281 | ) | (11,161,270 | ) | ||||
Shares converted into Class A (See Note 1) | 876,130 | 7,737,236 | ||||||
Shares converted from Class A (See Note 1) | (126,442 | ) | (1,111,827 | ) | ||||
Shares converted from Class A (a) | (147,997 | ) | (1,284,614 | ) | ||||
Net increase (decrease) | (678,590 | ) | $ | (5,820,475 | ) | |||
Class B | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 445,347 | $ | 3,921,619 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 109,970 | 955,825 | ||||||
Shares redeemed | (916,747 | ) | (8,020,044 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (361,430 | ) | (3,142,600 | ) | ||||
Shares converted from Class B (See Note 1) | (840,071 | ) | (7,354,531 | ) | ||||
Net increase (decrease) | (1,201,501 | ) | $ | (10,497,131 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 834,658 | $ | 7,352,568 | |||||
Shares issued to shareholders in reinvestment of dividends | 66,810 | 589,270 | ||||||
Shares redeemed | (1,186,277 | ) | (10,396,840 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (284,809 | ) | (2,455,002 | ) | ||||
Shares converted from Class B (See Note 1) | (804,288 | ) | (7,075,397 | ) | ||||
Net increase (decrease) | (1,089,097 | ) | $ | (9,530,399 | ) | |||
Class C | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 1,140,103 | $ | 10,110,598 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 68,135 | 591,811 | ||||||
Shares redeemed | (1,610,748 | ) | (14,044,322 | ) | ||||
Net increase (decrease) | (402,510 | ) | $ | (3,341,913 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 1,153,364 | $ | 10,172,156 | |||||
Shares issued to shareholders in reinvestment of dividends | 35,268 | 311,299 | ||||||
Shares redeemed | (1,211,719 | ) | (10,664,364 | ) | ||||
Net increase (decrease) | (23,087 | ) | $ | (180,909 | ) | |||
Class I | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 239,647 | $ | 2,137,487 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 13,825 | 121,595 | ||||||
Shares redeemed | (278,226 | ) | (2,448,029 | ) | ||||
Net increase (decrease) | (24,754 | ) | $ | (188,947 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 301,914 | $ | 2,709,563 | |||||
Shares issued to shareholders in reinvestment of dividends | 6,836 | 61,066 | ||||||
Shares redeemed | (182,429 | ) | (1,628,796 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 126,321 | 1,141,833 | ||||||
Shares converted into Class I (a) | 146,813 | 1,284,614 | ||||||
Net increase (decrease) | 273,134 | $ | 2,426,447 | |||||
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(a) | In addition to any automatic conversion features described above in Note 1 with respect to Investor Class, Class A and Class B shares, investors generally may also elect to convert their shares on a voluntary basis into another share class of the same MainStay Fund subject to satisfying the eligibility requirements of the new share class, if any. However, the following limitations apply: |
• | Investor Class, Class A and Class C shares that remain subject to a CDSC are ineligible for a voluntary conversion; and |
• | All Class B shares are ineligible for a voluntary conversion. |
These limitations do not impact any automatic conversion features described elsewhere in Note 1 with respect to Investor Class, Class A and Class B shares.
An investor or an investor’s financial intermediary may contact the MainStay Funds to request a voluntary conversion between share classes of the same MainStay Fund. Investors may be required to provide sufficient information to establish eligibility to convert to the new share class. All permissible conversions will be made on the basis of the relevant NAVs of the two classes without the imposition of any sales load, fee or other charge. If an investor fails to remain eligible for the new share class, they may be converted automatically back to their original share class, or into another share class, if appropriate. Although the MainStay Funds expect that a conversion between share classes of the same MainStay Fund should not result in the recognition of a gain or loss for tax purposes, shareholders should consult with their own tax adviser with respect to the tax treatment of their investment in a MainStay Fund. The MainStay Funds may change, suspend or terminate this conversion feature at any time.
Note 9–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2011, events and transactions subsequent to October 31, 2011 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.
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Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Government Fund (“the Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Government Fund of The MainStay Funds as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 22, 2011
December 22, 2011
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Federal Income Tax Information (Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders within 60 days of the Fund’s fiscal year end (October 31, 2011) as to the federal tax status of dividends paid by the Fund during such fiscal years. Accordingly, the Fund paid $1,406,550 as a long term capital gain distribution.
In February 2012 shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2011. The amounts that will be reported on such 1099-DIV or substitute From 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2011.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
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Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, Eclipse Funds, Eclipse Funds Inc., MainStay Funds Trust, and MainStay VP Funds Trust) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s). Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation upon reaching age 72. A Board Member reaching the age of 72 may continue for additional one-year periods with the approval of the Board’s Nominating and Governance Committee.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Interested Board Member* | ||||||||
John Y. Kim 9/24/60 | Indefinite; Eclipse Funds: Trustee since 2008 (2 funds); Eclipse Funds Inc.: Director since 2008 (1 fund); The MainStay Funds: Trustee since 2008 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc. since 2008 (21 portfolios). | Member of the Board of Managers (since 2011) of New York Life Enterprises LLC; Chairman (since 2011), Member of the Board of Managers, Chief Executive Officer and President (since 2008) of New York Life Investment Management LLC and New York Life Investment Management Holdings LLC; Executive Vice President (since 2011) of New York Life Foundation; Member of the Board of Managers and Chairman of the Board of Private Advisors, L.L.C. (since 2010); Executive Vice President, New York Life Insurance Company (since 2008); Chairman of the Board (2008-2010) and Member of the Boards of Managers (since 2008) of MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, Madison Square Investors LLC, NYLCAP Manager LLC and McMorgan & Company LLC; Chairman of the Board and Chief Executive Officer, NYLIFE Distributors LLC (2008-2010); Executive Vice President of NYLIFE Insurance Company of Arizona and New York Life Insurance and Annuity Corporation (since 2008); President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 66 | None | ||||
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
32 MainStay Government Fund
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Susan B. Kerley 8/12/51 | Indefinite; Eclipse Funds: Chairman since 2005, and Trustee since 2000 (2 funds); Eclipse Funds Inc.: Chairman since 2005 and Director since 1990 (1 fund); The MainStay Funds: Chairman and Board Member since 2007 (14 funds); MainStay Funds Trust: Chairman and Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Chairman and Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | President, Strategic Management Advisors LLC (since 1990) | 66 | Trustee, Legg Mason Partners Funds, since 1991 (58 portfolios) | ||||
Alan R. Latshaw 3/27/51 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2006 (14 funds); MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 66 | Trustee, State Farm Associates Funds Trusts since 2005 (4 portfolios); Trustee, State Farm Mutual Fund Trust since 2005 (15 portfolios); Trustee, State Farm Variable Product Trust since 2005 (9 portfolios) | ||||
mainstayinvestments.com 33
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Peter Meenan 12/5/41 | Indefinite; Eclipse Funds: Trustee since 2002 (2 funds); Eclipse Funds Inc.: Director since 2002 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Independent Consultant; President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 66 | None | ||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2006 (21 portfolios). | Managing Director, ICC Capital Management; President—Shields/Alliance, Alliance Capital Management (1994 to 2004) | 66 | None | ||||
Richard S. Trutanic 2/13/52 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 1994 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 66 | None | ||||
34 MainStay Government Fund
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Roman L. Weil 5/22/40 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1994 and Audit Committee Financial Expert since 2003 (21 portfolios). | Visiting Professor, NYU Stem School of Business, New York University (since 2011); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School of Business, University of Chicago (1965-2008) | 66 | None | ||||
John A. Weisser 10/22/41 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1997 (21 portfolios). | Retired. Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 66 | Trustee, Direxion Funds since 2007 (27 portfolios); Direxion Insurance Trust since 2007 (1 portfolio); Trustee, Direxion Shares ETF Trust, since 2008 (50 portfolios) | ||||
mainstayinvestments.com 35
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The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.
Positions(s) Held | ||||
Name and | with the Funds | Principal Occupation(s) | ||
Date of Birth | and Length of Service | During Past Five Years | ||
Officers | ||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007); Vice President, Prudential Investments (2000 to 2007); Assistant Treasurer, JennisonDryden Family of Funds, Target Portfolio Trust, The Prudential Series Fund and American Skandia Trust (2006 to 2007); Treasurer and Principal Financial Officer, The Greater China Fund (2007) | ||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance (since 2009), Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Assistant Secretary NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2009); Assistant Secretary, The MainStay Funds and ICAP Funds, Inc. (2006 to 2008); Assistant Secretary, Eclipse Funds, Eclipse Funds, Inc. and MainStay VP Series Fund, Inc. (2005 to 2008) | ||
Stephen P. Fisher 2/22/59 | President, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Director, Senior Vice President, New York Life Insurance and Annuity Corporation (since 2011); Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2007); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007) | ||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2010); Director and Counsel of Credit Suisse, Chief Legal Officer and Secretary of Credit Suisse Asset Management, LLC and Credit Suisse Funds (2003 to 2010) | ||
Scott T. Harrington 2/8/59 | Vice President — Administration, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Director (since 2009), New York Life Trust Company FSB; Vice President—Administration, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2005) | ||
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one-year term. |
36 MainStay Government Fund
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay offerings is listed here, with information about the manager, subadvisors, legal counsel, and independent registered public accounting firm.
Equity Funds
MainStay 130/30 Core Fund
MainStay Common Stock Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Fund
MainStay Equity Index Fund1
MainStay Growth Equity Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Small Cap Fund
Income Funds
MainStay Flexible Bond Opportunities Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Municipal Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Money Market Fund
MainStay Principal Preservation Fund
MainStay Short Term Bond Fund
MainStay Tax Free Bond Fund
Blended Funds
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
International Funds
MainStay 130/30 International Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay Global High Income Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
Asset Allocation Funds
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
Retirement Funds
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC2
Chicago, Illinois
MacKay Shields LLC2
New York, New York
Madison Square Investors LLC2
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management, Inc.
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firm
KPMG LLP
1. | Closed to new investors and new purchases as of January 1, 2002. |
2. | An affiliate of New York Life Investment Management LLC. |
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mainstayinvestments.com
The MainStay Funds are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC,
169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
MainStay Investments is a registered service mark and name under which New York Life Investment Management LLC does business.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment
advisory products and services.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment
advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
© 2012 by NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency | ||||||||
NYLIM-24949 MS284-11 | MSG11-12/11 |
N07
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MainStay High Yield Corporate Bond Fund
Message from the President and Annual Report
October 31, 2011
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Message from the President
Volatility was the keynote of the 12 months ended October 31, 2011. U.S. stocks generally advanced, but a variety of domestic and international forces influenced the market.
Early in November 2010, the Federal Open Market Committee (FOMC) announced its intention to extend quantitative easing by purchasing additional longer-term Treasury securities. The stock market reacted positively to this news—and to the midterm elections—and stocks generally advanced through mid-February.
Beginning in December 2010, a wave of protests and civil unrest across North Africa and the Middle East led to a substantial rise in the price of oil. By mid-February, stock prices started to decline. In March, a major earthquake and tsunami in Japan caused manufacturing supply-line interruptions and further setbacks for equity investors. After a sharp decline and a rapid recovery, stocks reached their high point for the 12-month period at the end of April 2011.
Pressed by a weak economy, lackluster employment and widespread concerns about European sovereign debt, the stock market faced wide fluctuations in the coming months. The volatility included a precipitous decline at the end of July into early August. Shortly thereafter, the FOMC expressed its expectation that economic conditions were “likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
After several unsuccessful attempts to recover from their dramatic drop, U.S. stocks reached their low point for the reporting period in early October. Then, buoyed by positive economic data and progress in the European debt situation, the U.S. stock market advanced rapidly in October, to close the reporting period with its best monthly performance in nearly a decade.
International stocks suffered from the turmoil in the Middle East and North Africa, the natural disasters in Japan, the sovereign debt concerns in Europe and the added threat of an economic slowdown in China. For the 12-month period, international stocks declined overall, with particular weakness in Europe.
The bond markets felt the impact of the European debt crisis, and several European nations suffered downgrades. In July, the United States faced a congressional deadlock on raising the debt ceiling and reducing deficit spending. In early August, Standard & Poor’s downgraded the debt of the United States of America to AA+.
Slow progress in resolving the European debt situation led to a flight to quality (or a movement toward securities perceived to carry lower risk). Amid strong demand, U.S. Treasury securities saw prices rise and yields decline, despite the downgrade by Standard & Poor’s. High-grade corporate
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
Throughout the 12-month reporting period, our portfolio managers took note of shifting market forces. But their primary focus was on the investment objectives of their respective Funds and the long-term strategies they were pursuing to achieve them. Some may have sought to capitalize on day-to-day market inefficiencies, but all remained focused on the long-term interests of our shareholders. They sought to apply time-tested investment principles consistently throughout the reporting period.
The information that follows provides specifics about the securities, decisions and market forces that affected your MainStay Fund(s) during the 12 months ended October 31, 2011. Behind the details, we hope you’ll recognize the professionalism and discipline that guided our portfolio managers during this volatile period.
We thank you for investing with MainStay and look forward to serving you for many years to come.
Sincerely,
Stephen P. Fisher
President
President
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Annual Report | ||
Investment and Performance Comparison | 5 | |
Portfolio Management Discussion and Analysis | 9 | |
Portfolio of Investments | 10 | |
Financial Statements | 23 | |
Notes to Financial Statements | 32 | |
Report of Independent Registered Public Accounting Firm | 41 | |
Federal Income Tax Information | 42 | |
Proxy Voting Policies and Procedures and Proxy Voting Record | 42 | |
Shareholder Reports and Quarterly Portfolio Disclosure | 42 | |
Board Members and Officers | 43 | |
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
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Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2011
Gross | ||||||||||||||||||||
Expense | ||||||||||||||||||||
Class | Sales Charge | One Year | Five Years | Ten Years | Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 4.5% Initial Sales Charge | With sales charges | 0 | .94% | 5 | .16% | 8 | .54% | 1 | .08% | ||||||||||
Excluding sales charges | 5 | .69 | 6 | .13 | 9 | .04 | 1 | .08 | ||||||||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges | 1 | .17 | 5 | .23 | 8 | .58 | 1 | .03 | ||||||||||
Excluding sales charges | 5 | .94 | 6 | .21 | 9 | .08 | 1 | .03 | ||||||||||||
Class B Shares | Maximum 5% CDSC | With sales charges | 0 | .02 | 5 | .04 | 8 | .25 | 1 | .83 | ||||||||||
if Redeemed Within the First Six Years of Purchase | Excluding sales charges | 4 | .95 | 5 | .34 | 8 | .25 | 1 | .83 | |||||||||||
Class C Shares | Maximum 1% CDSC | With sales charges | 3 | .96 | 5 | .34 | 8 | .25 | 1 | .83 | ||||||||||
if Redeemed Within One Year of Purchase | Excluding sales charges | 4 | .95 | 5 | .34 | 8 | .25 | 1 | .83 | |||||||||||
Class I Shares4 | No Sales Charge | 6 | .19 | 6 | .44 | 9 | .36 | 0 | .78 | |||||||||||
Class R2 Shares5 | No Sales Charge | 5 | .67 | 6 | .10 | 8 | .99 | 1 | .13 | |||||||||||
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, change in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Investor Class shares might have been lower. |
4. | Performance figures for Class I shares, first offered on January 2, 2004, include the historical performance of Class B shares through January 1, 2004, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Class I shares might have been lower. |
5. | Class R2 shares, first offered on December 14, 2007, but did not commence investment operations until May 1, 2008. Performance figures for Class R2 shares include the historical performance of Class B shares through April 30, 2008, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Class R2 shares might have been lower. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com 5
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One | Five | Ten | ||||||||||
Benchmark Performance | Year | Years | Years | |||||||||
Credit Suisse High Yield Index6 | 5 | .62% | 7 | .63% | 9 | .36% | ||||||
Average Lipper High Current Yield Fund7 | 3 | .60 | 5 | .61 | 7 | .31 | ||||||
6. | The Credit Suisse High Yield Index is a market-weighted index that includes publicly traded bonds rated below BBB by Standard & Poor’s and below Baa by Moody’s. The Credit Suisse High Yield Index is the Fund’s broad-based securities market index for comparison purposes. Total returns assume reinvestment of all income and capital gains. An investment cannot be made directly in an index. |
7. | The average Lipper high current yield fund is representative of funds that aim at high (relative) current yield from fixed income securities, have no quality or maturity restrictions, and tend to invest in lower-grade debt issues. This benchmark is a product of Lipper Inc. Lipper Inc. is an independent monitor of fund performance. Results are based on average total returns of similar funds with all dividend and capital gain distributions reinvested. |
The footnotes on the preceding page are an integral part of the table and graph and should be carefully read in conjunction with them.
6 MainStay High Yield Corporate Bond Fund
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Cost in Dollars of a $1,000 Investment in MainStay High Yield Corporate Bond Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2011, to October 31, 2011, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2011, to October 31, 2011.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2011. 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.
Ending Account | ||||||||||||||||||||||
Ending Account | Value (Based | |||||||||||||||||||||
Value (Based | on Hypothetical | |||||||||||||||||||||
Beginning | on Actual | Expenses | 5% Annualized | Expenses | ||||||||||||||||||
Account | Returns and | Paid | Return and | Paid | ||||||||||||||||||
Value | Expenses) | During | Actual Expenses) | During | ||||||||||||||||||
Share Class | 5/1/11 | 10/31/11 | Period1 | 10/31/11 | Period1 | |||||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,007.00 | $ | 5.26 | $ | 1,020.00 | $ | 5.30 | ||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,008.90 | $ | 4.96 | $ | 1,020.30 | $ | 4.99 | ||||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,003.20 | $ | 9.04 | $ | 1,016.20 | $ | 9.10 | ||||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,003.20 | $ | 9.04 | $ | 1,016.20 | $ | 9.10 | ||||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,008.50 | $ | 3.70 | $ | 1,021.50 | $ | 3.72 | ||||||||||||
Class R2 Shares | $ | 1,000.00 | $ | 1,006.80 | $ | 5.46 | $ | 1,019.80 | $ | 5.50 | ||||||||||||
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.04% for Investor Class, 0.98% for Class A, 1.79% for Class B and Class C, 0.73% for Class I and 1.08% for Class R2) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the one-half year period). The table above represents the actual expenses incurred during the one-half year period. |
mainstayinvestments.com 7
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Portfolio Composition as of October 31, 2011 (Unaudited)
Corporate Bonds | 80.3 | |||
Yankee Bonds | 9.1 | |||
Short-Term Investment | 6.1 | |||
Loan Assignments & Participations | 2.1 | |||
Other Assets, Less Liabilities | 1.2 | |||
Convertible Bonds | 0.7 | |||
Preferred Stocks | 0.4 | |||
Common Stocks | 0.1 | |||
Warrants | 0.0 |
See Portfolio of Investments beginning on page 10 for specific holdings within these categories.
‡ | Less than one-tenth of a percent. |
Top Ten Holdings or Issuers Held as of October 31, 2011 (excluding short-term investment)
1. | Ally Financial, Inc., zero coupon-8.30%, due 12/1/12–11/1/31 | |
2. | Ford Motor Credit Co. LLC, 7.00%–12.00%, due 6/1/14–5/15/15 | |
3. | Reliant Energy, Inc., 7.625%–7.875%, due 6/15/14–6/15/17 | |
4. | HCA, Inc., 5.75%–9.875%, due 3/15/14–2/15/22 | |
5. | Texas Industries, Inc., 9.25%, due 8/15/20 | |
6. | Calpine Construction Finance Co., L.P. and CCFC Finance Corp., 8.00%, due 6/1/16 | |
7. | Georgia-Pacific Corp., 7.125%–8.875%, due 1/15/17–5/15/31 | |
8. | Copano Energy LLC/Copano Energy Finance Corp., 7.125%–7.75%, due 6/1/18–4/1/21 | |
9. | Nova Chemicals Corp., 3.773%–8.625%, due 1/15/12–11/1/19 | |
10. | Cott Beverages, Inc., 8.125%–8.375%, due 11/15/17–9/1/18 |
8 MainStay High Yield Corporate Bond Fund
Table of Contents
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio manager J. Matthew Philo, CFA, of MacKay Shields LLC, the Fund’s Subadvisor.
How did MainStay High Yield Corporate Bond Fund perform relative to its peers and its benchmark during the 12 months ended October 31, 2011?
Excluding all sales charges, MainStay High Yield Corporate Bond Fund returned 5.69% for Investor Class shares, 5.94% for Class A shares, 4.95% for Class B shares and 4.95% for Class C shares for the 12 months ended October 31, 2011. Over the same period, Class I shares returned 6.19% and Class R2 shares returned 5.67%. All share classes outperformed the 3.60% return of the average Lipper1 high cur-
rent yield fund for the 12 months ended October 31, 2011. Over the same period, Class B and Class C shares underper-formed—and all other share classes outperformed—the 5.62% return of the Credit Suisse High Yield Index.2 The Credit Suisse High Yield Index is the Fund’s broad-based securities-market index. See page 5 for Fund returns with sales charges.
rent yield fund for the 12 months ended October 31, 2011. Over the same period, Class B and Class C shares underper-formed—and all other share classes outperformed—the 5.62% return of the Credit Suisse High Yield Index.2 The Credit Suisse High Yield Index is the Fund’s broad-based securities-market index. See page 5 for Fund returns with sales charges.
What factors affected the Fund’s relative performance during the reporting period?
The Fund’s performance relative to the Credit Suisse High Yield Index resulted from our bottom-up investment style, which focuses on individual companies to determine risk-group weightings in the context of historical yields and spreads.3 The Fund remained conservatively positioned throughout the reporting period in response to our belief that valuations among riskier high-yield bonds were unattractive and business fundamentals for many high-yield issuers were weak.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
The U.S. high-yield market generated positive returns for the year, but there was significant volatility. Strong initial gains were driven by an extremely low-interest-rate environment and the massive liquidity created through U.S. government monetary stimulus. This combination created additional demand for credit product and provided incentives to invest in riskier asset classes. Toward the end of the reporting period, the market declined as the effects of the stimulus dissipated, sovereign debt concerns in Europe deepened and evidence of a global economic slowdown emerged.
During the reporting period, which industry positions were the strongest contributors to the Fund’s absolute performance and which industry positions were particularly weak?
The most significant positive contributors to the Fund’s absolute performance were investments in the energy, transportation and financials industries. Although no industries generated negative absolute returns during the reporting period, the Fund’s investments in the retail, communications and food and drug industries contributed the least to the Fund’s absolute performance.
Did the Fund make any significant purchases or sales during the reporting period?
During the reporting period, the Fund purchased bonds of auto manufacturer Jaguar Land Rover and specialty oil refiner Calumet Specialty Products. The Fund sold its bonds of hospital operator Capella Healthcare and home health care service provider Gentiva Health Services.
How did the Fund’s industry weightings change during the reporting period?
During the reporting period, the Fund increased its weighting relative to the Credit Suisse High Yield Index in the energy industry. The Fund decreased its weighting relative to the Credit Suisse High Yield Index in the technology industry.
How was the Fund positioned at the end of the reporting period?
As of October 31, 2011, the Fund held overweight positions relative to the Credit Suisse High Yield Index in the transportation, health care and financials industries. As of the same date, the Fund was underweight relative to the Credit Suisse High Yield Index in the services, information technology and media industries.
1. See footnote on page 6 for more information on Lipper Inc.
2. See footnote on page 6 for more information on the Credit Suisse High Yield Index.
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 opinions expressed are those of the portfolio manager as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
The opinions expressed are those of the portfolio manager as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
mainstayinvestments.com 9
Table of Contents
Portfolio of Investments October 31, 2011
Principal | ||||||||
Amount | Value | |||||||
Long-Term Bonds 92.2%† Convertible Bonds 0.7% | ||||||||
Finance—Investment Banker/Broker 0.0%‡ | ||||||||
MF Global Holdings, Ltd. 3.375%, due 8/1/18 (a) | $ | 3,000,000 | $ | 1,417,500 | ||||
Health Care—Products 0.1% | ||||||||
Bio Rad Labs 8.00%, due 9/15/16 | 7,810,000 | 8,512,900 | ||||||
Holding Company—Diversified 0.5% | ||||||||
Icahn Enterprises, L.P. 4.00%, due 8/15/13 (b) | 30,320,000 | 28,500,800 | ||||||
Internet 0.0%‡ | ||||||||
At Home Corp. 4.75%, due 12/31/49 (a)(c)(d)(e) | 61,533,853 | 6,154 | ||||||
Retail 0.1% | ||||||||
Sonic Automotive, Inc. 5.00%, due 10/1/29 | 2,500,000 | 3,303,125 | ||||||
Total Convertible Bonds (Cost $40,138,204) | 41,740,479 | |||||||
Corporate Bonds 80.3% | ||||||||
Advertising 0.6% | ||||||||
Lamar Media Corp. | ||||||||
Series C 6.625%, due 8/15/15 | 19,648,000 | 19,746,240 | ||||||
7.875%, due 4/15/18 | 7,490,000 | 7,845,775 | ||||||
9.75%, due 4/1/14 | 9,780,000 | 10,758,000 | ||||||
38,350,015 | ||||||||
Aerospace & Defense 1.0% | ||||||||
Alliant Techsystems, Inc. 6.875%, due 9/15/20 | 4,525,000 | 4,649,437 | ||||||
BE Aerospace, Inc. 8.50%, due 7/1/18 | 9,750,000 | 10,651,875 | ||||||
DAE Aviation Holdings, Inc. 11.25%, due 8/1/15 (f) | 14,700,000 | 15,435,000 | ||||||
TransDigm, Inc. 7.75%, due 12/15/18 | 32,500,000 | 35,262,500 | ||||||
65,998,812 | ||||||||
Airlines 0.0%‡ | ||||||||
Northwest Airlines, Inc. Series 2001-1, Class 1B 7.691%, due 4/1/17 | 2,922,447 | 2,893,223 | ||||||
Apparel 0.4% | ||||||||
Hanesbrands, Inc. 8.00%, due 12/15/16 | 7,850,000 | 8,478,000 | ||||||
Unifi, Inc. 11.50%, due 5/15/14 | 14,477,000 | 14,657,963 | ||||||
23,135,963 | ||||||||
Auto Manufacturers 0.4% | ||||||||
Chrysler Group LLC/CG Co-Issuer, Inc. 8.25%, due 6/15/21 (f) | 15,890,000 | 14,539,350 | ||||||
Ford Motor Co. 6.50%, due 8/1/18 | 2,645,000 | 2,823,538 | ||||||
Oshkosh Corp. 8.25%, due 3/1/17 | 9,144,000 | 9,395,460 | ||||||
8.50%, due 3/1/20 | 2,010,000 | 2,070,300 | ||||||
28,828,648 | ||||||||
Auto Parts & Equipment 2.8% | ||||||||
AE Escrow Corp. 9.75%, due 3/15/20 (f) | 9,080,000 | 9,443,200 | ||||||
Affinia Group, Inc. 9.00%, due 11/30/14 | 17,230,000 | 17,100,775 | ||||||
Allison Transmission, Inc. 7.125%, due 5/15/19 (f) | 14,105,000 | 13,681,850 | ||||||
11.00%, due 11/1/15 (f) | 4,520,000 | 4,757,300 | ||||||
Cooper Tire & Rubber Co. 7.625%, due 3/15/27 | 3,070,000 | 2,763,000 | ||||||
Cooper-Standard Automotive, Inc. 8.50%, due 5/1/18 | 13,020,000 | 13,817,475 | ||||||
Dana Holding Corp. 6.50%, due 2/15/19 | 14,305,000 | 14,412,287 | ||||||
6.75%, due 2/15/21 | 2,915,000 | 2,958,725 | ||||||
Delphi Corp. 5.875%, due 5/15/19 (f) | 24,780,000 | 25,151,700 | ||||||
Exide Technologies 8.625%, due 2/1/18 | 8,350,000 | 8,350,000 | ||||||
FleetPride Corp. 11.50%, due 10/1/14 (f) | 20,015,000 | 19,514,625 | ||||||
Lear Corp. 8.125%, due 3/15/20 | 2,910,000 | 3,186,450 | ||||||
Lear Corp. (Escrow Shares) 8.75%, due 12/1/16 (d)(e)(g) | 15,444,000 | 23,166 | ||||||
Tenneco, Inc. 6.875%, due 12/15/20 | 10,225,000 | 10,480,625 | ||||||
7.75%, due 8/15/18 | 1,300,000 | 1,365,000 | ||||||
8.125%, due 11/15/15 | 10,691,000 | 11,065,185 | ||||||
Titan International, Inc. 7.875%, due 10/1/17 | 4,480,000 | 4,704,000 | ||||||
TRW Automotive, Inc. 7.00%, due 3/15/14 (f) | 3,700,000 | 3,903,500 | ||||||
8.875%, due 12/1/17 (f) | 11,595,000 | 12,696,525 | ||||||
179,375,388 | ||||||||
† | Percentages indicated are based on Fund net assets. |
X | Among the Fund’s 10 largest holdings or issuers held, as of October 31, 2011, excluding short-term investment. May be subject to change daily. |
The notes to the financial statements are an integral part of,
10 MainStay High Yield Corporate Bond Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Banks 1.8% | ||||||||
X Ally Financial, Inc. (zero coupon), due 12/1/12 | $ | 11,960,000 | $ | 11,242,400 | ||||
6.25%, due 12/1/17 | 2,180,000 | 2,152,750 | ||||||
7.50%, due 9/15/20 | 7,192,000 | 7,263,920 | ||||||
8.00%, due 11/1/31 | 18,055,000 | 18,088,835 | ||||||
8.30%, due 2/12/15 | 36,171,000 | 37,979,550 | ||||||
GMAC LLC 8.00%, due 11/1/31 | 16,244,000 | 16,203,390 | ||||||
Provident Funding Associates, L.P. 10.125%, due 2/15/19 (f) | 7,405,000 | 6,960,700 | ||||||
10.25%, due 4/15/17 (f) | 12,155,000 | 12,155,000 | ||||||
112,046,545 | ||||||||
Beverages 0.7% | ||||||||
X Cott Beverages, Inc. 8.125%, due 9/1/18 | 10,215,000 | 10,904,513 | ||||||
8.375%, due 11/15/17 | 32,284,000 | 34,705,300 | ||||||
45,609,813 | ||||||||
Building Materials 1.8% | ||||||||
Building Materials Corp. of America 6.875%, due 8/15/18 (f) | 17,498,000 | 18,197,920 | ||||||
7.00%, due 2/15/20 (f) | 8,265,000 | 8,760,900 | ||||||
7.50%, due 3/15/20 (f) | 14,915,000 | 15,884,475 | ||||||
Jeld-Wen Escrow Corp. 12.25%, due 10/15/17 (f) | 8,700,000 | 9,178,500 | ||||||
X Texas Industries, Inc. 9.25%, due 8/15/20 | 58,835,000 | 53,539,850 | ||||||
USG Corp. 9.75%, due 8/1/14 (f) | 11,270,000 | 11,213,650 | ||||||
116,775,295 | ||||||||
Chemicals 2.2% | ||||||||
CF Industries, Inc. 6.875%, due 5/1/18 | 9,351,000 | 10,660,140 | ||||||
7.125%, due 5/1/20 | 820,000 | 954,275 | ||||||
Georgia Gulf Corp. 9.00%, due 1/15/17 (f) | 23,240,000 | 24,402,000 | ||||||
Huntsman International LLC 5.50%, due 6/30/16 | 9,131,000 | 9,039,690 | ||||||
Nalco Co. 8.25%, due 5/15/17 | 2,390,000 | 2,652,900 | ||||||
Nexeo Solutions LLC/Nexeo Solutions Finance Corp. 8.375%, due 3/1/18 (f) | 13,610,000 | 13,610,000 | ||||||
Olin Corp. 8.875%, due 8/15/19 | 13,378,000 | 14,582,020 | ||||||
Phibro Animal Health Corp. 9.25%, due 7/1/18 (f) | 48,430,000 | 44,555,600 | ||||||
PolyOne Corp. 7.375%, due 9/15/20 | 726,000 | 733,260 | ||||||
Westlake Chemical Corp. 6.625%, due 1/15/16 | 15,635,000 | 15,791,350 | ||||||
136,981,235 | ||||||||
Coal 1.2% | ||||||||
Arch Coal, Inc. 7.25%, due 10/1/20 | 6,520,000 | 6,764,500 | ||||||
8.75%, due 8/1/16 | 4,240,000 | 4,632,200 | ||||||
Consol Energy, Inc. 8.00%, due 4/1/17 | 31,785,000 | 34,804,575 | ||||||
Peabody Energy Corp. 6.50%, due 9/15/20 | 21,655,000 | 23,062,575 | ||||||
7.375%, due 11/1/16 | 2,185,000 | 2,392,575 | ||||||
7.875%, due 11/1/26 | 1,642,000 | 1,810,305 | ||||||
73,466,730 | ||||||||
Commercial Services 3.1% | ||||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc. 8.25%, due 1/15/19 | 4,225,000 | 4,214,438 | ||||||
Cenveo Corp. 8.875%, due 2/1/18 | 13,735,000 | 11,915,112 | ||||||
Corrections Corp. of America 6.25%, due 3/15/13 | 2,339,000 | 2,340,462 | ||||||
7.75%, due 6/1/17 | 6,990,000 | 7,566,675 | ||||||
El Comandante Capital Corp. (Escrow Shares) (zero coupon), due 12/31/50 (d)(e)(g) | 21,941,051 | 1,579,756 | ||||||
Ford Holdings LLC 9.30%, due 3/1/30 | 18,155,000 | 23,964,600 | ||||||
Ford Holdings, Inc. 9.375%, due 3/1/20 | 750,000 | 892,500 | ||||||
Great Lakes Dredge & Dock Corp. 7.375%, due 2/1/19 | 19,930,000 | 19,232,450 | ||||||
iPayment, Inc. 10.25%, due 5/15/18 (f) | 10,000,000 | 9,637,500 | ||||||
Knowledge Learning Corp., Inc. 7.75%, due 2/1/15 (f) | 27,015,000 | 25,934,400 | ||||||
Lender Processing Services, Inc. 8.125%, due 7/1/16 | 17,621,000 | 17,356,685 | ||||||
PHH Corp. 9.25%, due 3/1/16 | 12,385,000 | 12,756,550 | ||||||
Quebecor World, Inc. (Litigation Recovery Trust-Escrow Shares) 6.50%, due 8/1/49 (d)(e)(g) | 460,000 | 7,360 | ||||||
9.75%, due 1/15/49 (d)(e)(g) | 26,020,000 | 416,320 | ||||||
Rent-A-Center, Inc. 6.625%, due 11/15/20 | 7,145,000 | 7,180,725 | ||||||
RR Donnelley & Sons Co. 7.25%, due 5/15/18 | 15,235,000 | 14,854,125 | ||||||
Speedy Cash, Inc. 10.75%, due 5/15/18 (f) | 7,015,000 | 7,172,837 | ||||||
Sunstate Equipment Co. LLC/Sunstate Equipment Co., Inc. 12.00%, due 6/15/16 (f)(h) | 19,065,000 | 18,302,400 | ||||||
Valassis Communications, Inc. 6.625%, due 2/1/21 | 15,580,000 | 14,801,000 | ||||||
200,125,895 | ||||||||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 11 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Computers 0.6% | ||||||||
iGate Corp. 9.00%, due 5/1/16 (f) | $ | 11,501,000 | $ | 11,443,495 | ||||
SunGard Data Systems, Inc. 4.875%, due 1/15/14 | 8,070,000 | 8,110,350 | ||||||
10.625%, due 5/15/15 | 19,260,000 | 20,752,650 | ||||||
40,306,495 | ||||||||
Distribution & Wholesale 0.8% | ||||||||
ACE Hardware Corp. 9.125%, due 6/1/16 (f) | 20,618,000 | 21,906,625 | ||||||
American Tire Distributors, Inc. 9.75%, due 6/1/17 | 29,455,000 | 29,675,912 | ||||||
51,582,537 | ||||||||
Diversified Financial Services 0.3% | ||||||||
Community Choice Financial, Inc. 10.75%, due 5/1/19 (f) | 18,485,000 | 18,485,000 | ||||||
Electric 4.2% | ||||||||
AES Eastern Energy, L.P. Series 1999-A 9.00%, due 1/2/17 (a) | 16,046,962 | 8,665,360 | ||||||
X Calpine Construction Finance Co., L.P. and CCFC Finance Corp. 8.00%, due 6/1/16 (f) | 49,185,000 | 52,382,025 | ||||||
Calpine Corp. 7.25%, due 10/15/17 (f) | 32,614,000 | 33,918,560 | ||||||
Energy Future Intermediate Holding Co. LLC/EFIH Finance, Inc. 10.00%, due 12/1/20 | 40,725,000 | 42,761,250 | ||||||
GenOn Energy, Inc. 9.50%, due 10/15/18 | 22,300,000 | 23,526,500 | ||||||
Ipalco Enterprises, Inc. 7.25%, due 4/1/16 (f) | 5,925,000 | 6,517,500 | ||||||
PNM Resources, Inc. 9.25%, due 5/15/15 | 10,345,000 | 11,689,850 | ||||||
Public Service Co. of New Mexico 7.95%, due 5/15/18 | 9,965,000 | 11,907,746 | ||||||
Reliant Energy Mid-Atlantic Power Holdings LLC Series C 9.681%, due 7/2/26 | 6,425,000 | 6,328,625 | ||||||
X Reliant Energy, Inc. 7.625%, due 6/15/14 | 4,625,000 | 4,717,500 | ||||||
7.875%, due 6/15/17 | 64,280,000 | 65,244,200 | ||||||
267,659,116 | ||||||||
Electrical Components & Equipment 0.4% | ||||||||
Belden, Inc. 7.00%, due 3/15/17 | 12,530,000 | 12,592,650 | ||||||
9.25%, due 6/15/19 | 15,000,000 | 16,050,000 | ||||||
28,642,650 | ||||||||
Energy—Alternate Sources 0.2% | ||||||||
Headwaters, Inc. 7.625%, due 4/1/19 | 17,700,000 | 15,399,000 | ||||||
Engineering & Construction 0.4% | ||||||||
New Enterprise Stone & Lime Co. 11.00%, due 9/1/18 | 27,285,000 | 23,055,825 | ||||||
Entertainment 3.1% | ||||||||
American Casino & Entertainment Properties LLC 11.00%, due 6/15/14 | 13,664,000 | 13,595,680 | ||||||
Downstream Development Authority of the Quapaw Tribe of Oklahoma 10.50%, due 7/1/19 (f) | 1,955,000 | 1,876,800 | ||||||
FireKeepers Development Authority 13.875%, due 5/1/15 (f) | 2,410,000 | 2,747,400 | ||||||
Greektown Superholdings, Inc. 13.00%, due 7/1/15 | 28,570,000 | 29,355,675 | ||||||
Jacobs Entertainment, Inc. 9.75%, due 6/15/14 | 31,736,000 | 30,783,920 | ||||||
Mohegan Tribal Gaming Authority 6.125%, due 2/15/13 | 3,940,000 | 2,738,300 | ||||||
NAI Entertainment Holdings LLC 8.25%, due 12/15/17 (f) | 26,885,000 | 28,296,462 | ||||||
Peninsula Gaming LLC 8.375%, due 8/15/15 | 10,095,000 | 10,372,613 | ||||||
10.75%, due 8/15/17 | 13,280,000 | 13,678,400 | ||||||
Pinnacle Entertainment, Inc. 7.50%, due 6/15/15 | 6,157,000 | 6,049,253 | ||||||
8.625%, due 8/1/17 | 5,720,000 | 6,106,100 | ||||||
Production Resource Group, Inc. 8.875%, due 5/1/19 (f) | 6,406,000 | 5,829,460 | ||||||
Speedway Motorsports, Inc. 8.75%, due 6/1/16 | 11,035,000 | 11,917,800 | ||||||
United Artists Theatre Circuit, Inc. Series BA7 9.30%, due 7/1/15 (d)(e) | 1,176,912 | 823,839 | ||||||
Vail Resorts, Inc. 6.50%, due 5/1/19 (f) | 12,590,000 | 12,558,525 | ||||||
WMG Acquisition Corp. 9.50%, due 6/15/16 (f) | 5,000,000 | 5,300,000 | ||||||
11.50%, due 10/1/18 (f) | 14,125,000 | 14,089,687 | ||||||
196,119,914 | ||||||||
Environmental Controls 0.1% | ||||||||
Clean Harbors, Inc. 7.625%, due 8/15/16 | 8,658,000 | 9,155,835 | ||||||
Finance—Auto Loans 1.8% | ||||||||
Credit Acceptance Corp. 9.125%, due 2/1/17 | 4,000,000 | 4,150,000 | ||||||
9.125%, due 2/1/17 (f) | 7,700,000 | 7,969,500 |
The notes to the financial statements are an integral part of,
12 MainStay High Yield Corporate Bond Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Finance—Auto Loans (continued) | ||||||||
X Ford Motor Credit Co. LLC | ||||||||
7.00%, due 4/15/15 | $ | 6,155,000 | $ | 6,708,950 | ||||
8.00%, due 6/1/14 | 29,375,000 | 32,302,395 | ||||||
12.00%, due 5/15/15 | 24,945,000 | 31,309,043 | ||||||
General Motors Financial Co., Inc. 6.75%, due 6/1/18 (f) | 30,400,000 | 30,678,251 | ||||||
113,118,139 | ||||||||
Finance—Consumer Loans 0.4% | ||||||||
SLM Corp. 8.00%, due 3/25/20 | 10,130,000 | 10,535,200 | ||||||
8.45%, due 6/15/18 | 13,660,000 | 14,479,600 | ||||||
25,014,800 | ||||||||
Finance—Investment Banker/Broker 0.5% | ||||||||
E*Trade Financial Corp. 6.75%, due 6/1/16 | 12,000,000 | 12,150,000 | ||||||
MF Global Holdings, Ltd. 6.25%, due 8/8/16 (a) | 14,295,000 | 6,755,531 | ||||||
Oppenheimer Holdings, Inc. 8.75%, due 4/15/18 | 12,415,000 | 12,104,625 | ||||||
31,010,156 | ||||||||
Finance—Leasing Companies 0.1% | ||||||||
International Lease Finance Corp. 8.75%, due 3/15/17 | 4,795,000 | 5,053,930 | ||||||
Finance—Other Services 0.7% | ||||||||
Nationstar Mortgage/Nationstar Capital Corp. 10.875%, due 4/1/15 | 30,147,000 | 30,599,205 | ||||||
SquareTwo Financial Corp. 11.625%, due 4/1/17 | 12,475,000 | 12,163,125 | ||||||
42,762,330 | ||||||||
Food 2.2% | ||||||||
American Seafoods Group LLC/American Seafoods Finance, Inc. 10.75%, due 5/15/16 (f) | 17,678,000 | 17,722,195 | ||||||
American Stores Co. 8.00%, due 6/1/26 | 22,029,000 | 18,944,940 | ||||||
ASG Consolidated LLC/ASG Finance, Inc. 15.00%, due 5/15/17 (f)(h) | 14,501,696 | 14,936,747 | ||||||
B&G Foods, Inc. 7.625%, due 1/15/18 | 10,895,000 | 11,548,700 | ||||||
C&S Group Enterprises LLC 8.375%, due 5/1/17 (f) | 3,010,000 | 3,115,350 | ||||||
Smithfield Foods, Inc. 10.00%, due 7/15/14 | 11,397,000 | 13,249,012 | ||||||
Stater Brothers Holdings, Inc. 7.375%, due 11/15/18 | 5,260,000 | 5,575,600 | ||||||
TreeHouse Foods, Inc. 6.03%, due 9/30/13 (d)(e) | 23,700,000 | 23,818,500 | ||||||
7.75%, due 3/1/18 | 8,120,000 | 8,729,000 | ||||||
Tyson Foods, Inc. 10.50%, due 3/1/14 | 17,683,000 | 20,512,280 | ||||||
138,152,324 | ||||||||
Forest Products & Paper 1.4% | ||||||||
ABI Escrow Corp. 10.25%, due 10/15/18 (f) | 21,288,000 | 23,310,360 | ||||||
Clearwater Paper Corp. 7.125%, due 11/1/18 | 9,720,000 | 10,133,100 | ||||||
X Georgia-Pacific Corp. 7.125%, due 1/15/17 (f) | 2,935,000 | 3,112,480 | ||||||
7.25%, due 6/1/28 | 2,370,000 | 2,971,890 | ||||||
7.75%, due 11/15/29 | 1,174,000 | 1,532,867 | ||||||
8.875%, due 5/15/31 | 29,615,000 | 42,954,573 | ||||||
Georgia-Pacific LLC 9.50%, due 12/1/11 | 3,000,000 | 3,013,887 | ||||||
87,029,157 | ||||||||
Health Care—Products 1.8% | ||||||||
Alere, Inc. 8.625%, due 10/1/18 | 7,230,000 | 7,220,962 | ||||||
Biomet, Inc. 10.00%, due 10/15/17 | 12,100,000 | 13,068,000 | ||||||
10.375%, due 10/15/17 (h) | 4,990,000 | 5,389,200 | ||||||
11.625%, due 10/15/17 | 14,080,000 | 15,347,200 | ||||||
DJO Finance LLC/DJO Finance Corp. 9.75%, due 10/15/17 | 11,830,000 | 9,730,175 | ||||||
Hanger Orthopedic Group, Inc. 7.125%, due 11/15/18 | 17,380,000 | 17,814,500 | ||||||
Teleflex, Inc. 6.875%, due 6/1/19 | 15,330,000 | 15,866,550 | ||||||
Universal Hospital Services, Inc. 3.778%, due 6/1/15 (b) | 930,000 | 860,250 | ||||||
8.50%, due 6/1/15 (h) | 26,625,000 | 27,423,750 | ||||||
112,720,587 | ||||||||
Health Care—Services 3.6% | ||||||||
Alliance HealthCare Services, Inc. 8.00%, due 12/1/16 | 7,540,000 | 5,240,300 | ||||||
American Renal Associates Holdings, Inc. 9.75%, due 3/1/16 (h) | 7,545,409 | 7,696,317 | ||||||
American Renal Holdings Co., Inc. 8.375%, due 5/15/18 | 13,150,000 | 13,741,750 | ||||||
Centene Corp. 5.75%, due 6/1/17 | 13,540,000 | 13,607,700 | ||||||
Community Health Systems, Inc. 8.875%, due 7/15/15 | 12,900,000 | 13,206,375 | ||||||
DaVita, Inc. 6.375%, due 11/1/18 | 14,650,000 | 14,796,500 | ||||||
6.625%, due 11/1/20 | 6,850,000 | 6,901,375 | ||||||
Fresenius Medical Care U.S. Finance, Inc. 6.50%, due 9/15/18 (f) | 4,730,000 | 4,966,500 | ||||||
HCA Holdings, Inc. 7.75%, due 5/15/21 (f) | 3,315,000 | 3,315,000 |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 13 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Health Care—Services (continued) | ||||||||
X HCA, Inc. 5.75%, due 3/15/14 | $ | 9,524,000 | $ | 9,738,290 | ||||
6.375%, due 1/15/15 | 7,980,000 | 8,199,450 | ||||||
6.50%, due 2/15/16 | 4,925,000 | 5,051,203 | ||||||
7.19%, due 11/15/15 | 5,697,000 | 5,583,060 | ||||||
7.50%, due 2/15/22 | 11,915,000 | 12,153,300 | ||||||
8.50%, due 4/15/19 | 15,775,000 | 17,352,500 | ||||||
9.00%, due 12/15/14 | 1,595,000 | 1,646,838 | ||||||
9.875%, due 2/15/17 | 2,369,000 | 2,588,133 | ||||||
INC Research LLC 11.50%, due 7/15/19 (f) | 22,020,000 | 19,818,000 | ||||||
MultiPlan, Inc. 9.875%, due 9/1/18 (f) | 29,440,000 | 30,323,200 | ||||||
Res-Care, Inc. 10.75%, due 1/15/19 | 12,395,000 | 12,642,900 | ||||||
Vanguard Health Holding Co. II LLC/Vanguard Holding Co. II, Inc. 7.75%, due 2/1/19 | 9,990,000 | 9,890,100 | ||||||
8.00%, due 2/1/18 | 12,755,000 | 13,041,987 | ||||||
231,500,778 | ||||||||
Holding Companies—Diversified 0.6% | ||||||||
Leucadia National Corp. 8.125%, due 9/15/15 | 14,255,000 | 15,395,400 | ||||||
Susser Holdings LLC/Susser Finance Corp. 8.50%, due 5/15/16 | 22,484,000 | 23,439,570 | ||||||
38,834,970 | ||||||||
Home Builders 0.5% | ||||||||
Ryland Group, Inc. 6.625%, due 5/1/20 | 3,800,000 | 3,363,000 | ||||||
Shea Homes, L.P./Shea Homes Funding Corp. 8.625%, due 5/15/19 (f) | 13,025,000 | 11,787,625 | ||||||
Standard Pacific Corp. 8.375%, due 5/15/18 | 12,660,000 | 12,216,900 | ||||||
8.375%, due 1/15/21 | 1,815,000 | 1,651,650 | ||||||
29,019,175 | ||||||||
Home Furnishing 0.1% | ||||||||
Sealy Mattress Co. 10.875%, due 4/15/16 (f) | 6,629,000 | 7,275,328 | ||||||
Household Products & Wares 1.1% | ||||||||
Central Garden and Pet Co. 8.25%, due 3/1/18 | 18,075,000 | 18,029,812 | ||||||
Diversey, Inc. 8.25%, due 11/15/19 | 500,000 | 605,000 | ||||||
Jarden Corp. 7.50%, due 5/1/17 | 19,505,000 | 20,870,350 | ||||||
Prestige Brands, Inc. 8.25%, due 4/1/18 | 3,866,000 | 3,943,320 | ||||||
Spectrum Brands, Inc. 9.50%, due 6/15/18 | 23,717,000 | 26,325,870 | ||||||
69,774,352 | ||||||||
Housewares 0.4% | ||||||||
Libbey Glass, Inc. 10.00%, due 2/15/15 | 23,221,000 | 24,730,365 | ||||||
Insurance 0.7% | ||||||||
HUB International Holdings, Inc. 9.00%, due 12/15/14 (f) | 11,836,000 | 11,776,820 | ||||||
Ironshore Holdings (US), Inc. 8.50%, due 5/15/20 (f) | 16,890,000 | 18,046,458 | ||||||
Lumbermens Mutual Casualty Co. 8.30%, due 12/1/37 (a)(d)(e)(f) | 8,525,000 | 85,250 | ||||||
8.45%, due 12/1/97 (a)(d)(e)(f) | 2,575,000 | 25,750 | ||||||
9.15%, due 7/1/26 (a)(d)(e)(f) | 42,123,000 | 421,230 | ||||||
USI Holdings Corp. 4.324%, due 11/15/14 (b)(f) | 1,675,000 | 1,507,500 | ||||||
9.75%, due 5/15/15 (f) | 13,900,000 | 13,239,750 | ||||||
45,102,758 | ||||||||
Internet 0.5% | ||||||||
Cogent Communications Group, Inc. 8.375%, due 2/15/18 (f) | 10,085,000 | 10,488,400 | ||||||
Expedia, Inc. 8.50%, due 7/1/16 (f) | 20,264,000 | 22,337,960 | ||||||
32,826,360 | ||||||||
Investment Management/Advisory Services 0.3% | ||||||||
Janus Capital Group, Inc. 6.70%, due 6/15/17 | 19,105,000 | 20,141,886 | ||||||
Iron & Steel 0.8% | ||||||||
Allegheny Ludlum Corp. 6.95%, due 12/15/25 | 6,860,000 | 7,560,337 | ||||||
Allegheny Technologies, Inc. 8.375%, due 12/15/11 | 2,460,000 | 2,474,251 | ||||||
9.375%, due 6/1/19 | 7,475,000 | 9,557,094 | ||||||
Ryerson, Inc. 7.804%, due 11/1/14 (b) | 9,495,000 | 8,735,400 | ||||||
7.804%, due 11/1/14 (b)(f) | 1,040,000 | 956,800 | ||||||
12.00%, due 11/1/15 | 20,409,000 | 20,817,180 | ||||||
50,101,062 | ||||||||
Leisure Time 0.2% | ||||||||
Brunswick Corp. 11.25%, due 11/1/16 (f) | 11,240,000 | 13,150,800 | ||||||
Lodging 1.2% | ||||||||
Boyd Gaming Corp. 9.125%, due 12/1/18 | 3,685,000 | 3,602,088 | ||||||
Eldorado Resorts LLC/Eldorado Capital Corp. 8.625%, due 6/15/19 (f) | 13,555,000 | 11,725,075 |
The notes to the financial statements are an integral part of,
14 MainStay High Yield Corporate Bond Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Lodging (continued) | ||||||||
Majestic Star Casino LLC 9.50%, due 10/15/10 (a) | $ | 7,690,000 | $ | 2,999,100 | ||||
MGM Mirage, Inc. 13.00%, due 11/15/13 | 5,364,000 | 6,182,010 | ||||||
MGM Resorts International 7.50%, due 6/1/16 | 1,380,000 | 1,311,000 | ||||||
7.625%, due 1/15/17 | 5,200,000 | 4,836,000 | ||||||
MTR Gaming Group, Inc. 11.50%, due 8/1/19 (f)(h) | 11,740,000 | 9,802,900 | ||||||
ROC Finance LLC/ROC Finance 1 Corp. 12.125%, due 9/1/18 (f) | 12,895,000 | 13,604,225 | ||||||
San Pasqual Casino 8.00%, due 9/15/13 (f) | 250,000 | 248,125 | ||||||
Seminole Hard Rock Entertainment, Inc./ Seminole Hard Rock International LLC 2.847%, due 3/15/14 (b)(f) | 14,851,000 | 13,848,557 | ||||||
Sheraton Holding Corp. 7.375%, due 11/15/15 | 1,490,000 | 1,642,725 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. 6.75%, due 5/15/18 | 3,905,000 | 4,334,550 | ||||||
74,136,355 | ||||||||
Machinery—Construction & Mining 0.1% | ||||||||
Terex Corp. 10.875%, due 6/1/16 | 7,415,000 | 8,230,650 | ||||||
Machinery—Diversified 0.1% | ||||||||
Briggs & Stratton Corp. 6.875%, due 12/15/20 | 7,945,000 | 8,103,900 | ||||||
Media 3.1% | ||||||||
AMC Networks, Inc. 7.75%, due 7/15/21 (f) | 8,305,000 | 9,010,925 | ||||||
Cablevision Systems Corp. 8.625%, due 9/15/17 | 4,500,000 | 4,882,500 | ||||||
CCO Holdings LLC/CCO Holdings Capital Corp. 7.00%, due 1/15/19 | 16,260,000 | 16,869,750 | ||||||
7.25%, due 10/30/17 | 5,405,000 | 5,648,225 | ||||||
7.875%, due 4/30/18 | 6,875,000 | 7,321,875 | ||||||
Charter Communications Operating LLC 8.00%, due 4/30/12 (f) | 32,854,000 | 33,593,215 | ||||||
Charter Communications Operating LLC/Charter Communications Operating Capital 10.875%, due 9/15/14 (f) | 410,000 | 441,775 | ||||||
Crown Media Holdings, Inc. 10.50%, due 7/15/19 (f) | 20,365,000 | 21,179,600 | ||||||
CSC Holdings LLC 8.50%, due 6/15/15 | 2,000,000 | 2,170,000 | ||||||
CSC Holdings, Inc. 8.50%, due 4/15/14 | 7,185,000 | 7,885,537 | ||||||
DISH DBS Corp. 6.75%, due 6/1/21 | 24,380,000 | 25,172,350 | ||||||
Morris Publishing Group LLC 10.00%, due 9/1/14 (d)(h) | 6,027,789 | 4,641,398 | ||||||
Nielsen Finance LLC 11.50%, due 5/1/16 | 848,000 | 973,080 | ||||||
Nielsen Finance LLC/Nielsen Finance Co. 7.75%, due 10/15/18 | 30,638,000 | 33,778,395 | ||||||
ProQuest LLC/ProQuest Notes Co. 9.00%, due 10/15/18 (f) | 23,645,000 | 20,334,700 | ||||||
193,903,325 | ||||||||
Metal Fabricate & Hardware 0.6% | ||||||||
Mueller Water Products, Inc. 7.375%, due 6/1/17 | 18,525,000 | 16,302,000 | ||||||
8.75%, due 9/1/20 | 15,135,000 | 16,118,775 | ||||||
Neenah Foundry Co. 15.00%, due 7/29/15 (d)(h) | 5,152,521 | 5,023,708 | ||||||
37,444,483 | ||||||||
Mining 0.4% | ||||||||
Freeport-McMoRan Copper & Gold, Inc. 8.375%, due 4/1/17 | 7,105,000 | 7,602,350 | ||||||
Vulcan Materials Co. 6.50%, due 12/1/16 | 20,240,000 | 19,595,032 | ||||||
27,197,382 | ||||||||
Miscellaneous—Manufacturing 1.8% | ||||||||
Actuant Corp. 6.875%, due 6/15/17 | 15,850,000 | 16,246,250 | ||||||
Amsted Industries, Inc. 8.125%, due 3/15/18 (f) | 30,485,000 | 32,161,675 | ||||||
Koppers, Inc. 7.875%, due 12/1/19 | 12,155,000 | 12,823,525 | ||||||
Polypore International, Inc. 7.50%, due 11/15/17 | 21,740,000 | 22,174,800 | ||||||
SPX Corp. 6.875%, due 9/1/17 | 25,425,000 | 27,077,625 | ||||||
7.625%, due 12/15/14 | 5,235,000 | 5,653,800 | ||||||
116,137,675 | ||||||||
Office Furnishings 0.3% | ||||||||
Interface, Inc. 7.625%, due 12/1/18 | 18,500,000 | 19,378,750 | ||||||
Oil & Gas 10.2% | ||||||||
Berry Petroleum Co. 6.75%, due 11/1/20 | 7,800,000 | 7,868,250 | ||||||
10.25%, due 6/1/14 | 9,915,000 | 11,228,737 | ||||||
Bill Barrett Corp. 7.625%, due 10/1/19 | 12,480,000 | 13,197,600 | ||||||
BreitBurn Energy Partners, L.P. 8.625%, due 10/15/20 | 18,360,000 | 19,094,400 | ||||||
Calumet Specialty Products Partners, L.P./Calumet Finance Corp. 9.375%, due 5/1/19 (f) | 33,990,000 | 32,458,400 |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 15 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Oil & Gas (continued) | ||||||||
Chesapeake Energy Corp. 6.50%, due 8/15/17 | $ | 30,590,000 | $ | 32,884,250 | ||||
Chesapeake Oilfield Operating LLC/Chesapeake Oilfield Finance, Inc. 6.625%, due 11/15/19 (f) | 18,200,000 | 18,700,500 | ||||||
Comstock Resources, Inc. 7.75%, due 4/1/19 | 5,127,000 | 5,024,460 | ||||||
8.375%, due 10/15/17 | 3,000,000 | 3,075,000 | ||||||
Concho Resources, Inc. 6.50%, due 1/15/22 | 24,915,000 | 26,160,750 | ||||||
7.00%, due 1/15/21 | 6,525,000 | 7,047,000 | ||||||
8.625%, due 10/1/17 | 8,441,000 | 9,200,690 | ||||||
Continental Resources, Inc. 7.125%, due 4/1/21 | 8,775,000 | 9,477,000 | ||||||
7.375%, due 10/1/20 | 15,775,000 | 17,115,875 | ||||||
Denbury Resources, Inc. 8.25%, due 2/15/20 | 18,195,000 | 20,105,475 | ||||||
9.75%, due 3/1/16 | 6,980,000 | 7,730,350 | ||||||
Forest Oil Corp. 8.00%, due 12/15/11 | 8,785,000 | 8,839,906 | ||||||
Frontier Oil Corp. 6.875%, due 11/15/18 | 8,390,000 | 8,557,800 | ||||||
8.50%, due 9/15/16 | 13,825,000 | 14,585,375 | ||||||
Hilcorp Energy I, L.P./Hilcorp Finance Co. 7.75%, due 11/1/15 (f) | 27,256,000 | 27,961,930 | ||||||
Holly Corp. 9.875%, due 6/15/17 | 18,512,000 | 20,270,640 | ||||||
Linn Energy LLC 9.875%, due 7/1/18 | 2,906,000 | 3,400,020 | ||||||
Linn Energy LLC/Linn Energy Finance Corp. 6.50%, due 5/15/19 (f) | 11,580,000 | 11,637,900 | ||||||
11.75%, due 5/15/17 | 8,710,000 | 10,136,263 | ||||||
Newfield Exploration Co. 6.625%, due 9/1/14 | 13,765,174 | 13,902,826 | ||||||
6.625%, due 4/15/16 | 11,040,000 | 11,357,400 | ||||||
7.125%, due 5/15/18 | 12,520,000 | 13,333,800 | ||||||
Oasis Petroleum, Inc. 6.50%, due 11/1/21 | 11,600,000 | 11,658,000 | ||||||
7.25%, due 2/1/19 (f) | 18,840,000 | 19,876,200 | ||||||
Penn Virginia Corp. 7.25%, due 4/15/19 | 8,560,000 | 8,303,200 | ||||||
10.375%, due 6/15/16 | 11,560,000 | 12,600,400 | ||||||
PetroHawk Energy Corp. 7.25%, due 8/15/18 | 15,995,000 | 18,314,275 | ||||||
10.50%, due 8/1/14 | 3,478,000 | 3,899,708 | ||||||
Petroquest Energy, Inc. 10.00%, due 9/1/17 | 34,035,000 | 35,311,312 | ||||||
Pioneer Drilling Co. 9.875%, due 3/15/18 | 13,275,000 | 13,806,000 | ||||||
Plains Exploration & Production Co. 7.75%, due 6/15/15 | 3,265,000 | 3,387,438 | ||||||
10.00%, due 3/1/16 | 19,230,000 | 21,345,300 | ||||||
Range Resources Corp. 7.25%, due 5/1/18 | 2,500,000 | 2,687,500 | ||||||
8.00%, due 5/15/19 | 11,655,000 | 12,995,325 | ||||||
SM Energy Co. 6.625%, due 2/15/19 (f) | 13,420,000 | 13,554,200 | ||||||
Stone Energy Corp. 6.75%, due 12/15/14 | 13,375,000 | 13,241,250 | ||||||
8.625%, due 2/1/17 | 10,470,000 | 10,574,700 | ||||||
W&T Offshore, Inc. 8.50%, due 6/15/19 (f) | 18,675,000 | 19,048,500 | ||||||
Whiting Petroleum Corp. 6.50%, due 10/1/18 | 12,970,000 | 13,521,225 | ||||||
7.00%, due 2/1/14 | 27,634,000 | 29,844,720 | ||||||
648,321,850 | ||||||||
Oil & Gas Services 0.5% | ||||||||
American Petroleum Tankers LLC/AP Tankers Co. 10.25%, due 5/1/15 | 13,084,000 | 13,443,810 | ||||||
Complete Production Services, Inc. 8.00%, due 12/15/16 | 15,290,000 | 15,901,600 | ||||||
29,345,410 | ||||||||
Packaging & Containers 1.8% | ||||||||
AEP Industries, Inc. 8.25%, due 4/15/19 | 11,855,000 | 11,691,994 | ||||||
Ball Corp. 6.75%, due 9/15/20 | 1,630,000 | 1,756,325 | ||||||
7.125%, due 9/1/16 | 6,625,000 | 7,171,563 | ||||||
Crown Americas LLC/Crown Americas Capital Corp. III 6.25%, due 2/1/21 (f) | 13,100,000 | 13,755,000 | ||||||
Greif, Inc. 6.75%, due 2/1/17 | 170,000 | 178,500 | ||||||
7.75%, due 8/1/19 | 8,100,000 | 8,707,500 | ||||||
Owens-Brockway Glass Container, Inc. 7.375%, due 5/15/16 | 4,910,000 | 5,327,350 | ||||||
Plastipak Holdings, Inc. 10.625%, due 8/15/19 (f) | 35,895,000 | 38,946,075 | ||||||
Sealed Air Corp. 8.125%, due 9/15/19 (f) | 6,815,000 | 7,394,275 | ||||||
8.375%, due 9/15/21 (f) | 7,885,000 | 8,535,512 | ||||||
Silgan Holdings, Inc. 7.25%, due 8/15/16 | 8,740,000 | 9,220,700 | ||||||
112,684,794 | ||||||||
Pharmaceuticals 2.5% | ||||||||
BioScrip, Inc. 10.25%, due 10/1/15 | 3,785,000 | 3,813,388 | ||||||
Catalent Pharma Solutions, Inc. 9.50%, due 4/15/15 | 20,495,575 | 20,393,097 | ||||||
Endo Pharmaceuticals Holdings, Inc. 7.00%, due 7/15/19 (f) | 8,610,000 | 9,298,800 | ||||||
7.25%, due 1/15/22 (f) | 4,165,000 | 4,487,787 | ||||||
Giant Funding Corp. 8.25%, due 2/1/18 (f) | 25,650,000 | 26,996,625 |
The notes to the financial statements are an integral part of,
16 MainStay High Yield Corporate Bond Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Pharmaceuticals (continued) | ||||||||
Lantheus Medical Imaging, Inc. 9.75%, due 5/15/17 | $ | 25,210,000 | $ | 23,067,150 | ||||
Mylan, Inc. 7.625%, due 7/15/17 (f) | 15,860,000 | 17,525,300 | ||||||
7.875%, due 7/15/20 (f) | 12,120,000 | 13,574,400 | ||||||
NBTY, Inc. 9.00%, due 10/1/18 | 11,025,000 | 11,838,094 | ||||||
Valeant Pharmaceuticals International 6.50%, due 7/15/16 (f) | 19,200,000 | 19,200,000 | ||||||
6.75%, due 10/1/17 (f) | 7,875,000 | 7,875,000 | ||||||
7.00%, due 10/1/20 (f) | 2,760,000 | 2,732,400 | ||||||
160,802,041 | ||||||||
Pipelines 1.8% | ||||||||
ANR Pipeline Co. 7.375%, due 2/15/24 11.50%, beginning 11/1/11 | 2,555,000 | 3,223,268 | ||||||
9.625%, due 11/1/21 | 16,206,000 | 24,210,759 | ||||||
Cedar Brakes II LLC 9.875%, due 9/1/13 (f) | 7,452,900 | 7,837,396 | ||||||
X Copano Energy LLC/Copano Energy Finance Corp. 7.125%, due 4/1/21 | 17,395,000 | 17,786,387 | ||||||
7.75%, due 6/1/18 | 29,645,000 | 30,979,025 | ||||||
MarkWest Energy Partners, L.P./MarkWest Energy Finance Corp. 6.75%, due 11/1/20 | 21,170,000 | 22,228,500 | ||||||
8.75%, due 4/15/18 | 5,688,000 | 6,399,000 | ||||||
112,664,335 | ||||||||
Real Estate Investment Trusts 1.1% | ||||||||
Host Hotels & Resorts, Inc. 6.00%, due 11/1/20 | 1,330,000 | 1,369,900 | ||||||
Host Marriott, L.P. Series Q 6.75%, due 6/1/16 | 36,455,000 | 37,730,925 | ||||||
Sabra Health Care, L.P./Sabra Capital Corp. 8.125%, due 11/1/18 | 11,951,000 | 11,771,735 | ||||||
Weyerhaeuser Co. 6.95%, due 10/1/27 | 3,695,000 | 3,546,997 | ||||||
7.375%, due 10/1/19 | 6,670,000 | 7,361,866 | ||||||
7.375%, due 3/15/32 | 1,655,000 | 1,653,747 | ||||||
8.50%, due 1/15/25 | 4,130,000 | 4,628,858 | ||||||
68,064,028 | ||||||||
Retail 3.8% | ||||||||
AmeriGas Partners, L.P./AmeriGas Finance Corp. 6.25%, due 8/20/19 | 13,025,000 | 12,894,750 | ||||||
6.50%, due 5/20/21 | 2,828,000 | 2,799,720 | ||||||
Asbury Automotive Group, Inc. 7.625%, due 3/15/17 | 11,473,000 | 11,300,905 | ||||||
8.375%, due 11/15/20 | 32,770,000 | 32,442,300 | ||||||
AutoNation, Inc. 6.75%, due 4/15/18 | 20,176,000 | 20,932,600 | ||||||
DineEquity, Inc. 9.50%, due 10/30/18 | 39,030,000 | 41,371,800 | ||||||
HSN, Inc. 11.25%, due 8/1/16 | 23,375,000 | 25,946,250 | ||||||
J.C. Penney Corp., Inc. 7.125%, due 11/15/23 | 16,185,000 | 16,185,000 | ||||||
Limited Brands, Inc. 6.625%, due 4/1/21 | 12,715,000 | 13,350,750 | ||||||
8.50%, due 6/15/19 | 3,395,000 | 3,955,175 | ||||||
Penske Auto Group, Inc. 7.75%, due 12/15/16 | 22,265,000 | 22,821,625 | ||||||
PVH Corp. 7.375%, due 5/15/20 | 10,230,000 | 11,099,550 | ||||||
Sally Holdings LLC 9.25%, due 11/15/14 | 8,690,000 | 8,918,112 | ||||||
Sonic Automotive, Inc. 9.00%, due 3/15/18 | 14,365,000 | 14,939,600 | ||||||
238,958,137 | ||||||||
Semiconductors 0.2% | ||||||||
Advanced Micro Devices, Inc. 7.75%, due 8/1/20 | 2,090,000 | 2,121,350 | ||||||
MEMC Electronic Materials, Inc. 7.75%, due 4/1/19 | 15,760,000 | 13,514,200 | ||||||
15,635,550 | ||||||||
Shipbuilding 0.3% | ||||||||
Huntington Ingalls Industries, Inc. 6.875%, due 3/15/18 (f) | 8,775,000 | 8,840,813 | ||||||
7.125%, due 3/15/21 (f) | 8,530,000 | 8,636,625 | ||||||
17,477,438 | ||||||||
Software 0.3% | ||||||||
Fidelity National Information Services, Inc. 7.625%, due 7/15/17 | 10,800,000 | 11,745,000 | ||||||
7.875%, due 7/15/20 | 3,565,000 | 3,894,763 | ||||||
SS&C Technologies, Inc. 11.75%, due 12/1/13 | 5,018,000 | 5,043,090 | ||||||
20,682,853 | ||||||||
Storage & Warehousing 0.1% | ||||||||
Mobile Mini, Inc. 7.875%, due 12/1/20 | 4,285,000 | 4,285,000 | ||||||
Telecommunications 5.1% | ||||||||
Alcatel-Lucent USA, Inc. 6.45%, due 3/15/29 | 13,584,000 | 11,953,920 | ||||||
CC Holdings GS V LLC/Crown Castle GS III Corp. 7.75%, due 5/1/17 (f) | 33,700,000 | 36,480,250 | ||||||
Clearwire Communications LLC/Clearwire Finance, Inc. 12.00%, due 12/1/15 (f) | 30,510,000 | 26,086,050 |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 17 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Telecommunications (continued) | ||||||||
Crown Castle International Corp. 7.125%, due 11/1/19 | $ | 21,153,000 | $ | 22,898,122 | ||||
9.00%, due 1/15/15 | 5,080,000 | 5,537,200 | ||||||
EH Holding Corp. 6.50%, due 6/15/19 (f) | 13,430,000 | 13,732,175 | ||||||
7.625%, due 6/15/21 (f) | 18,250,000 | 18,888,750 | ||||||
GCI, Inc. 6.75%, due 6/1/21 | 10,275,000 | 10,043,813 | ||||||
8.625%, due 11/15/19 | 27,521,000 | 29,516,272 | ||||||
Lucent Technologies, Inc. 6.50%, due 1/15/28 | 11,745,000 | 10,276,875 | ||||||
MetroPCS Wireless, Inc. 6.625%, due 11/15/20 | 7,935,000 | 7,458,900 | ||||||
7.875%, due 9/1/18 | 11,274,000 | 11,471,295 | ||||||
Nextel Communications, Inc. 5.95%, due 3/15/14 | 4,880,000 | 4,660,400 | ||||||
6.875%, due 10/31/13 | 13,440,000 | 13,272,000 | ||||||
7.375%, due 8/1/15 | 6,615,000 | 6,317,325 | ||||||
NII Capital Corp. 7.625%, due 4/1/21 | 21,755,000 | 22,407,650 | ||||||
8.875%, due 12/15/19 | 2,690,000 | 2,824,500 | ||||||
10.00%, due 8/15/16 | 7,095,000 | 7,981,875 | ||||||
SBA Telecommunications, Inc. 8.25%, due 8/15/19 | 14,955,000 | 16,338,338 | ||||||
Sprint Capital Corp. 6.875%, due 11/15/28 | 33,763,000 | 24,646,990 | ||||||
8.75%, due 3/15/32 | 7,078,000 | 5,874,740 | ||||||
Sprint Nextel Corp. 9.25%, due 4/15/22 | 13,690,000 | 13,792,675 | ||||||
322,460,115 | ||||||||
Transportation 1.2% | ||||||||
Florida East Coast Holdings Corp. 10.50%, due 8/1/17 (h) | 3,401,593 | 3,231,513 | ||||||
Florida East Coast Railway Corp. 8.125%, due 2/1/17 | 38,149,000 | 38,149,000 | ||||||
KAR Holdings, Inc. 4.429%, due 5/1/14 (b) | 11,780,000 | 11,544,400 | ||||||
Syncreon Global Ireland, Ltd./Syncreon Global Finance US, Inc. 9.50%, due 5/1/18 (f) | 21,775,000 | 20,414,063 | ||||||
73,338,976 | ||||||||
Total Corporate Bonds (Cost $4,921,944,871) | 5,100,566,238 | |||||||
Loan Assignments & Participations 2.1% (i) | ||||||||
Aerospace & Defense 0.2% | ||||||||
Transdigm, Inc. New Term Loan B 4.00%, due 2/14/17 | 10,000,000 | 9,945,830 | ||||||
Auto Parts & Equipment 0.1% | ||||||||
FleetPride Corp. Term Loan 2.746%, due 6/6/13 | 7,684,375 | 7,569,109 | ||||||
Automobile 0.3% | ||||||||
Chrysler Group LLC Term Loan 6.00%, due 5/24/17 | 21,545,000 | 20,315,147 | ||||||
Banks 0.3% | ||||||||
VFH Parent LLC Term Loan 7.50%, due 7/8/16 | 22,730,000 | 22,294,334 | ||||||
Finance 0.2% | ||||||||
Ocwen Financial Corp. Term Loan B 7.00%, due 9/1/16 | 14,512,875 | 14,367,746 | ||||||
Health Care—Services 0.2% | ||||||||
Sun Healthcare Group, Inc. New Term Loan B 7.50%, due 10/15/16 | 14,639,111 | 10,759,747 | ||||||
Machinery 0.0%‡ | ||||||||
BHM Technologies LLC Exit Term Loan B 8.50%, due 9/30/13 (a)(d)(e) | 5,772,379 | 38,675 | ||||||
Media 0.2% | ||||||||
Nielsen Finance LLC Class A Term Loan 2.242%, due 8/9/13 | 14,630,037 | 14,520,311 | ||||||
Metal Fabricate & Hardware 0.3% | ||||||||
Neenah Corp. Exit Term Loan 11.00%, due 1/2/15 (d)(e) | 18,553,500 | 18,553,500 | ||||||
Mining, Steel, Iron & Non-Precious Metals 0.2% | ||||||||
Novelis, Inc. New Term Loan B 3.75%, due 3/10/17 | 10,000,000 | 9,928,130 | ||||||
The notes to the financial statements are an integral part of,
18 MainStay High Yield Corporate Bond Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Loan Assignments & Participations (continued) | ||||||||
Utilities 0.1% | ||||||||
Texas Competitive Electric Holdings Co. LLC Non-Extended Term Loan 3.76%, due 10/10/14 | $ | 7,710,396 | $ | 5,773,159 | ||||
Total Loan Assignments & Participations (Cost $146,021,040) | 134,065,688 | |||||||
Yankee Bonds 9.1% (j) | ||||||||
Auto Manufacturers 0.5% | ||||||||
Jaguar Land Rover PLC 7.75%, due 5/15/18 (f) | 16,790,000 | 16,622,100 | ||||||
8.125%, due 5/15/21 (f) | 17,740,000 | 17,473,900 | ||||||
34,096,000 | ||||||||
Auto Parts & Equipment 0.2% | ||||||||
International Automotive Components Group SL 9.125%, due 6/1/18 (f) | 12,100,000 | 11,918,500 | ||||||
Chemicals 0.7% | ||||||||
X Nova Chemicals Corp. 3.773%, due 11/15/13 (b) | 14,490,000 | 14,308,875 | ||||||
6.50%, due 1/15/12 | 8,385,000 | 8,416,444 | ||||||
8.375%, due 11/1/16 | 13,850,000 | 15,252,312 | ||||||
8.625%, due 11/1/19 | 7,035,000 | 7,914,375 | ||||||
45,892,006 | ||||||||
Commercial Services 0.4% | ||||||||
National Money Mart Co. 10.375%, due 12/15/16 | 23,490,000 | 24,664,500 | ||||||
Computers 0.5% | ||||||||
Seagate HDD Cayman 7.00%, due 11/1/21 (f) | 10,110,000 | 9,907,800 | ||||||
7.75%, due 12/15/18 (f) | 19,010,000 | 19,865,450 | ||||||
29,773,250 | ||||||||
Diversified Financial Services 0.5% | ||||||||
Smurfit Capital Funding PLC 7.50%, due 11/20/25 | 34,850,000 | 32,759,000 | ||||||
Entertainment 0.4% | ||||||||
MU Finance PLC 8.375%, due 2/1/17 (f) | 21,670,000 | 23,078,550 | ||||||
Forest Products & Paper 0.3% | ||||||||
PE Paper Escrow GmbH 12.00%, due 8/1/14 (f) | 10,805,000 | 11,723,425 | ||||||
Sappi Papier Holding GmbH 6.625%, due 4/15/21 (f) | 5,195,000 | 4,727,450 | ||||||
16,450,875 | ||||||||
Health Care—Products 0.3% | ||||||||
DJO Finance LLC/DJO Finance Corp. 10.875%, due 11/15/14 | 20,197,000 | 20,247,493 | ||||||
Insurance 0.3% | ||||||||
Fairfax Financial Holdings, Ltd. 7.375%, due 4/15/18 | 9,497,000 | 10,249,324 | ||||||
7.75%, due 7/15/37 | 4,810,000 | 4,587,975 | ||||||
8.30%, due 4/15/26 | 5,395,000 | 5,641,260 | ||||||
20,478,559 | ||||||||
Iron & Steel 0.2% | ||||||||
APERAM 7.75%, due 4/1/18 (f) | 13,035,000 | 11,470,800 | ||||||
Media 0.6% | ||||||||
Quebecor Media, Inc. 7.75%, due 3/15/16 | 39,000,000 | 40,267,500 | ||||||
Mining 0.4% | ||||||||
Novelis, Inc. 8.375%, due 12/15/17 | 15,425,000 | 16,659,000 | ||||||
8.75%, due 12/15/20 | 7,350,000 | 8,011,500 | ||||||
24,670,500 | ||||||||
Oil & Gas 0.6% | ||||||||
OGX Petroleo e Gas Participacoes S.A. 8.50%, due 6/1/18 (f) | 37,200,000 | 36,828,000 | ||||||
Precision Drilling Corp. 6.50%, due 12/15/21 (f) | 1,715,000 | 1,809,325 | ||||||
38,637,325 | ||||||||
Oil & Gas Services 0.4% | ||||||||
Expro Finance Luxembourg SCA 8.50%, due 12/15/16 (f) | 27,190,000 | 26,238,350 | ||||||
Pharmaceuticals 0.6% | ||||||||
ConvaTec Healthcare E S.A. 10.50%, due 12/15/18 (f) | 20,110,000 | 19,355,875 | ||||||
Warner Chilcott Co., LLC/Warner Chilcott Co., LLC 7.75%, due 9/15/18 | 19,250,000 | 20,068,125 | ||||||
39,424,000 | ||||||||
Telecommunications 2.2% | ||||||||
Inmarsat Finance PLC 7.375%, due 12/1/17 (f) | 948,000 | 1,014,360 | ||||||
Intelsat Jackson Holdings S.A. 7.25%, due 4/1/19 (f) | 22,335,000 | 22,446,675 | ||||||
7.50%, due 4/1/21 (f) | 13,280,000 | 13,346,400 | ||||||
Intelsat Luxembourg S.A. 11.25%, due 2/4/17 | 15,655,000 | 15,537,588 | ||||||
Sable International Finance, Ltd. 7.75%, due 2/15/17 (f) | 23,755,000 | 23,755,000 | ||||||
Satmex Escrow S.A. de C.V. 9.50%, due 5/15/17 | 17,450,000 | 17,799,000 |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 19 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Yankee Bonds (continued) | ||||||||
Telecommunications (continued) | ||||||||
Virgin Media Finance PLC 8.375%, due 10/15/19 | $ | 14,815,000 | $ | 16,481,687 | ||||
9.50%, due 8/15/16 | 10,315,000 | 11,501,225 | ||||||
Virgin Media Secured Finance PLC 6.50%, due 1/15/18 | 12,788,000 | 13,779,070 | ||||||
135,661,005 | ||||||||
Total Yankee Bonds (Cost $557,626,994) | 575,728,213 | |||||||
Total Long-Term Bonds (Cost $5,665,731,109) | 5,852,100,618 | |||||||
Shares | ||||||||
Common Stocks 0.1% | ||||||||
Media 0.0%‡ | ||||||||
Adelphia Contingent Value Vehicle (d)(e)(g) | 15,507,390 | 155,074 | ||||||
Metal Fabricate & Hardware 0.1% | ||||||||
Neenah Enterprises, Inc. (d)(e)(g) | 717,799 | 4,191,946 | ||||||
Total Common Stocks (Cost $11,850,140) | 4,347,020 | |||||||
Preferred Stocks 0.4% | ||||||||
Real Estate Investment Trusts 0.3% | ||||||||
Sovereign Real Estate Investment Corp. 12.00% (d)(f) | 17,213 | 18,584,170 | ||||||
Savings & Loans 0.1% | ||||||||
GMAC Capital Trust I 8.125% | 414,600 | 8,690,016 | ||||||
Total Preferred Stocks (Cost $25,658,539) | 27,274,186 | |||||||
Number of | ||||||||
Warrants | ||||||||
Warrants 0.0%‡ | ||||||||
Food 0.0%‡ | ||||||||
ASG Corp. Expires 5/15/18 (d)(g) | 12,510 | 1,563,750 | ||||||
Media 0.0%‡ | ||||||||
ION Media Networks, Inc. Second Lien Expires 12/12/39 (d)(e)(g) | 1,141 | 12 | ||||||
ION Media Networks, Inc. (continued) | ||||||||
Unsecured Debt Expires 12/31/49 (d)(e)(g) | 1,126 | 11 | ||||||
23 | ||||||||
Total Warrants (Cost $3,435) | 1,563,773 | |||||||
Principal | ||||||||
Amount | ||||||||
Short-Term Investment 6.1% | ||||||||
Repurchase Agreement 6.1% | ||||||||
State Street Bank and Trust Co. 0.01%, dated 10/31/11 due 11/1/11 Proceeds at Maturity $384,835,426 (Collateralized by United States Treasury securities with rates between 1.875% and 4.625% and maturity dates between 2/28/14 and 2/15/40 and with a Principal Amount of $328,105,000 and a Market Value of $392,534,144) | $ | 384,835,319 | 384,835,319 | |||||
Total Short-Term Investment (Cost $384,835,319) | 384,835,319 | |||||||
Total Investments (Cost $6,088,078,542)(k) | 98.8 | % | 6,270,120,916 | |||||
Other Assets, Less Liabilities | 1.2 | 77,674,465 | ||||||
Net Assets | 100.0 | % | $ | 6,347,795,381 | ||||
‡ | Less than one-tenth of a percent. | |
(a) | Issue in default. | |
(b) | Floating rate—Rate shown is the rate in effect at October 31, 2011. | |
(c) | Restricted security. (See Note 6) | |
(d) | Illiquid security. The total market value of these securities at October 31, 2011 is $79,959,569, which represents 1.3% of the Fund’s net assets. | |
(e) | Fair valued security. The total market value of these securities at October 31, 2011 is $50,146,543, which represents 0.8% of the Fund’s net assets. | |
(f) | May be sold to institutional investors only under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended. | |
(g) | Non-income producing security. | |
(h) | PIK (“Payment in Kind”)—interest or dividend payment is made with additional securities. |
The notes to the financial statements are an integral part of,
20 MainStay High Yield Corporate Bond Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
(i) | Floating Rate Loan—generally pays interest at rates which are periodically re-determined at a margin above the London InterBank Offered Rate or other short-term rates. The rate shown is the rate(s) in effect at October 31, 2011. Floating Rate Loans are generally considered restrictive in that the Fund is ordinarily contractually obligated to receive consent from the Agent Bank and/or borrower prior to disposition of a Floating Rate Loan. | |
(j) | Yankee Bond—dollar-denominated bond issued in the United States by a foreign bank or corporation. | |
(k) | At October 31, 2011, cost is $6,092,441,862 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 295,464,004 | ||
Gross unrealized depreciation | (117,784,950 | ) | ||
Net unrealized appreciation | $ | 177,679,054 | ||
The following is a summary of the fair valuations according to the inputs used as of October 31, 2011, for valuing the Fund’s assets.
Asset Valuation Inputs
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Long-Term Bonds | ||||||||||||||||
Convertible Bonds (b) | $ | — | $ | 41,734,325 | $ | 6,154 | $ | 41,740,479 | ||||||||
Corporate Bonds (c) | — | 5,073,365,067 | 27,201,171 | 5,100,566,238 | ||||||||||||
Loan Assignments & Participations (d) | — | 115,473,513 | 18,592,175 | 134,065,688 | ||||||||||||
Yankee Bonds | — | 575,728,213 | — | 575,728,213 | ||||||||||||
Total Long-Term Bonds | — | 5,806,301,118 | 45,799,500 | 5,852,100,618 | ||||||||||||
Common Stocks (e) | — | — | 4,347,020 | 4,347,020 | ||||||||||||
Preferred Stocks | 27,274,186 | — | — | 27,274,186 | ||||||||||||
Warrants (f) | 1,563,750 | — | 23 | 1,563,773 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 384,835,319 | — | 384,835,319 | ||||||||||||
Total Investments in Securities | $ | 28,837,936 | $ | 6,191,136,437 | $ | 50,146,543 | $ | 6,270,120,916 | ||||||||
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The Level 3 security valued at $6,154 is held in Internet within the Convertible Bonds section of the Portfolio of Investments. |
(c) | The Level 3 securities valued at $23,166, $2,003,436, $823,839, $23,818,500 and $532,230 are held in Auto Parts & Equipment, Commercial Services, Entertainment, Food and Insurance, respectively, within the Corporate Bonds section of the Portfolio of Investments. |
(d) | The Level 3 securities valued at $38,675 and $18,553,500 are held in Machinery and Metal Fabricate & Hardware, respectively, within the Loan Assignments & Participations section of the Portfolio of Investments. |
(e) | The Level 3 securities valued at $155,074 and $4,191,946 are held in Media and Metal Fabricate & Hardware, respectively, within the Common Stocks section of the Portfolio of Investments. |
(f) | The Level 3 securities valued at $23 are held in Media within the Warrants section of the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended October 31, 2011, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 21 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
Change in | ||||||||||||||||||||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||||||||||||||||||
Appreciation | ||||||||||||||||||||||||||||||||||||||||
(Depreciation) | ||||||||||||||||||||||||||||||||||||||||
from | ||||||||||||||||||||||||||||||||||||||||
Balance | Change in | Balance | Investments | |||||||||||||||||||||||||||||||||||||
as of | Accrued | Realized | Unrealized | Transfers | Transfers | as of | Still Held at | |||||||||||||||||||||||||||||||||
October 31, | Discounts | Gain | Appreciation | in to | out of | October 31, | October 31, | |||||||||||||||||||||||||||||||||
Investments in Securities | 2010 | (Premiums) | (Loss) | (Depreciation) | Purchases | Sales | Level 3 | Level 3 | 2011 | 2011 (a) | ||||||||||||||||||||||||||||||
Long-Term Bonds | ||||||||||||||||||||||||||||||||||||||||
Convertible Bonds | ||||||||||||||||||||||||||||||||||||||||
Internet | $ | 6,154 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 6,154 | $ | — | ||||||||||||||||||||
Corporate Bonds | ||||||||||||||||||||||||||||||||||||||||
Auto Parts & Equipment | 23,166 | — | — | — | — | — | — | — | 23,166 | — | ||||||||||||||||||||||||||||||
Commercial Services | 2,956,716 | — | — | (953,280 | ) | — | — | — | — | 2,003,436 | (953,280 | ) | ||||||||||||||||||||||||||||
Entertainment | 987,086 | 35,932 | 37,749 | (3,718 | ) | — | (233,210 | )(b) | — | — | 823,839 | (35,932 | ) | |||||||||||||||||||||||||||
Food | 23,759,250 | — | — | 59,250 | — | — | — | — | 23,818,500 | 59,250 | ||||||||||||||||||||||||||||||
Insurance | — | — | — | (5,323 | ) | — | — | 537,553 | — | 532,230 | (5,323 | ) | ||||||||||||||||||||||||||||
Media | 76,294 | — | (5,568,464 | ) | 5,535,948 | — | (43,778 | ) | — | — | — | — | ||||||||||||||||||||||||||||
Metal, Fabricate & Hardware | 3,699,999 | — | — | — | — | — | — | (3,699,999 | ) | — | — | |||||||||||||||||||||||||||||
Loan Assignments & Participations | ||||||||||||||||||||||||||||||||||||||||
Machinery | 15,585 | (1,925,309 | ) | — | 1,948,399 | — | — | — | — | 38,675 | 1,948,399 | |||||||||||||||||||||||||||||
Metal, Fabricate & Hardware | 18,600,000 | — | — | — | — | (46,500 | ) | — | — | 18,553,500 | — | |||||||||||||||||||||||||||||
Yankee Bonds | ||||||||||||||||||||||||||||||||||||||||
Leisure Time | 17,194,461 | — | 4,056,723 | (5,009,461 | ) | — | (16,241,723 | ) | — | — | — | — | ||||||||||||||||||||||||||||
Common Stocks | ||||||||||||||||||||||||||||||||||||||||
Machinery | 5,371 | — | — | (5,371 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Media | 155,074 | — | — | — | — | — | — | — | 155,074 | — | ||||||||||||||||||||||||||||||
Metal, Fabricate & Hardware | 6,079,758 | — | — | (1,887,812 | ) | — | — | — | — | 4,191,946 | (1,887,812 | ) | ||||||||||||||||||||||||||||
Preferred Stocks | ||||||||||||||||||||||||||||||||||||||||
Machinery | 64 | — | — | (64 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Warrants | ||||||||||||||||||||||||||||||||||||||||
Media | 12 | — | — | — | 11 | (c) | — | — | — | 23 | — | |||||||||||||||||||||||||||||
Total | $ | 73,558,990 | $ | (1,889,377 | ) | $ | (1,473,992 | ) | $ | (321,432 | ) | $ | 11 | $ | (16,565,211 | ) | $ | 537,553 | $ | (3,699,999 | ) | $ | 50,146,543 | $ | (874,698 | ) | ||||||||||||||
(a) | Included in “Net change in unrealized appreciation (depreciation) on investments and unfunded commitments” in the Statement of Operations. |
(b) | Sales include principal reductions. |
(c) | Purchases include securities received from a restructure. |
The notes to the financial statements are an integral part of,
22 MainStay High Yield Corporate Bond Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statement of Assets and Liabilities as of October 31, 2011
Assets | ||||
Investment in securities, at value (identified cost $6,088,078,542) | $ | 6,270,120,916 | ||
Cash denominated in foreign currencies (identified cost $2,164) | 2,054 | |||
Receivables: | ||||
Dividends and interest | 136,517,298 | |||
Fund shares sold | 33,939,021 | |||
Investment securities sold | 5,671,509 | |||
Other assets | 100,738 | |||
Total assets | 6,446,351,536 | |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 72,880,694 | |||
Fund shares redeemed | 9,117,453 | |||
Manager (See Note 3) | 2,882,089 | |||
Transfer agent (See Note 3) | 1,642,302 | |||
NYLIFE Distributors (See Note 3) | 1,488,171 | |||
Shareholder communication | 388,290 | |||
Professional fees | 119,421 | |||
Trustees | 24,609 | |||
Custodian | 5,436 | |||
Accrued expenses | 19,420 | |||
Dividend payable | 9,988,270 | |||
Total liabilities | 98,556,155 | |||
Net assets | $ | 6,347,795,381 | ||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 10,879,301 | ||
Additional paid-in capital | 6,559,059,990 | |||
6,569,939,291 | ||||
Distributions in excess of net investment income | (11,812,622 | ) | ||
Accumulated net realized gain (loss) on investments, unfunded commitments and foreign currency transactions | (392,373,552 | ) | ||
Net unrealized appreciation (depreciation) on investments | 182,042,374 | |||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies | (110 | ) | ||
Net assets | $ | 6,347,795,381 | ||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 285,656,173 | ||
Shares of beneficial interest outstanding | 48,548,976 | |||
Net asset value per share outstanding | $ | 5.88 | ||
Maximum sales charge (4.50% of offering price) | 0.28 | |||
Maximum offering price per share outstanding | $ | 6.16 | ||
Class A | ||||
Net assets applicable to outstanding shares | $ | 3,355,006,849 | ||
Shares of beneficial interest outstanding | 574,936,625 | |||
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 | $ | 267,751,989 | ||
Shares of beneficial interest outstanding | 46,084,533 | |||
Net asset value and offering price per share outstanding | $ | 5.81 | ||
Class C | ||||
Net assets applicable to outstanding shares | $ | 654,223,587 | ||
Shares of beneficial interest outstanding | 112,568,624 | |||
Net asset value and offering price per share outstanding | $ | 5.81 | ||
Class I | ||||
Net assets applicable to outstanding shares | $ | 1,775,230,044 | ||
Shares of beneficial interest outstanding | 304,091,493 | |||
Net asset value and offering price per share outstanding | $ | 5.84 | ||
Class R2 | ||||
Net assets applicable to outstanding shares | $ | 9,926,739 | ||
Shares of beneficial interest outstanding | 1,699,838 | |||
Net asset value and offering price per share outstanding | $ | 5.84 | ||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 23 |
Table of Contents
Statement of Operations for the year ended October 31, 2011
Investment Income (Loss) | ||||
Income | ||||
Interest (a) | $ | 511,138,439 | ||
Dividends | 2,435,173 | |||
Total income | 513,573,612 | |||
Expenses | ||||
Manager (See Note 3) | 36,522,550 | |||
Distribution/Service—Investor Class (See Note 3) | 701,721 | |||
Distribution/Service—Class A (See Note 3) | 8,447,491 | |||
Distribution/Service—Class B (See Note 3) | 3,245,152 | |||
Distribution/Service—Class C (See Note 3) | 6,753,977 | |||
Distribution/Service—Class R2 (See Note 3) | 25,931 | |||
Transfer agent (See Note 3) | 9,984,062 | |||
Shareholder communication | 1,315,304 | |||
Professional fees | 517,831 | |||
Registration | 301,203 | |||
Trustees | 174,909 | |||
Custodian | 78,018 | |||
Shareholder service (See Note 3) | 10,371 | |||
Miscellaneous | 199,823 | |||
Total expenses | 68,278,343 | |||
Net investment income (loss) | 445,295,269 | |||
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Security transactions | 193,847,266 | |||
Foreign currency transactions | 1,376,144 | |||
Net realized gain (loss) on investments and foreign currency transactions | 195,223,410 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments and unfunded commitments | (278,197,904 | ) | ||
Translation of other assets and liabilities in foreign currencies | (222,247 | ) | ||
Net change in unrealized appreciation (depreciation) on investments, unfunded commitments and foreign currency transactions | (278,420,151 | ) | ||
Net realized and unrealized gain (loss) on investments, unfunded commitments and foreign currency transactions | (83,196,741 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | 362,098,528 | ||
(a) | Interest recorded net of foreign withholding taxes in the amount of $45,392. |
The notes to the financial statements are an integral part of,
24 MainStay High Yield Corporate Bond Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statements of Changes in Net Assets
for the years ended October 31, 2011 and October 31, 2010
2011 | 2010 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 445,295,269 | $ | 426,257,831 | ||||
Net realized gain (loss) on investments and foreign currency transactions | �� | 195,223,410 | 10,155,600 | |||||
Net change in unrealized appreciation (depreciation) on investments, unfunded commitments and foreign currency transactions | (278,420,151 | ) | 399,713,212 | |||||
Net increase (decrease) in net assets resulting from operations | 362,098,528 | 836,126,643 | ||||||
Dividends and distributions to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (19,786,004 | ) | (19,325,360 | ) | ||||
Class A | (240,811,722 | ) | (232,081,403 | ) | ||||
Class B | (20,335,389 | ) | (26,142,919 | ) | ||||
Class C | (42,822,088 | ) | (43,795,220 | ) | ||||
Class I | (137,624,961 | ) | (112,088,514 | ) | ||||
Class R2 | (729,452 | ) | (560,236 | ) | ||||
(462,109,616 | ) | (433,993,652 | ) | |||||
Return of capital: | ||||||||
Investor Class | — | (674,626 | ) | |||||
Class A | — | (8,101,696 | ) | |||||
Class B | — | (912,619 | ) | |||||
Class C | — | (1,528,842 | ) | |||||
Class I | — | (3,912,882 | ) | |||||
Class R2 | — | (19,557 | ) | |||||
— | (15,150,222 | ) | ||||||
Total dividends and distributions to shareholders | (462,109,616 | ) | (449,143,874 | ) | ||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | $ | 2,014,794,074 | $ | 1,907,190,051 | ||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 335,298,083 | 320,715,014 | ||||||
Cost of shares redeemed | (2,413,537,264 | ) | (1,792,360,922 | )(a) | ||||
Increase (decrease) in net assets derived from capital share transactions | (63,445,107 | ) | 435,544,143 | |||||
Net increase (decrease) in net assets | (163,456,195 | ) | 822,526,912 | |||||
Net Assets | ||||||||
Beginning of year | 6,511,251,576 | 5,688,724,664 | ||||||
End of year | $ | 6,347,795,381 | $ | 6,511,251,576 | ||||
Distributions in excess of net investment income at end of year | $ | (11,812,622 | ) | $ | (20,170,376 | ) | ||
(a) | Cost of shares redeemed net of redemption fees of $59,904 for the year ended October 31, 2010. (See Note 2(M)) |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 25 |
Table of Contents
Financial Highlights selected per share data and ratios
Investor Class | ||||||||||||||||||
February 28, | ||||||||||||||||||
2008** | ||||||||||||||||||
through | ||||||||||||||||||
Year ended October 31, | October 31, | |||||||||||||||||
2011 | 2010 | 2009 | 2008 | |||||||||||||||
Net asset value at beginning of period | $ | 5.97 | $ | 5.60 | $ | 4.63 | $ | 5.97 | ||||||||||
Net investment income (loss) (a) | 0.41 | 0.41 | 0.40 | 0.28 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.08 | ) | 0.38 | 1.01 | (1.33 | ) | ||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||
Total from investment operations | 0.33 | 0.79 | 1.41 | (1.05 | ) | |||||||||||||
Less dividends and distributions: | ||||||||||||||||||
From net investment income | (0.42 | ) | (0.41 | ) | (0.41 | ) | (0.28 | ) | ||||||||||
Return of capital | — | (0.01 | ) | (0.03 | ) | (0.01 | ) | |||||||||||
Total dividends and distributions | (0.42 | ) | (0.42 | ) | (0.44 | ) | (0.29 | ) | ||||||||||
Redemption fee (a)(b) | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||
Net asset value at end of period | $ | 5.88 | $ | 5.97 | $ | 5.60 | $ | 4.63 | ||||||||||
Total investment return (c) | 5.69 | % | 14.73 | % | 32.60 | % | (18.54 | %)(d) | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||
Net investment income (loss) | 6.80 | % | 7.03 | % | 8.18 | % | 7.31 | % †† | ||||||||||
Net expenses | 1.05 | % | 1.08 | % | 1.15 | % | 1.16 | % †† | ||||||||||
Portfolio turnover rate | 45 | % | 41 | % | 41 | % | 29 | % | ||||||||||
Net assets at end of period (in 000’s) | $ | 285,656 | $ | 282,489 | $ | 265,507 | $ | 201,850 |
** | Commencement of operations. | |
†† | Annualized. | |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the period. | |
(b) | The redemption fee was discontinued as of April 1, 2010. | |
(c) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. | |
(d) | Total investment return is not annualized. |
The notes to the financial statements are an integral part of,
26 MainStay High Yield Corporate Bond Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class A | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 5.92 | $ | 5.56 | $ | 4.60 | $ | 6.35 | $ | 6.33 | ||||||||||||
Net investment income (loss) (a) | 0.41 | 0.40 | 0.40 | 0.43 | 0.45 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.07 | ) | 0.39 | 1.00 | (1.74 | ) | 0.01 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||||
Total from investment operations | 0.34 | 0.79 | 1.40 | (1.31 | ) | 0.46 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.42 | ) | (0.42 | ) | (0.41 | ) | (0.43 | ) | (0.44 | ) | ||||||||||||
Return of capital | — | (0.01 | ) | (0.03 | ) | (0.01 | ) | — | ||||||||||||||
Total dividends and distributions | (0.42 | ) | (0.43 | ) | (0.44 | ) | (0.44 | ) | (0.44 | ) | ||||||||||||
Redemption fee (a)(b) | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
Net asset value at end of year | $ | 5.84 | $ | 5.92 | $ | 5.56 | $ | 4.60 | $ | 6.35 | ||||||||||||
Total investment return (c) | 5.94 | % | 14.69 | % | 32.74 | % | (22.00 | %) | 7.41 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 6.86 | % | 7.07 | % | 8.19 | % | 7.33 | % | 6.95 | % | ||||||||||||
Net expenses | 0.99 | % | 1.03 | % | 1.08 | % | 1.07 | % | 1.04 | % | ||||||||||||
Portfolio turnover rate | 45 | % | 41 | % | 41 | % | 29 | % | 49 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 3,355,007 | $ | 3,409,419 | $ | 3,169,962 | $ | 1,835,090 | $ | 2,887,965 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | The redemption fee was discontinued as of April 1, 2010. | |
(c) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 27 |
Table of Contents
Financial Highlights selected per share data and ratios
Class B | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 5.90 | $ | 5.54 | $ | 4.57 | $ | 6.31 | $ | 6.30 | ||||||||||||
Net investment income (loss) (a) | 0.36 | 0.36 | 0.36 | 0.38 | 0.40 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.08 | ) | 0.38 | 1.00 | (1.73 | ) | 0.00 | ‡ | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||||
Total from investment operations | 0.28 | 0.74 | 1.36 | (1.35 | ) | 0.40 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.37 | ) | (0.37 | ) | (0.36 | ) | (0.38 | ) | (0.39 | ) | ||||||||||||
Return of capital | — | (0.01 | ) | (0.03 | ) | (0.01 | ) | — | ||||||||||||||
Total dividends and distributions | (0.37 | ) | (0.38 | ) | (0.39 | ) | (0.39 | ) | (0.39 | ) | ||||||||||||
Redemption fee (a)(b) | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
Net asset value at end of year | $ | 5.81 | $ | 5.90 | $ | 5.54 | $ | 4.57 | $ | 6.31 | ||||||||||||
Total investment return (c) | 4.95 | % | 13.81 | % | 31.57 | % | (22.47 | %) | 6.46 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 6.05 | % | 6.27 | % | 7.49 | % | 6.53 | % | 6.19 | % | ||||||||||||
Net expenses | 1.80 | % | 1.83 | % | 1.91 | % | 1.86 | % | 1.79 | % | ||||||||||||
Portfolio turnover rate | 45 | % | 41 | % | 41 | % | 29 | % | 49 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 267,752 | $ | 375,368 | $ | 453,918 | $ | 431,398 | $ | 811,937 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | The redemption fee was discontinued as of April 1, 2010. | |
(c) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of,
28 MainStay High Yield Corporate Bond Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class C | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 5.90 | $ | 5.54 | $ | 4.57 | $ | 6.31 | $ | 6.30 | ||||||||||||
Net investment income (loss) (a) | 0.36 | 0.36 | 0.36 | 0.38 | 0.40 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.08 | ) | 0.38 | 1.00 | (1.73 | ) | 0.00 | ‡ | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||||
Total from investment operations | 0.28 | 0.74 | 1.36 | (1.35 | ) | 0.40 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.37 | ) | (0.37 | ) | (0.36 | ) | (0.38 | ) | (0.39 | ) | ||||||||||||
Return of capital | — | (0.01 | ) | (0.03 | ) | (0.01 | ) | — | ||||||||||||||
Total dividends and distributions | (0.37 | ) | (0.38 | ) | (0.39 | ) | (0.39 | ) | (0.39 | ) | ||||||||||||
Redemption fee (a)(b) | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
Net asset value at end of year | $ | 5.81 | $ | 5.90 | $ | 5.54 | $ | 4.57 | $ | 6.31 | ||||||||||||
Total investment return (c) | 4.95 | % | 13.81 | % | 31.57 | % | (22.60 | %) | 6.63 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 6.05 | % | 6.28 | % | 7.29 | % | 6.54 | % | 6.20 | % | ||||||||||||
Net expenses | 1.80 | % | 1.83 | % | 1.90 | % | 1.86 | % | 1.79 | % | ||||||||||||
Portfolio turnover rate | 45 | % | 41 | % | 41 | % | 29 | % | 49 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 654,224 | $ | 698,491 | $ | 651,209 | $ | 276,418 | $ | 422,348 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | The redemption fee was discontinued as of April 1, 2010. | |
(c) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 29 |
Table of Contents
Financial Highlights selected per share data and ratios
Class I | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 5.92 | $ | 5.56 | $ | 4.60 | $ | 6.35 | $ | 6.34 | ||||||||||||
Net investment income (loss) (a) | 0.42 | 0.42 | 0.41 | 0.44 | 0.47 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.06 | ) | 0.38 | 1.00 | (1.73 | ) | 0.00 | ‡ | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||||
Total from investment operations | 0.36 | 0.80 | 1.41 | (1.29 | ) | 0.47 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.44 | ) | (0.43 | ) | (0.42 | ) | (0.45 | ) | (0.46 | ) | ||||||||||||
Return of capital | — | (0.01 | ) | (0.03 | ) | (0.01 | ) | — | ||||||||||||||
Total dividends and distributions | (0.44 | ) | (0.44 | ) | (0.45 | ) | (0.46 | ) | (0.46 | ) | ||||||||||||
Redemption fee (a)(b) | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
Net asset value at end of year | $ | 5.84 | $ | 5.92 | $ | 5.56 | $ | 4.60 | $ | 6.35 | ||||||||||||
Total investment return (c) | 6.19 | % | 14.98 | % | 32.84 | % | (21.63 | %) | 7.49 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 7.11 | % | 7.34 | % | 8.38 | % | 7.57 | % | 7.26 | % | ||||||||||||
Net expenses | 0.74 | % | 0.78 | % | 0.83 | % | 0.87 | % | 0.79 | % | ||||||||||||
Portfolio turnover rate | 45 | % | 41 | % | 41 | % | 29 | % | 49 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 1,775,230 | $ | 1,736,365 | $ | 1,141,889 | $ | 508,239 | $ | 440,002 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | The redemption fee was discontinued as of April 1, 2010. | |
(c) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. |
The notes to the financial statements are an integral part of,
30 MainStay High Yield Corporate Bond Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class R2 | ||||||||||||||||||
May 1, | ||||||||||||||||||
2008** | ||||||||||||||||||
through | ||||||||||||||||||
Year ended October 31, | October 31, | |||||||||||||||||
2011 | 2010 | 2009 | 2008 | |||||||||||||||
Net asset value at beginning of period | $ | 5.93 | $ | 5.56 | $ | 4.60 | $ | 5.99 | ||||||||||
Net investment income (loss) (a) | 0.40 | 0.40 | 0.39 | 0.21 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.07 | ) | 0.39 | 1.01 | (1.38 | ) | ||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.00 | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||
Total from investment operations | 0.33 | 0.79 | 1.40 | (1.17 | ) | |||||||||||||
Less dividends and distributions: | ||||||||||||||||||
From net investment income | (0.42 | ) | (0.41 | ) | (0.41 | ) | (0.21 | ) | ||||||||||
Return of capital | — | (0.01 | ) | (0.03 | ) | (0.01 | ) | |||||||||||
Total dividends and distributions | (0.42 | ) | (0.42 | ) | (0.44 | ) | (0.22 | ) | ||||||||||
Redemption fee (a)(b) | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||
Net asset value at end of period | $ | 5.84 | $ | 5.93 | $ | 5.56 | $ | 4.60 | ||||||||||
Total investment return (c) | 5.67 | % | 14.78 | % | 32.31 | % | (20.13 | %)(d) | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||
Net investment income (loss) | 6.76 | % | 6.99 | % | 7.59 | % | 7.48 | % †† | ||||||||||
Net expenses | 1.09 | % | 1.13 | % | 1.18 | % | 1.20 | % †† | ||||||||||
Portfolio turnover rate | 45 | % | 41 | % | 41 | % | 29 | % | ||||||||||
Net assets at end of period (in 000’s) | $ | 9,927 | $ | 9,120 | $ | 6,240 | $ | 41 |
** | Commencement of operations. | |
†† | Annualized. | |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the period. | |
(b) | The redemption fee was discontinued as of April 1, 2010. | |
(c) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R2 shares are not subject to sales charges. | |
(d) | Total investment return is not annualized. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 31 |
Table of Contents
Notes to Financial Statements
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of fourteen funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay High Yield Corporate Bond Fund (the “Fund”), a diversified fund.
The Fund currently offers six 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. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies on investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I and Class R2 shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The six classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class, Class A and Class R2 shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I shares are not subject to a distribution and/or service fee. Class R2 shares are subject to a shareholder service fee. This is in addition to any fees paid under a distribution plan, where applicable.
The Fund’s investment objective is to seek maximum current income through investment in a diversified portfolio of high-yield debt securities. Capital appreciation is a secondary objective.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (usually 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are determined within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish 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 developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in determining the fair value of investments) |
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may utilize some of the following fair value techniques: multi-dimensional relational pricing models, option adjusted spread pricing and estimating the price that would have prevailed in a liquid market for an international equity security given information available at the time of evaluation, when there are significant events after the close of local foreign markets.
The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2011, there have been no changes to the fair value methodologies.
The aggregate value by input level, as of October 31, 2011, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
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Equity securities and Exchange Traded Funds are valued at the latest quoted sales prices as of the close of regular trading on the Exchange on each valuation date. Securities that are not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Prices normally are taken from the principal market in which each security trades. Investments in other mutual funds are valued at their 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 are valued at the evaluated bid prices supplied by a pricing agent or brokers selected by the Fund’s Manager (as defined in Note 3(A)) in consultation with the Fund’s Subadvisor (as defined in Note 3(A)) whose prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Fund’s Manager, in consultation with the Fund’s Subadvisor, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities, including corporate bonds, U.S. government & federal agency bonds, municipal bonds, foreign bonds, Yankee bonds, convertible bonds, asset-backed securities, and mortgage-backed securities, are generally categorized as Level 2 in the hierarchy.
Temporary cash investments acquired over 60 days prior to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of the difference between such cost and the value on maturity date. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not obtained from a quoted price in an active market. These securities are all 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.
Securities for which market quotations are not readily available are valued by methods deemed in good faith by the Fund’s Board to represent fair value. Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security the trading for which 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 the market price of which is not available from an independent pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor reflect the security’s market value; and (vi) a security where the trading on that security’s principal market is temporarily closed at a time when, under normal conditions, it would be open. These securities are generally categorized as Level 3 in the hierarchy. At October 31, 2011, the Fund held securities with a value of $50,146,543 that were fair valued in such a manner.
Certain events may occur between the time that foreign markets close, on which securities held by the Fund principally trade, and the time at which the Fund’s NAV is calculated. These events may include, but are not limited to, situations relating to a single issuer in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. Should the Manager or Subadvisor conclude that such events may have affected the accuracy of the last price reported on the local foreign market, the Manager or Subadvisor may, pursuant to procedures adopted by the Fund’s Board, adjust the value of the local price to reflect the 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, 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 the Fund’s policies and procedures and are generally categorized as Level 2 in the hierarchy. As of October 31, 2011, the Fund did not hold any foreign equity securities.
Generally, a security is considered illiquid if it cannot be sold or disposed of in the ordinary course of business at approximately the price at which it is valued. Its illiquidity might prevent the sale of such security at a time when the Manager or Subadvisor might wish to sell, and these securities could have the effect of decreasing the overall level of a Fund’s liquidity. Further, the lack of an established secondary market may make it more difficult to value illiquid securities, requiring the Fund to rely on judgments that may be somewhat subjective in determining value, which could vary from the amount that the Fund could realize upon disposition. Difficulty in selling illiquid securities may result in a loss or may be costly to the Fund. Under the supervision of the Board, the Manager or Subadvisor 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 generally will be valued in such manner as the Board in good faith deems appropriate to reflect their fair market value.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provision is required.
Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years
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(for up to three tax years), and has concluded that no provision for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income monthly and distributions of net realized capital and currency gains, if any, annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(D) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Dividend income is recognized on the ex-dividend date and interest income is accrued as earned using the effective interest rate method. Discounts and premiums on securities purchased, other than Short-Term Investments, for the Fund are accreted and amortized, respectively, on the effective interest rate method over the life of the respective securities or, in the case of a callable security, over the period to the first date of call. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
The Fund may place a debt obligation on non-accrual status and reduce related interest income by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. A debt obligation is removed from non-accrual status when the issuer resumes interest payments or when collectability of interest is reasonably assured.
(E) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(F) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(G) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisor to be creditworthy, pursuant to guidelines established by the Fund’s Board. Repurchase agreements are considered under the 1940 Act to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in such repurchase agreements. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default of 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, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(H) Loan Assignments, Participations and Commitments. The Fund invests in loan assignments and loan participations. Loan assignments and participations (“loans”) are agreements to make money available (a “commitment”) to a borrower in a specified amount, at a specified rate and within a specified time. Such loans are typically senior, secured and collateralized in nature. The Fund records an investment when the borrower withdraws money and records interest as earned. These loans pay interest at rates that are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate.
The loans in which the Fund invests are generally readily marketable, but may be subject to some restrictions on resale. For example, the Fund may be contractually obligated to receive approval from the agent bank and/or borrower prior to the sale of these investments.
The Fund assumes the credit risk of the borrower, the selling participant and any other persons interpositioned between the Fund and the borrower (“intermediate participants”). In the event that the borrower, selling participant or intermediate participants become insolvent or enters into bankruptcy, the Fund may incur certain costs and delays in realizing payment, or may suffer a loss of principal and/or interest.
Unfunded commitments represent the remaining obligation of the Fund to the borrower. At any point in time, up to the maturity date of the issue, the borrower may demand the unfunded portion. These unfunded amounts are marked to market and recorded in the Statement of Assets and Liabilities. At October 31, 2011, the Fund did not hold unfunded commitments.
(I) Foreign Currency Transactions. The books and records of the Fund are kept in U.S. dollars. Prices of securities denominated in foreign currency amounts are translated into U.S. dollars at the mean between the buying and selling exchange 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 |
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(ii) | purchases and sales of investment securities, income and expenses—at the date of such transactions. |
The assets and liabilities that are denominated in foreign currency amounts are presented at the exchange rates and market values at the close of the period. The realized and unrealized changes in net assets arising from fluctuations in exchange rates and market prices of securities are not separately presented.
Net realized gain (loss) on foreign currency transactions represents net gains and losses on foreign currency forward contracts, net currency gains or losses realized as a result of differences between the amounts of securities sale proceeds or purchase cost, dividends, interest and withholding taxes as recorded on the Fund’s books, and the U.S. dollar equivalent amount actually received or paid. Net currency gains or losses from valuing such foreign currency denominated assets and liabilities, other than investments at valuation date exchange rates, are reflected in unrealized foreign exchange gains or losses.
(J) Rights and Warrants. A right is a certificate that permits the holder to purchase a certain number of shares, or a fractional share, of a new stock from the issuer at a specific price. A warrant is an instrument that entitles the holder to buy an equity security at a specific price for a specific period of time. The Fund generally enters into rights and warrants when securities are acquired through a corporate action. With respect to warrants in international markets, the securities are only purchased when the underlying security cannot be purchased due to the many restrictions an industry and/or country might place on foreign investors. 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 the warrant is not exercised by the date of its expiration. The securities are sold as soon as the opportunity becomes available. The Fund is exposed to risk until each sale is completed. At October 31, 2011, the Fund did not hold any rights.
(K) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act, and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund’s cash collateral in accordance with the Lending Agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue to receive interest and dividends on the securities loaned and any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the account of the Fund.
Although the Fund and New York Life Investments (as defined in Note 3(A)) have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund had no portfolio securities on loan as of October 31, 2011.
(L) Restricted Securities. A restricted security is a security which has been purchased through a private offering and cannot be resold to the general public without prior registration under the Securities Act of 1933, as amended. The Fund may not have the right to demand that such securities be registered. Disposal of these securities may involve time-consuming negotiations and expenses and it may be difficult to obtain a prompt sale at an acceptable price. (See Note 6)
(M) Redemption Fee. Prior to April 1, 2010, the Fund imposed a 2.00% redemption fee on redemptions (including exchanges) of Fund shares made within 60 days of their date of purchase for any class. The redemption fee was designed to offset brokerage commissions and other costs associated with short-term trading and was not assessed on shares acquired through the reinvestment of dividends or distributions paid by the Fund. The redemption fees are included in the Statement of Changes in Net Assets’ shares redeemed amount and were retained by the Fund for the fiscal year ended October 31, 2010.
(N) Concentration of Risk. The Fund invests in high-yield securities (sometimes called “junk bonds”), which are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities pay investors a premium—a high interest rate or yield—because of the increased risk of loss. These securities can also be subject to greater price volatility.
The Fund invests in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic instruments. These risks include those resulting from currency fluctuations, future adverse political and economic developments and possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. These risks are likely to be greater in emerging markets than in developed markets. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic or political developments in a specific country, industry or region.
(O) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no
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assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
(P) Quantitative Disclosure of Derivative Holdings. The following tables show additional disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial positions, performance and cash flows. These derivatives are not accounted for as hedging instruments.
Fair value of derivatives as of October 31, 2011:
Asset Derivatives
Statement of | ||||||||||
Assets and | Equity | |||||||||
Liabilities | Contracts | |||||||||
Location | Risk | Total | ||||||||
Warrants | Investment in securities, at value | $ | 1,563,733 | $ | 1,563,733 | |||||
Total Fair Value | $ | 1,563,733 | $ | 1,563,733 | ||||||
The effect of derivative instruments on the Statement of Operations for the year ended October 31, 2011:
Realized Gain (Loss)
Statement of | Equity | |||||||||
Operations | Contracts | |||||||||
Location | Risk | Total | ||||||||
Warrants | Net realized gain (loss) on security transactions | $ | 23 | $ | 23 | |||||
Total Realized Gain (Loss) | $ | 23 | $ | 23 | ||||||
Change in Unrealized Appreciation (Depreciation)
Statement of | Equity | |||||||||
Operations | Contracts | |||||||||
Location | Risk | Total | ||||||||
Warrants | Net change in unrealized appreciation (depreciation) on investments and unfunded commitments | $ | (1,553 | ) | $ | (1,553 | ) | |||
Total Change in Unrealized Appreciation (Depreciation) | $ | (1,553 | ) | $ | (1,553 | ) | ||||
Number of Contracts, Notional Amounts or Shares/Units (1)
Equity | ||||||||
Contracts | ||||||||
Risk | Total | |||||||
Warrants (2) | 14,682 | 14,682 | ||||||
(1) | Amount disclosed represents the weighted average held during the year ended October 31, 2011. |
(2) | Amount(s) represent(s) number of contracts or number of shares/units. |
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), 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, including a portion of the total compensation of the Chief Compliance Officer (“CCO”) of the Fund which is the responsibility of all investment companies for which the CCO serves, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. MacKay Shields LLC (“MacKay Shields” or the “Subadvisor”), a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life, serves as Subadvisor to the Fund and is responsible for the day-to-day portfolio management of the Fund. Pursuant to the terms of an 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.
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.60% up to $500 million; 0.55% from $500 million up to $5 billion; 0.525% from $5 billion up to $7 billion; and 0.50% in excess of $7 billion, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. The effective management fee rate was 0.56% for the year ended October 31, 2011, inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets.
For the year ended October 31, 2011, New York Life Investments earned fees from the Fund in the amount of $36,522,550.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution, Service and Shareholder Service Fees. The Trust, on behalf of the Fund, has entered into a Distribution Agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class, Class A and Class R2 Plans, the Distributor receives a monthly distribution fee from the Investor Class,
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Class A and Class R2 shares at an annual rate of 0.25% of the average daily net assets of the Investor Class, Class A and Class R2 shares for distribution or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average daily net assets of the Class B and Class C shares, along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 1.00%. Class I shares are not subject to a distribution 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 is entitled to a Shareholder Service Fee accrued daily and paid monthly at an annual rate of 0.10% of the average daily net assets attributable to the Class R2 shares. This is in addition to any fees paid under a distribution plan, where applicable.
For the year ended October 31, 2011, the Fund incurred shareholder service fees of $10,371.
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $105,009 and $739,235, respectively, for the year ended October 31, 2011. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $18, $20,541, $297,896 and $78,246, respectively, for the year ended October 31, 2011.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2011, were as follows:
Investor Class | $ | 569,892 | ||
Class A | 4,742,005 | |||
Class B | 659,820 | |||
Class C | 1,371,706 | |||
Class I | 2,626,101 | |||
Class R2 | 14,538 | |||
(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. At October 31, 2011, New York Life and its affiliates beneficially held shares of the Fund with the following values and percentages of net assets as follows:
Class A | $ | 232 | 0.0 | %‡ | |||||
Class C | 137 | 0.0 | ‡ | ||||||
Class I | 3,782,830 | 0.2 | |||||||
Class R2 | 31,852 | 0.3 | |||||||
‡ | Less than one-tenth of a percent. |
(G) Other. Pursuant to a Legal Services Agreement, a portion of the cost of legal services provided to the Fund by the Office of the General Counsel of New York Life Investments was payable directly by the Fund through March 17, 2011. For the year ended October 31, 2011, these fees, which are included in professional fees shown on the Statement of Operations, were $103,073. Effective March 18, 2011, the Legal Services Agreement expired and was not renewed. Therefore, the Fund is no longer directly responsible for any portion of the cost of legal services.
Note 4–Federal Income Tax
As of October 31, 2011, the components of accumulated gain (loss) on a tax basis were as follows:
Accumulated | ||||||||||||||||||
Capital | Other | Unrealized | Total | |||||||||||||||
Ordinary | and Other | Temporary | Appreciation | Accumulated | ||||||||||||||
Income | Gain (Loss) | Differences | (Depreciation) | Gain (Loss) | ||||||||||||||
$ | — | $ | (388,045,099 | ) | $ | (9,988,270 | ) | $ | 175,889,459 | $ | (222,143,910 | ) | ||||||
The difference between book-basis and tax basis unrealized depreciation is primarily due to wash sale deferrals, premium amortization adjustments and basis adjustment due to class action payments. The other temporary differences are primarily due to dividends payable and interest income on defaulted securities.
The following table discloses the current year reclassifications between undistributed net investment income, accumulated net realized income (loss) on investments, and additional paid-in capital arising from permanent differences; net assets at October 31, 2011 were not affected.
Accumulated | ||||||||||
Undistributed | Net Realized | |||||||||
Net Investment | Gain (Loss) on | Additional | ||||||||
Income (Loss) | Investments | Paid-In Capital | ||||||||
$ | 25,172,101 | $ | 111,358,800 | $ | (136,530,901 | ) | ||||
The reclassifications for the Fund are primarily due to foreign currency gain (loss), interest income on defaulted securities, expiration of a portion of the capital loss carryforward, reclassification of consent fee, distributions in excess of current earnings and modified debt instrument adjustments.
Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited
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Notes to Financial Statements (continued)
period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
At October 31, 2011, for federal income tax purposes, capital loss carryforwards of $388,045,099 were available as shown in the table below, to the extent provided by the regulations to offset future realized gains of the Fund through the years indicated. To the extent that these capital loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to shareholders. No capital gain distributions shall be made until any capital loss carryforwards have been fully utilized or expired.
Capital Loss | Capital Loss | |||||
Available Through | Amounts (000’s) | |||||
2014 | $ | 34,845 | ||||
2016 | 84,576 | |||||
2017 | 268,624 | |||||
Total | $ | 388,045 | ||||
The Fund utilized $184,217,846 of capital loss carryforwards during the year ended October 31, 2011. The Fund had $121,816,333 of capital loss carryforwards that expired during the year ended October 31, 2011.
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 shown in the Statements of Changes in Net Assets was as follows:
2011 | 2010 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 462,109,616 | $ | 433,993,652 | ||||
Return of Capital | — | 15,150,222 | ||||||
Total | $ | 462,109,616 | $ | 449,143,874 | ||||
Note 5–Foreign Currency Transactions
As of October 31, 2011, the Fund held the following foreign currency:
Currency | Cost | Value | ||||||||||
Canadian Dollar | CAD | 2,047 | USD | 2,164 | USD | 2,054 | ||||||
Note 6–Restricted Securities
As of October 31, 2011, the Fund held the following restricted security:
Date of | Principal | 10/31/11 | Percentage of | |||||||||||||||||
Security | Acquisition | Amount | Cost | Value | Net Assets | |||||||||||||||
At Home Corp. Convertible Bond 4.75%, due 12/31/49 | 7/25/01 | $ | 61,533,853 | $ | — | $ | 6,154 | 0.0 | %‡ | |||||||||||
‡ | Less than one-tenth of a percent. |
Note 7–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 8–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 31, 2011, under an amended credit agreement, the aggregate commitment amount is $125,000,000 with an optional maximum amount of $175,000,000. The commitment rate is an annual rate of 0.08% of the average commitment amount, payable quarterly, regardless of usage, to The Bank of New York Mellon, which serves as the agent to the syndicate. The commitment fee is allocated among certain MainStay Funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The amended credit agreement expires on August 29, 2012, although the MainStay Funds and the syndicate of banks may renew the amended credit agreement for an additional year on the same or different terms. Prior to August 31, 2011, the commitment rate was an annual rate of 0.10% of the average commitment amount, plus a 0.02% up-front payment. There were no borrowings made or outstanding with respect to the Fund on the amended credit agreement during the year ended October 31, 2011.
Note 9–Purchases and Sales of Securities
(in 000’s)
During the year ended October 31, 2011, purchases and sales of securities, other than short-term securities, were $2,757,832 and $3,043,674, respectively.
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Note 10–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 5,111,719 | $ | 30,485,632 | |||||
Shares issued to shareholders in reinvestment of dividends | 2,960,375 | 17,570,516 | ||||||
Shares redeemed | (6,877,828 | ) | (40,945,549 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 1,194,266 | 7,110,599 | ||||||
Shares converted into Investor Class (See Note 1) | 4,655,768 | 27,587,309 | ||||||
Shares converted from Investor Class (See Note 1) | (4,621,430 | ) | (27,538,348 | ) | ||||
Net increase (decrease) | 1,228,604 | $ | 7,159,560 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 5,768,719 | $ | 33,286,337 | |||||
Shares issued to shareholders in reinvestment of dividends | 3,047,560 | 17,548,122 | ||||||
Shares redeemed | (6,570,148 | ) | (37,855,377 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 2,246,131 | 12,979,082 | ||||||
Shares converted into Investor Class (See Note 1) | 4,237,726 | 24,405,039 | ||||||
Shares converted from Investor Class (See Note 1) | (6,568,480 | ) | (37,940,584 | ) | ||||
Net increase (decrease) | (84,623 | ) | $ | (556,463 | ) | |||
Class A | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 129,893,290 | $ | 764,766,017 | |||||
Shares issued to shareholders in reinvestment of dividends | 29,996,636 | 176,638,500 | ||||||
Shares redeemed | (175,270,496 | ) | (1,034,995,857 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (15,380,570 | ) | (93,591,340 | ) | ||||
Shares converted into Class A (See Note 1) | 16,072,503 | 94,830,428 | ||||||
Shares converted from Class A (See Note 1) | (1,567,690 | ) | (9,101,467 | ) | ||||
Net increase (decrease) | (875,757 | ) | $ | (7,862,379 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 122,223,064 | $ | 699,332,152 | |||||
Shares issued to shareholders in reinvestment of dividends | 30,095,540 | 171,942,068 | ||||||
Shares redeemed | (141,930,654 | ) | (810,364,294 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 10,387,950 | 60,909,926 | ||||||
Shares converted into Class A (See Note 1) | 18,861,181 | 107,796,944 | ||||||
Shares converted from Class A (See Note 1) | (1,284,741 | ) | (7,456,058 | ) | ||||
Shares converted from Class A (a) | (22,498,098 | ) | (127,339,233 | ) | ||||
Net increase (decrease) | 5,466,292 | $ | 33,911,579 | |||||
Class B | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 5,252,347 | $ | 30,812,825 | |||||
Shares issued to shareholders in reinvestment of dividends | 2,589,027 | 15,200,236 | ||||||
Shares redeemed | (10,805,068 | ) | (63,567,155 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (2,963,694 | ) | (17,554,094 | ) | ||||
Shares converted from Class B (See Note 1) | (14,601,911 | ) | (85,777,922 | ) | ||||
Net increase (decrease) | (17,565,605 | ) | $ | (103,332,016 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 7,565,312 | $ | 43,154,532 | |||||
Shares issued to shareholders in reinvestment of dividends | 3,436,326 | 19,534,373 | ||||||
Shares redeemed | (14,048,312 | ) | (79,802,350 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (3,046,674 | ) | (17,113,445 | ) | ||||
Shares converted from Class B (See Note 1) | (15,298,936 | ) | (86,805,341 | ) | ||||
Net increase (decrease) | (18,345,610 | ) | $ | (103,918,786 | ) | |||
Class C | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 21,348,773 | $ | 125,338,607 | |||||
Shares issued to shareholders in reinvestment of dividends | 4,508,987 | 26,458,081 | ||||||
Shares redeemed | (31,684,597 | ) | (186,273,101 | ) | ||||
Net increase (decrease) | (5,826,837 | ) | $ | (34,476,413 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 26,285,161 | $ | 149,653,012 | |||||
Shares issued to shareholders in reinvestment of dividends | 4,766,392 | 27,131,710 | ||||||
Shares redeemed | (30,249,231 | ) | (172,299,013 | ) | ||||
Net increase (decrease) | 802,322 | $ | 4,485,709 | |||||
Class I | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 179,083,112 | $ | 1,058,162,353 | |||||
Shares issued to shareholders in reinvestment of dividends | 16,764,265 | 98,762,713 | ||||||
Shares redeemed | (184,918,979 | ) | (1,082,826,471 | ) | ||||
Net increase (decrease) | 10,928,398 | $ | 74,098,595 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 170,407,461 | $ | 975,568,493 | |||||
Shares issued to shareholders in reinvestment of dividends | 14,691,967 | 84,030,355 | ||||||
Shares redeemed | (119,844,424 | ) | (687,727,488 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 65,255,004 | 371,871,360 | ||||||
Shares converted into Class I (a) | 22,498,098 | 127,339,233 | ||||||
Net increase (decrease) | 87,753,102 | $ | 499,210,593 | |||||
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Notes to Financial Statements (continued)
Class R2 | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 883,838 | $ | 5,228,640 | |||||
Shares issued to shareholders in reinvestment of dividends | 113,297 | 668,037 | ||||||
Shares redeemed | (836,240 | ) | (4,929,131 | ) | ||||
Net increase (decrease) | 160,895 | $ | 967,546 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 1,082,211 | $ | 6,195,525 | |||||
Shares issued to shareholders in reinvestment of dividends | 92,287 | 528,386 | ||||||
Shares redeemed | (757,125 | ) | (4,312,400 | ) | ||||
Net increase (decrease) | 417,373 | $ | 2,411,511 | |||||
(a) | In addition to any automatic conversion features described above in Note 1 with respect to Investor Class, Class A and Class B shares, investors generally may also elect to convert their shares on a voluntary basis into another share class of the same MainStay Fund subject to satisfying the eligibility requirements of the new share class, if any. However, the following limitations apply: |
• | Investor Class, Class A and Class C shares that remain subject to a CDSC are ineligible for a voluntary conversion; and | |
• | All Class B shares are ineligible for a voluntary conversion. |
These limitations do not impact any automatic conversion features described elsewhere in Note 1 with respect to Investor Class, Class A and Class B shares. | |
An investor or an investor’s financial intermediary may contact the MainStay Funds to request a voluntary conversion between share classes of the same MainStay Fund. Investors may be required to provide sufficient information to establish eligibility to convert to the new share class. All permissible conversions will be made on the basis of the relevant NAVs of the two classes without the imposition of any sales load, fee or other charge. If an investor fails to remain eligible for the new share class, they may be converted automatically back to their original share class, or into another share class, if appropriate. Although the MainStay Funds expect that a conversion between share classes of the same MainStay Fund should not result in the recognition of a gain or loss for tax purposes, shareholders should consult with their own tax adviser with respect to the tax treatment of their investment in a MainStay Fund. The MainStay Funds may change, suspend or terminate this conversion feature at any time. |
Note 11–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2011, events and transactions subsequent to October 31, 2011 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.
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Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay High Yield Corporate Bond Fund (“the Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay High Yield Corporate Bond Fund of The MainStay Funds as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 22, 2011
December 22, 2011
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Federal Income Tax Information (Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders within 60 days of the Fund’s fiscal year end (October 31, 2011) as to the federal tax status of dividends paid by the Fund during such fiscal years.
For the fiscal year ended October 31, 2011, the Fund designated approximately $2,435,173 under the Internal Revenue Code as qualified dividend income eligible for reduced tax rates.
The dividends paid by the Fund during the fiscal year ended October 31, 2011, should be multiplied by 0.6% to arrive at the corporate dividends received deduction.
In February 2012, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2011. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2011.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
42 MainStay High Yield Corporate Bond Fund
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Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, Eclipse Funds, Eclipse Funds Inc., MainStay Funds Trust, and MainStay VP Funds Trust) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s). Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation upon reaching age 72. A Board Member reaching the age of 72 may continue for additional one-year periods with the approval of the Board’s Nominating and Governance Committee.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Interested Board Member* | ||||||||
John Y. Kim 9/24/60 | Indefinite; Eclipse Funds: Trustee since 2008 (2 funds); Eclipse Funds Inc.: Director since 2008 (1 fund); The MainStay Funds: Trustee since 2008 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc. since 2008 (21 portfolios). | Member of the Board of Managers (since 2011) of New York Life Enterprises LLC; Chairman (since 2011), Member of the Board of Managers, Chief Executive Officer and President (since 2008) of New York Life Investment Management LLC and New York Life Investment Management Holdings LLC; Executive Vice President (since 2011) of New York Life Foundation; Member of the Board of Managers and Chairman of the Board of Private Advisors, L.L.C. (since 2010); Executive Vice President, New York Life Insurance Company (since 2008); Chairman of the Board (2008-2010) and Member of the Boards of Managers (since 2008) of MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, Madison Square Investors LLC, NYLCAP Manager LLC and McMorgan & Company LLC; Chairman of the Board and Chief Executive Officer, NYLIFE Distributors LLC (2008-2010); Executive Vice President of NYLIFE Insurance Company of Arizona and New York Life Insurance and Annuity Corporation (since 2008); President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 66 | None | ||||
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Susan B. Kerley 8/12/51 | Indefinite; Eclipse Funds: Chairman since 2005, and Trustee since 2000 (2 funds); Eclipse Funds Inc.: Chairman since 2005 and Director since 1990 (1 fund); The MainStay Funds: Chairman and Board Member since 2007 (14 funds); MainStay Funds Trust: Chairman and Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Chairman and Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | President, Strategic Management Advisors LLC (since 1990) | 66 | Trustee, Legg Mason Partners Funds, since 1991 (58 portfolios) | ||||
Alan R. Latshaw 3/27/51 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2006 (14 funds); MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 66 | Trustee, State Farm Associates Funds Trusts since 2005 (4 portfolios); Trustee, State Farm Mutual Fund Trust since 2005 (15 portfolios); Trustee, State Farm Variable Product Trust since 2005 (9 portfolios) | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Peter Meenan 12/5/41 | Indefinite; Eclipse Funds: Trustee since 2002 (2 funds); Eclipse Funds Inc.: Director since 2002 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Independent Consultant; President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 66 | None | ||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2006 (21 portfolios). | Managing Director, ICC Capital Management; President—Shields/Alliance, Alliance Capital Management (1994 to 2004) | 66 | None | ||||
Richard S. Trutanic 2/13/52 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 1994 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 66 | None | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Roman L. Weil 5/22/40 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1994 and Audit Committee Financial Expert since 2003 (21 portfolios). | Visiting Professor, NYU Stem School of Business, New York University (since 2011); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School of Business, University of Chicago (1965-2008) | 66 | None | ||||
John A. Weisser 10/22/41 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1997 (21 portfolios). | Retired. Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 66 | Trustee, Direxion Funds since 2007 (27 portfolios); Direxion Insurance Trust since 2007 (1 portfolio); Trustee, Direxion Shares ETF Trust, since 2008 (50 portfolios) | ||||
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The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.
Positions(s) Held | ||||
Name and | with the Funds | Principal Occupation(s) | ||
Date of Birth | and Length of Service | During Past Five Years | ||
Officers | ||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007); Vice President, Prudential Investments (2000 to 2007); Assistant Treasurer, JennisonDryden Family of Funds, Target Portfolio Trust, The Prudential Series Fund and American Skandia Trust (2006 to 2007); Treasurer and Principal Financial Officer, The Greater China Fund (2007) | ||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance (since 2009), Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Assistant Secretary NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2009); Assistant Secretary, The MainStay Funds and ICAP Funds, Inc. (2006 to 2008); Assistant Secretary, Eclipse Funds, Eclipse Funds, Inc. and MainStay VP Series Fund, Inc. (2005 to 2008) | ||
Stephen P. Fisher 2/22/59 | President, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Director, Senior Vice President, New York Life Insurance and Annuity Corporation (since 2011); Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2007); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007) | ||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2010); Director and Counsel of Credit Suisse, Chief Legal Officer and Secretary of Credit Suisse Asset Management, LLC and Credit Suisse Funds (2003 to 2010) | ||
Scott T. Harrington 2/8/59 | Vice President — Administration, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Director (since 2009), New York Life Trust Company FSB; Vice President—Administration, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2005) | ||
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one-year term. |
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay offerings is listed here, with information about the manager, subadvisors, legal counsel, and independent registered public accounting firm.
Equity Funds
MainStay 130/30 Core Fund
MainStay Common Stock Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Fund
MainStay Equity Index Fund1
MainStay Growth Equity Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Small Cap Fund
Income Funds
MainStay Flexible Bond Opportunities Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Municipal Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Money Market Fund
MainStay Principal Preservation Fund
MainStay Short Term Bond Fund
MainStay Tax Free Bond Fund
Blended Funds
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
International Funds
MainStay 130/30 International Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay Global High Income Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
Asset Allocation Funds
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
Retirement Funds
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC2
Chicago, Illinois
MacKay Shields LLC2
New York, New York
Madison Square Investors LLC2
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management, Inc.
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firm
KPMG LLP
1. | Closed to new investors and new purchases as of January 1, 2002. |
2. | An affiliate of New York Life Investment Management LLC. |
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mainstayinvestments.com
The MainStay Funds are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC,
169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
MainStay Investments is a registered service mark and name under which New York Life Investment Management LLC does business.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment
advisory products and services.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment
advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
© 2012 by 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 | ||||||||
MYLIM-24966 MS284-11 | MSHY11-12/11 |
N08
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MainStay Income Builder Fund
Message from the President and Annual Report
October 31, 2011
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Message from the President
Volatility was the keynote of the 12 months ended October 31, 2011. U.S. stocks generally advanced, but a variety of domestic and international forces influenced the market.
Early in November 2010, the Federal Open Market Committee (FOMC) announced its intention to extend quantitative easing by purchasing additional longer-term Treasury securities. The stock market reacted positively to this news—and to the midterm elections—and stocks generally advanced through mid-February.
Beginning in December 2010, a wave of protests and civil unrest across North Africa and the Middle East led to a substantial rise in the price of oil. By mid-February, stock prices started to decline. In March, a major earthquake and tsunami in Japan caused manufacturing supply-line interruptions and further setbacks for equity investors. After a sharp decline and a rapid recovery, stocks reached their high point for the 12-month period at the end of April 2011.
Pressed by a weak economy, lackluster employment and widespread concerns about European sovereign debt, the stock market faced wide fluctuations in the coming months. The volatility included a precipitous decline at the end of July into early August. Shortly thereafter, the FOMC expressed its expectation that economic conditions were “likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
After several unsuccessful attempts to recover from their dramatic drop, U.S. stocks reached their low point for the reporting period in early October. Then, buoyed by positive economic data and progress in the European debt situation, the U.S. stock market advanced rapidly in October, to close the reporting period with its best monthly performance in nearly a decade.
International stocks suffered from the turmoil in the Middle East and North Africa, the natural disasters in Japan, the sovereign debt concerns in Europe and the added threat of an economic slowdown in China. For the 12-month period, international stocks declined overall, with particular weakness in Europe.
The bond markets felt the impact of the European debt crisis, and several European nations suffered downgrades. In July, the United States faced a congressional deadlock on raising the debt ceiling and reducing deficit spending. In early August, Standard & Poor’s downgraded the debt of the United States of America to AA+.
Slow progress in resolving the European debt situation led to a flight to quality (or a movement toward securities perceived to carry lower risk). Amid strong demand, U.S. Treasury securities saw prices rise and yields decline, despite the downgrade by Standard & Poor’s. High-grade corporate
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
Throughout the 12-month reporting period, our portfolio managers took note of shifting market forces. But their primary focus was on the investment objectives of their respective Funds and the long-term strategies they were pursuing to achieve them. Some may have sought to capitalize on day-to-day market inefficiencies, but all remained focused on the long-term interests of our shareholders. They sought to apply time-tested investment principles consistently throughout the reporting period.
The information that follows provides specifics about the securities, decisions and market forces that affected your MainStay Fund(s) during the 12 months ended October 31, 2011. Behind the details, we hope you’ll recognize the professionalism and discipline that guided our portfolio managers during this volatile period.
We thank you for investing with MainStay and look forward to serving you for many years to come.
Sincerely,
Stephen P. Fisher
President
President
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Annual Report | ||
Investment and Performance Comparison | 5 | |
Portfolio Management Discussion and Analysis | 9 | |
Portfolio of Investments | 12 | |
Financial Statements | 27 | |
Notes to Financial Statements | 35 | |
Report of Independent Registered Public Accounting Firm | 46 | |
Federal Income Tax Information | 47 | |
Proxy Voting Policies and Procedures and Proxy Voting Record | 47 | |
Shareholder Reports and Quarterly Portfolio Disclosure | 47 | |
Board Members and Officers | 48 | |
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
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Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2011
Gross | ||||||||||||||||||||
Expense | ||||||||||||||||||||
Class | Sales Charge | One Year | Five Years | Ten Years | Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 5.5% Initial Sales Charge | With sales charges | 0 | .09% | 1 | .35% | 2 | .92% | 1 | .50% | ||||||||||
Excluding sales charges | 5 | .92 | 2 | .51 | 3 | .50 | 1 | .50 | ||||||||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges | 0 | .36 | 1 | .54 | 3 | .01 | 1 | .15 | ||||||||||
Excluding sales charges | 6 | .21 | 2 | .69 | 3 | .59 | 1 | .15 | ||||||||||||
Class B Shares | Maximum 5% CDSC | With sales charges | 0 | .14 | 1 | .44 | 2 | .73 | 2 | .24 | ||||||||||
if Redeemed Within the First Six Years of Purchase | Excluding sales charges | 5 | .14 | 1 | .74 | 2 | .73 | 2 | .24 | |||||||||||
Class C Shares | Maximum 1% CDSC | With sales charges | 4 | .08 | 1 | .73 | 2 | .71 | 2 | .24 | ||||||||||
if Redeemed Within One Year of Purchase | Excluding sales charges | 5 | .08 | 1 | .73 | 2 | .71 | 2 | .24 | |||||||||||
Class I Shares4 | No Sales Charge | 6 | .50 | 3 | .03 | 3 | .99 | 0 | .89 | |||||||||||
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, change in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the performance of Class A shares through February 27, 2008, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Investor Class shares might have been lower. |
4. | Performance figures for Class I shares, first offered on January 2, 2004, include the historical performance of Class B shares through January 1, 2004, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class I shares might have been lower. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
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One | Five | Ten | ||||||||||
Benchmark Performance | Year | Years | Years | |||||||||
MSCI World Index5 | 1 | .76% | –1 | .00% | 4 | .54% | ||||||
Russell 1000® Index6 | 8 | .01 | 0 | .54 | 4 | .17 | ||||||
Income Builder Composite Index7 | 3 | .87 | 3 | .18 | 5 | .41 | ||||||
Barclays Capital U.S. Aggregate Bond Index8 | 5 | .00 | 6 | .41 | 5 | .46 | ||||||
Average Lipper Mixed-Asset Target Allocation Growth Fund9 | 3 | .51 | 1 | .44 | 4 | .39 | ||||||
5. | The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index is the Fund’s broad-based securities market index for comparison purposes. Total returns assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
6. | The Russell 1000® Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000® Index is the Fund’s secondary benchmark. Total returns assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
7. | The Income Builder Index is comprised of the MSCI World Index and the Barclays Capital U.S. Aggregate Bond Index weighted 50%/50% respectively. Returns assume reinvestment of all dividends and capital gains. |
8. | The Barclays Capital 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. |
9. | The average Lipper mixed-asset target allocation growth fund is representative of funds that, by portfolio practice, maintain a mix of between 60%–80% equity securities, with the remainder invested in bonds, cash, and cash equivalents. This benchmark is a product of Lipper Inc. Lipper Inc. is an independent monitor of fund performance. Results are based on average total returns of similar funds with all dividend and capital-gain distributions reinvested. |
The footnotes on the preceding page are an integral part of the table and graph and should be carefully read in conjunction with them.
6 MainStay Income Builder Fund
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Cost in Dollars of a $1,000 Investment in MainStay Income Builder Fund (Unaudited) |
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2011, to October 31, 2011, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2011, to October 31, 2011.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2011. 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.
Ending Account | ||||||||||||||||||||||
Ending Account | Value (Based | |||||||||||||||||||||
Value (Based | on Hypothetical | |||||||||||||||||||||
Beginning | on Actual | Expenses | 5% Annualized | Expenses | ||||||||||||||||||
Account | Returns and | Paid | Return and | Paid | ||||||||||||||||||
Value | Expenses) | During | Actual Expenses) | During | ||||||||||||||||||
Share Class | 5/1/11 | 10/31/11 | Period1 | 10/31/11 | Period1 | |||||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 946.70 | $ | 6.77 | $ | 1,018.20 | $ | 7.02 | ||||||||||||
Class A Shares | $ | 1,000.00 | $ | 947.70 | $ | 5.20 | $ | 1,019.90 | $ | 5.40 | ||||||||||||
Class B Shares | $ | 1,000.00 | $ | 943.10 | $ | 10.43 | $ | 1,014.50 | $ | 10.82 | ||||||||||||
Class C Shares | $ | 1,000.00 | $ | 943.00 | $ | 10.43 | $ | 1,014.50 | $ | 10.82 | ||||||||||||
Class I Shares | $ | 1,000.00 | $ | 948.70 | $ | 3.98 | $ | 1,021.10 | $ | 4.13 | ||||||||||||
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.38% for Investor Class, 1.06% for Class A, 2.13% for Class B and Class C and 0.81% for Class I) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the one-half year period). The table above represents the actual expenses incurred during the one-half year period. |
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Portfolio Composition as of October 31, 2011 (Unaudited)
Common Stocks | 50.5 | |||
Corporate Bonds | 20.1 | |||
Short-Term Investment | 7.0 | |||
Convertible Bonds | 6.8 | |||
Asset-Backed Securities | 2.5 | |||
U.S. Government & Federal Agencies | 2.5 | |||
Loan Assignments & Participations | 2.3 | |||
Yankee Bonds | 2.2 | |||
Convertible Preferred Stocks | 1.8 | |||
Mortgage-Backed Securities | 1.7 | |||
Foreign Bonds | 1.6 | |||
Futures Contracts | 0.7 | |||
Preferred Stock | 0.4 | |||
Foreign Government Bonds | 0.1 | |||
Warrants | 0.0 | |||
Other Assets, Less Liabilities | (0.2 | ) |
See Portfolio of Investments beginning on page 12 for specific holdings within these categories.
‡ | Less than one-tenth of a percent. |
Top Ten Holdings or Issuers Held as of October 31, 2011 (excluding short-term investment)
1. | United States Treasury Bonds, 3.75%–4.375%, due 5/15/40–8/15/41 | |
2. | MGM Resorts International, 7.50%–11.125%, due 5/15/14–11/15/17 | |
3. | Linn Energy LLC/Linn Energy Finance Corp., 8.625%, due 4/15/20 | |
4. | Imperial Tobacco Group PLC | |
5. | Vodafone Group PLC | |
6. | BCE, Inc. | |
7. | Northern Rock Asset Management PLC, 9.375%, due 10/17/21 | |
8. | Pearson PLC | |
9. | Vivendi S.A. | |
10. | K Hovnanian Enterprises, Inc., 10.625%, due 10/15/16 |
8 MainStay Income Builder Fund
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Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Dan Roberts, PhD, Michael Kimble, Louis N. Cohen, Taylor Wagenseil and Gary Goodenough of MacKay Shields LLC, the Subadvisor for the fixed-income portion of the Fund, and Eric Sappenfield, William Priest, CFA, and Michael A. Welhoelter, CFA, of Epoch Investment Partners, Inc., the Subadvisor for the equity portion of the Fund.
How did MainStay Income Builder Fund perform relative to its peers and its benchmark during the 12 months ended October 31, 2011?
Excluding all sales charges, MainStay Income Builder Fund returned 5.92% for Investor Class shares, 6.21% for Class A shares, 5.14% for Class B shares and 5.08% for Class C shares for the 12 months ended October 31, 2011. Over the same period, Class I shares returned 6.50%. All share classes outperformed the 3.51% return of the average Lipper1
mixed-asset target allocation growth fund and the 1.76% return of the MSCI World Index2 for the 12 months ended October 31, 2011. The MSCI World Index is the Fund’s broad-based securities-market index. All share classes outperformed the 5.00% return of the Barclays Capital U.S. Aggregate Bond Index,3 which is an additional benchmark for the Fund. See page 5 for Fund returns with sales charges.
During the reporting period, how was the Fund materially affected by investments in derivatives?
During the reporting period, Epoch did not use any derivatives. However, to maintain the Fund’s beta4 and increase equity sensitivity, MacKay Shields maintained a significant position in derivatives, including forwards and futures. Though riskier assets, such as equity futures decreased in value during the third quarter, the Fund’s positions in forwards and futures were positive contributors to performance for the entire reporting period.
What factors affected the relative performance of the equity portion of the Fund during the reporting period?
During the reporting period, the equity portion of the Fund emphasized companies with growing free cash flow and a policy of allocating excess cash to shareholders via dividends, share repurchases and debt paydowns. This positioning helped the performance of the equity portion of the Fund relative to the MSCI World Index in a reporting period characterized by slowing economic growth and elevated market volatility.
In the equity portion of the Fund, which sectors were the strongest contributors to the Fund’s relative performance and which sectors detracted the most?
In the equity portion of the Fund, the sector that provided the strongest positive contribution to performance relative to the MSCI World Index was financials. (Contributions take weightings and total returns into account.) The equity portion of the Fund had an average sector weighting of approximately one-fourth that of the MSCI World Index, which provided a boost to relative returns. Stock selection within the sector, where we avoided large banks, was also a major contributor to relative performance. The consumer staples and utilities sectors provided strong positive contributions to the performance of the equity portion of the Fund relative to the MSCI World Index during the reporting period as well, primarily because of stock selection.
During the reporting period, the only two sectors that detracted from the relative performance of the equity portion of the Fund were industrials and health care. An underweight position relative to the MSCI World Index in the health care sector and stock selection in the industrials sector were negative factors.
During the reporting period, which individual stocks made the strongest contributions to the equity portion of the Fund’s absolute performance and which stocks detracted the most?
During the reporting period, U.S. tobacco manufacturer Lorillard, U.S. utility company NiSource and Canadian telecommunications company BCE made the strongest contributions to absolute performance in the equity portion of the Fund.
Lorillard continued to generate significant cash flow during the reporting period, driven by its leading market-share position in the menthol segment and by its strong operating margins. In addition, concerns over a potential ban on menthol cigarettes in the United States dissipated, and Lorillard’s stock reacted positively to the news. NiSource manages pipelines and distributes electricity and natural gas. The company reported strong results during the reporting period, exceeding expectations for revenue and earnings. The company also benefited from a positive regulatory review in one of its markets. BCE, Canada’s largest telecommunications company, reported growth across its business segments, driven by market-leading wireless additions and traction gained in fiber-optic TV and Internet services.
The greatest detractors from absolute performance in the equity portion of the Fund were U.K.-based transportation company FirstGroup, French telecommunication services company France Telecom and French media company Vivendi.
Shares of train and bus operator FirstGroup declined during the reporting period on weakness in the U.S. school transit market because of budget cuts and poor weather. These setbacks offset gains in the company’s U.K. rail operations and growth in North American contract bus services. France Telecom experienced weakness on worries about the company’s foreign acquisitions and new competitive threats in its domestic market. Management sought to reassure investors about the free cash flow the company generates and its commitment to pay a high cash
1. See footnote on page 6 for more information on Lipper Inc.
2. See footnote on page 6 for more information on the MSCI World Index.
3. See footnote on page 6 for more information on the Barclays Capital U.S. Aggregate Bond Index.
4. 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.
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dividend. Shares of telecommunication services and entertainment group Vivendi declined, in part because of price competition facing its French telecommunication business.
Did the equity portion of the Fund make any significant purchases or sales during the reporting period?
Among the stocks that the equity portion of the Fund purchased during the reporting period were U.S. movie-theater operator Regal Entertainment, U.S.-based defense contractor Lockheed Martin and U.S. energy infrastructure company Williams Partners.
Regal Entertainment has growing operations and, in our view, the financial strength to sustain its shareholder yield. We added Lockheed Martin to the Fund after the company satisfactorily addressed its long-term pension obligations without impairing its dividend. The position in Lockheed Martin helped increase the overall yield and diversity of the Fund. We added Williams Partners for its solid balance sheet and record of high cash distributions.
During the reporting period, we sold the Fund’s position in Norwegian energy group Statoil as the company shifted its capital allocation policy toward expanding production capacity and finding new sources of oil rather than toward shareholder yield. U.S. kitchen, home and beauty products company Tupperware Brands had good share price performance, and we sold the Fund’s position in the stock as it reached our price target.
How did the Fund’s equity sector weightings change during the reporting period?
During the reporting period, we increased the consumer discretionary sector weighting in the equity portion of the Fund. The equity portion of the Fund moved from a substantially underweight position relative to the benchmark to a position that was closer to the sector’s weighting in the MSCI World Index. During the reporting period, we reduced the Fund’s overweight positions in utilities and consumer staples.
How was the equity portion of the Fund positioned at the end of October 2011?
As of October 31, 2011, the equity portion of the Fund was most substantially overweight relative to the MSCI World Index in the telecommunication services, utilities and consumer staples sectors. As of the same date, the equity portion of the Fund was most substantially underweight relative to the MSCI World Index in the financials and information technology sectors.
The equity portion of the Fund continues to seek companies that have strong balance sheets and growing free cash flow and that deliver returns to shareholders through significant cash dividends, share repurchases and debt paydowns.
What factors affected relative performance in the fixed-income portion of the Fund during the reporting period?
The fixed-income market faced some geopolitical and economic headwinds during the reporting period. In the United States, the market faced a slower-growing economy, a weak housing market, elevated unemployment, the downgrade of U.S. debt and the debt ceiling debate. Overseas, the European sovereign debt crisis, the earthquake and tsunami in Japan and concerns about a slowing Chinese economy affected the market and contributed to the flight to quality into U.S. Treasurys during the second half of the reporting period.
We maintained our belief that accommodative monetary policy and steady credit creation would promote growth in the U.S. economy. Healthy corporate balance sheets, few near-term debt maturities and low default rates also led us to position the fixed-income portion of the Fund with a higher-than-market beta. Unfortunately, this beta positioning detracted most from the performance of the fixed-income portion of the Fund, which underperformed the Barclays Capital U.S. Aggregate Bond Index during the reporting period.
The fixed-income portion of the Fund held overweight positions in high-yield corporate bonds and convertible securities and an underweight position in U.S. Treasurys. As U.S. Treasurys rallied during the second half of the reporting period, our beta posi-tioning detracted from relative performance.
Despite these developments, our investment thesis was somewhat vindicated toward the end of the reporting period, as U.S. economic data continued to show growth, though at a slower pace than in past recoveries. There was also encouraging news about a potential resolution to the European sovereign debt crisis. Together, these factors sparked a late-period rally in assets perceived to be riskier, such as high-yield corporate bonds, and in equity-sensitive products, such as convertible securities.
What was the duration5 strategy of the fixed-income portion of the Fund during the reporting period?
The duration of the fixed-income portion of the Fund was shorter than that of the Barclays Capital U.S. Aggregate Bond Index, in large part because of our overweight position in high-yield corporate bonds, which tend to have shorter durations. These bonds also tend to have a low correlation to U.S. Trea-surys, so they have a lower sensitivity to interest rates. This shorter-duration positioning detracted slightly from the relative performance of the fixed-income portion of the Fund during the reporting period.
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.
10 MainStay Income Builder Fund
Table of Contents
What specific factors, risks or market forces prompted significant decisions in the fixed-income portion of the Fund during the reporting period?
Though there were many macro factors to consider and extended periods of market volatility, we did not make any material changes to the positioning of the fixed-income portion of the Fund during the reporting period. Prior to the reporting period, we believed that the Federal Reserve’s accommodative monetary policy and an improving economy were positive signs for spread6 product such as high-yield corporate bonds. Although there was a flight to quality (or movement toward securities perceived to have lower risk) during the second half of the reporting period, we viewed this as more technical in nature—and not based on fundamentals, which we believed to be favorable.
During the reporting period, which market segments were the strongest contributors to performance in the fixed-income portion of the Fund, and which market segments were particularly weak?
During the first half of the reporting period, the fixed-income portion of the Fund’s positioning in higher-beta securities such as high-yield corporate bonds and convertible securities was the driving force behind our outperformance relative to the Barclays Capital U.S. Aggregate Bond Index. As investors became more concerned about global economic conditions, there was a sharp turnaround in investor sentiment, which drove investors to the perceived safety of U.S. Treasury securities and away from assets with higher risk profiles. Because of this shift, U.S. Treasurys and agencies were the Fund’s best performers during the reporting period, but our underweight position relative to the benchmark detracted from overall performance. The Fund’s holdings in investment-grade corporate bonds were positive contributors to performance during the entire reporting period. (Contributions take weightings and total returns into account.) Our positions in high-yield corporate bonds and convertible securities, on the other hand, were the weakest performers during the entire reporting period. More specifically, our cyclical holdings within the high-yield sector underperformed the benchmark.
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 initiated positions in homebuilder Meritage Homes, Canadian oil sands producer MEG Energy, coal producer Arch Coal and communications company Commscope. We sold Fund positions in apparel company Phillips Van Heusen and eye care company Bausch & Lomb. The significant purchases and sales were completed on the basis of securities valuations and risk/reward characteristics.
How did sector weightings change in the fixed-income portion of the Fund during the reporting period?
During the reporting period, the fixed-income portion of the Fund slightly increased exposure to high-yield corporate bonds while slightly reducing exposure to floating-rate securities, bank debt and U.S. Treasurys.
How was the fixed-income portion of the Fund positioned at the end of the reporting period?
As of October 31, 2011, the most substantially overweight position relative to the Barclays Capital U.S. Aggregate Bond Index in the fixed-income portion of the Fund was in high-yield corporate bonds. The fixed-income portion of the Fund was also overweight relative to the Barclays Capital U.S. Aggregate Bond Index in convertible securities and had a substantial weight in investment-grade corporate bonds.
As of October 31, 2011, the fixed-income portion of the Fund was most substantially underweight relative to the Barclays Capital U.S. Aggregate Bond Index in U.S. Treasurys and agency securities.
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.
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.
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
mainstayinvestments.com 11
Table of Contents
Portfolio of Investments††† October 31, 2011
Principal | ||||||||
Amount | Value | |||||||
Long-Term Bonds 39.8%† Asset-Backed Securities 2.5% | ||||||||
Home Equity 2.3% | ||||||||
Ameriquest Mortgage Securities, Inc. Series 2003-8, Class AF5 5.14%, due 10/25/33 | $ | 219,269 | $ | 217,932 | ||||
Carrington Mortgage Loan Trust | ||||||||
Series 2006-NC4, Class A5 0.305%, due 10/25/36 (a) | 701,460 | 543,205 | ||||||
Chase Funding Mortgage Loan Asset-Backed Certificates Series 2002-2, Class 1A5 6.33%, due 4/25/32 | 241,287 | 237,800 | ||||||
CIT Group Home Equity Loan Trust | ||||||||
Series 2003-1, Class A4 3.93%, due 3/20/32 | 56,272 | 53,898 | ||||||
Citicorp Residential Mortgage Securities, Inc. Series 2006-1, Class A3 5.706%, due 7/25/36 (b) | 309,559 | 310,241 | ||||||
Citifinancial Mortgage Securities, Inc. Series 2003-3, Class AF5 5.053%, due 8/25/33 | 310,083 | 307,541 | ||||||
Citigroup Mortgage Loan Trust, Inc. Series 2007-AHL2, Class A3A 0.315%, due 5/25/37 (a) | 2,201,723 | 1,763,774 | ||||||
Countrywide Asset-Backed Certificates Series 2003-5, Class AF5 5.971%, due 2/25/34 | 485,496 | 466,533 | ||||||
Equity One ABS, Inc. Series 2003-4, Class AF6 4.833%, due 10/25/34 | 423,045 | 424,916 | ||||||
Series 2003-3, Class AF4 5.495%, due 12/25/33 | 496,169 | 481,273 | ||||||
GSAA Home Equity Trust | ||||||||
Series 2006-14, Class A1 0.295%, due 9/25/36 (a) | 7,508,136 | 2,768,971 | ||||||
HSI Asset Securitization Corp. Trust | ||||||||
Series 2007-NC1, Class A1 0.345%, due 4/25/37 (a) | 637,481 | 480,067 | ||||||
JP Morgan Mortgage Acquisition Corp. | ||||||||
Series 2007-HE1, Class AF1 0.345%, due 3/25/47 (a) | 1,670,670 | 1,091,053 | ||||||
Master Asset Backed Securities Trust | ||||||||
Series 2006-HE4, Class A1 0.295%, due 11/25/36 (a) | 980,860 | 326,299 | ||||||
Merrill Lynch Mortgage Investors Trust | ||||||||
Series 2007-MLN1, Class A2A 0.355%, due 3/25/37 (a) | 5,213,133 | 2,615,465 | ||||||
Residential Asset Mortgage Products, Inc. Series 2003-RZ5, Class A7 4.97%, due 9/25/33 | 251,532 | 251,613 | ||||||
Series 2003-RS7, Class AI6 5.34%, due 8/25/33 (a) | 198,174 | 194,765 | ||||||
Residential Asset Securities Corp. Series 2002-KS2, Class AI6 6.228%, due 4/25/32 (a) | 160,366 | 161,572 | ||||||
Saxon Asset Securities Trust | ||||||||
Series 2003-1, Class AF5 5.455%, due 6/25/33 | 96,707 | 86,731 | ||||||
Soundview Home Equity Loan Trust | ||||||||
Series 2006-EQ2, Class A2 0.355%, due 1/25/37 (a) | 2,481,438 | 2,042,174 | ||||||
Terwin Mortgage Trust | ||||||||
Series 2005-14HE, Class AF2 4.849%, due 8/25/36 | 166,335 | 160,497 | ||||||
14,986,320 | ||||||||
Student Loans 0.2% | ||||||||
Keycorp Student Loan Trust | ||||||||
Series 2000-A, Class A2 0.632%, due 5/25/29 (a) | 1,527,272 | 1,389,362 | ||||||
Total Asset-Backed Securities (Cost $19,194,782) | 16,375,682 | |||||||
Convertible Bonds 6.8% | ||||||||
Aerospace & Defense 0.2% | ||||||||
L-3 Communications Corp. 3.00%, due 8/1/35 | 1,326,000 | 1,284,563 | ||||||
Auto Parts & Equipment 0.2% | ||||||||
ArvinMeritor, Inc. 4.00%, due 2/15/27 | 1,390,000 | 1,056,400 | ||||||
Biotechnology 0.2% | ||||||||
Life Technologies Corp. 1.50%, due 2/15/24 | 1,179,000 | 1,179,000 | ||||||
Coal 0.2% | ||||||||
Peabody Energy Corp. 4.75%, due 12/15/66 | 1,143,000 | 1,251,585 | ||||||
Computers 0.6% | ||||||||
EMC Corp. 1.75%, due 12/1/13 | 1,676,000 | 2,675,315 |
† | Percentages indicated are based on Fund net assets. |
X | Among the Fund’s 10 largest holdings or issuers held, as of October 31, 2011, excluding short-term investment. May be subject to change daily. |
The notes to the financial statements are an integral part of,
12 MainStay Income Builder Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Convertible Bonds (continued) | ||||||||
Computers (continued) | ||||||||
NetApp, Inc. 1.75%, due 6/1/13 | $ | 221,000 | $ | 304,428 | ||||
SanDisk Corp. 1.50%, due 8/15/17 | 603,000 | 722,846 | ||||||
3,702,589 | ||||||||
Distribution & Wholesale 0.2% | ||||||||
WESCO International, Inc. 6.00%, due 9/15/29 | 826,000 | 1,557,010 | ||||||
Electronics 0.2% | ||||||||
TTM Technologies, Inc. 3.25%, due 5/15/15 | 1,356,000 | 1,452,615 | ||||||
Health Care—Products 0.3% | ||||||||
Teleflex, Inc. 3.875%, due 8/1/17 | 1,726,000 | 2,043,153 | ||||||
Iron & Steel 0.7% | ||||||||
Allegheny Technologies, Inc. 4.25%, due 6/1/14 | 1,951,000 | 2,658,237 | ||||||
ArcelorMittal 5.00%, due 5/15/14 | 975,000 | 1,083,469 | ||||||
Steel Dynamics, Inc. 5.125%, due 6/15/14 | 71,000 | 75,970 | ||||||
United States Steel Corp. 4.00%, due 5/15/14 | 286,000 | 313,885 | ||||||
4,131,561 | ||||||||
Mining 0.5% | ||||||||
Newmont Mining Corp. 1.25%, due 7/15/14 | 2,247,000 | 3,432,292 | ||||||
Miscellaneous—Manufacturing 0.5% | ||||||||
Danaher Corp. (zero coupon), due 1/22/21 | 1,694,000 | 2,384,305 | ||||||
Ingersoll-Rand Co. 4.50%, due 4/15/12 | 608,000 | 1,073,880 | ||||||
3,458,185 | ||||||||
Oil & Gas 0.5% | ||||||||
Chesapeake Energy Corp. 2.75%, due 11/15/35 | 1,278,000 | 1,391,422 | ||||||
St. Mary Land & Exploration Co. 3.50%, due 4/1/27 | 1,264,000 | 1,982,900 | ||||||
3,374,322 | ||||||||
Pharmaceuticals 0.2% | ||||||||
Teva Pharmaceutical Finance Co. LLC 0.25%, due 2/1/26 | 995,000 | 1,050,969 | ||||||
Real Estate Investment Trusts 0.2% | ||||||||
SL Green Operating Partnership, L.P. 3.00%, due 10/15/17 (c) | 1,305,000 | 1,376,775 | ||||||
Retail 0.3% | ||||||||
Costco Wholesale Corp. (zero coupon), due 8/19/17 | 926,000 | 1,754,770 | ||||||
Semiconductors 0.8% | ||||||||
Intel Corp. 3.25%, due 8/1/39 (c) | 1,131,000 | 1,433,543 | ||||||
Microchip Technology, Inc. 2.125%, due 12/15/37 | 1,214,000 | 1,617,655 | ||||||
Novellus Systems, Inc. 2.625%, due 5/15/41 (c) | 773,000 | 804,886 | ||||||
ON Semiconductor Corp. 2.625%, due 12/15/26 | 1,313,000 | 1,439,376 | ||||||
5,295,460 | ||||||||
Software 0.4% | ||||||||
Symantec Corp. 1.00%, due 6/15/13 | 1,134,000 | 1,321,110 | ||||||
SYNNEX Corp. 4.00%, due 5/15/18 | 1,121,000 | 1,283,545 | ||||||
2,604,655 | ||||||||
Telecommunications 0.6% | ||||||||
Alcatel-Lucent USA, Inc. 2.875%, due 6/15/25 | 918,000 | 872,100 | ||||||
Ciena Corp. 4.00%, due 3/15/15 (c) | 594,000 | 606,623 | ||||||
SBA Communications Corp. 1.875%, due 5/1/13 | 1,909,000 | 2,076,037 | ||||||
3,554,760 | ||||||||
Total Convertible Bonds (Cost $41,632,439) | 43,560,664 | |||||||
Corporate Bonds 20.1% | ||||||||
Advertising 0.0%‡ | ||||||||
Lamar Media Corp. Series C 6.625%, due 8/15/15 | 300,000 | 301,500 | ||||||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 13 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Agriculture 0.1% | ||||||||
Lorillard Tobacco Co. 8.125%, due 6/23/19 | $ | 255,000 | $ | 307,307 | ||||
Airlines 1.9% | ||||||||
Continental Airlines, Inc. Series A 7.25%, due 11/10/19 | 2,122,775 | 2,271,369 | ||||||
7.875%, due 1/2/20 | 1,693,963 | 1,660,084 | ||||||
Delta Air Lines, Inc. 12.25%, due 3/15/15 (c) | 4,605,000 | 4,973,400 | ||||||
U.S. Airways Group, Inc. Series A 6.25%, due 4/22/23 | 1,451,584 | 1,306,425 | ||||||
UAL 2009-1 Pass Through Trust | ||||||||
10.40%, due 5/1/18 | 1,513,686 | 1,672,623 | ||||||
11,883,901 | ||||||||
Auto Manufacturers 0.3% | ||||||||
Ford Motor Co. 6.625%, due 10/1/28 | 1,500,000 | 1,593,541 | ||||||
8.90%, due 1/15/32 | 215,000 | 269,825 | ||||||
1,863,366 | ||||||||
Auto Parts & Equipment 0.0%‡ | ||||||||
Goodyear Tire & Rubber Co. (The) 10.50%, due 5/15/16 | 78,000 | 86,580 | ||||||
Banks 1.3% | ||||||||
AgriBank FCB 9.125%, due 7/15/19 | 300,000 | 388,735 | ||||||
Ally Financial, Inc. 4.50%, due 2/11/14 | 322,000 | 314,755 | ||||||
6.75%, due 12/1/14 | 318,000 | 321,246 | ||||||
7.50%, due 9/15/20 | 802,000 | 810,020 | ||||||
BAC Capital Trust VI 5.625%, due 3/8/35 | 1,200,000 | 941,591 | ||||||
Bank of America Corp. 5.625%, due 7/1/20 | 1,200,000 | 1,156,123 | ||||||
6.50%, due 8/1/16 | 135,000 | 140,499 | ||||||
8.00%, due 12/29/49 (a) | 1,500,000 | 1,395,705 | ||||||
CIT Group, Inc. 7.00%, due 5/2/16 (c) | 800,000 | 798,000 | ||||||
7.00%, due 5/2/17 (c) | 650,000 | 648,375 | ||||||
Citigroup, Inc. 8.50%, due 5/22/19 | 100,000 | 123,742 | ||||||
Fifth Third Bancorp 6.25%, due 5/1/13 | 255,000 | 270,520 | ||||||
Wells Fargo & Co. 7.98%, due 3/29/49 (a) | 1,200,000 | 1,284,000 | ||||||
8,593,311 | ||||||||
Building Materials 0.9% | ||||||||
Boise Cascade LLC 7.125%, due 10/15/14 | 1,255,000 | 1,226,763 | ||||||
USG Corp. 6.30%, due 11/15/16 | 4,695,000 | 3,626,887 | ||||||
9.75%, due 1/15/18 | 1,330,000 | 1,117,200 | ||||||
5,970,850 | ||||||||
Chemicals 0.1% | ||||||||
Dow Chemical Co. (The) 8.55%, due 5/15/19 | 225,000 | 292,295 | ||||||
Huntsman International LLC 5.50%, due 6/30/16 | 80,000 | 79,200 | ||||||
Solutia, Inc. 8.75%, due 11/1/17 | 105,000 | 114,319 | ||||||
485,814 | ||||||||
Coal 0.2% | ||||||||
Alpha Natural Resources, Inc. 6.00%, due 6/1/19 | 1,100,000 | 1,091,750 | ||||||
6.25%, due 6/1/21 | 180,000 | 177,750 | ||||||
Arch Western Finance LLC 6.75%, due 7/1/13 | 118,000 | 119,180 | ||||||
1,388,680 | ||||||||
Commercial Services 0.4% | ||||||||
Avis Budget Car Rental LLC 7.625%, due 5/15/14 | 509,000 | 512,817 | ||||||
Hertz Corp. (The) 7.375%, due 1/15/21 | 700,000 | 719,250 | ||||||
Quebecor World, Inc. (Litigation Recovery Trust—Escrow Shares) 9.75%, due 11/15/49 (c)(d)(e)(f) | 110,000 | 1,760 | ||||||
ServiceMaster Co. (The) 10.75%, due 7/15/15 (c)(g) | 240,000 | 245,700 | ||||||
United Rentals North America, Inc. 9.25%, due 12/15/19 | 1,100,000 | 1,237,500 | ||||||
2,717,027 | ||||||||
Computers 0.1% | ||||||||
SunGard Data Systems, Inc. 7.375%, due 11/15/18 | 200,000 | 204,500 | ||||||
7.625%, due 11/15/20 | 200,000 | 205,000 | ||||||
409,500 | ||||||||
Diversified Financial Services 0.3% | ||||||||
Alterra Finance LLC 6.25%, due 9/30/20 | 200,000 | 213,707 |
The notes to the financial statements are an integral part of,
14 MainStay Income Builder Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Diversified Financial Services (continued) | ||||||||
GE Capital Trust II 5.50%, due 9/15/67 | € | 640,000 | $ | 752,733 | ||||
General Electric Capital Corp. 6.50%, due 9/15/67 | £ | 760,000 | 1,099,804 | |||||
2,066,244 | ||||||||
Electric 0.6% | ||||||||
Allegheny Energy Supply Co. LLC 5.75%, due 10/15/19 (c) | $ | 305,000 | 332,106 | |||||
Edison Mission Energy 7.00%, due 5/15/17 | 600,000 | 420,000 | ||||||
Energy Future Intermediate Holding Co. LLC/EFIH Finance, Inc. 10.00%, due 12/1/20 | 1,563,000 | 1,641,150 | ||||||
Texas Competitive Electric Holdings Co. LLC 10.25%, due 11/1/15 | 430,000 | 167,700 | ||||||
Wisconsin Energy Corp. 6.25%, due 5/15/67 (a) | 1,554,717 | 1,539,170 | ||||||
4,100,126 | ||||||||
Entertainment 0.3% | ||||||||
Cinemark USA, Inc. 8.625%, due 6/15/19 | 140,000 | 151,900 | ||||||
Isle of Capri Casinos, Inc. 7.00%, due 3/1/14 | 240,000 | 230,400 | ||||||
Mohegan Tribal Gaming Authority 6.125%, due 2/15/13 | 1,370,000 | 952,150 | ||||||
Pinnacle Entertainment, Inc. 8.625%, due 8/1/17 | 120,000 | 128,100 | ||||||
Shingle Springs Tribal Gaming Authority 9.375%, due 6/15/15 (c) | 400,000 | 212,000 | ||||||
Tunica-Biloxi Gaming Authority 9.00%, due 11/15/15 (c) | 123,000 | 122,385 | ||||||
1,796,935 | ||||||||
Environmental Controls 0.2% | ||||||||
EnergySolutions, Inc./EnergySolutions LLC 10.75%, due 8/15/18 | 1,400,000 | 1,414,000 | ||||||
Finance—Consumer Loans 0.8% | ||||||||
HSBC Finance Capital Trust IX 5.911%, due 11/30/35 (a) | 2,400,000 | 2,112,000 | ||||||
SLM Corp. 6.25%, due 1/25/16 | 1,700,000 | 1,700,000 | ||||||
Springleaf Finance Corp. 6.90%, due 12/15/17 | 1,965,000 | 1,498,312 | ||||||
5,310,312 | ||||||||
Finance—Credit Card 0.2% | ||||||||
American Express Co. 6.80%, due 9/1/66 (a) | 1,600,000 | 1,584,000 | ||||||
Finance—Other Services 0.2% | ||||||||
Cantor Fitzgerald, L.P. 7.875%, due 10/15/19 (c) | 1,200,000 | 1,219,702 | ||||||
Pinnacle Foods Finance LLC/Pinnacle Foods Finance Corp. 9.25%, due 4/1/15 | 350,000 | 362,250 | ||||||
1,581,952 | ||||||||
Food 0.3% | ||||||||
Smithfield Foods, Inc. 7.75%, due 7/1/17 | 1,500,000 | 1,620,000 | ||||||
Forest Products & Paper 0.3% | ||||||||
Boise Paper Holdings LLC/Boise Co-Issuer Co. 8.00%, due 4/1/20 | 1,400,000 | 1,473,500 | ||||||
Clearwater Paper Corp. 10.625%, due 6/15/16 | 155,000 | 175,150 | ||||||
1,648,650 | ||||||||
Health Care—Products 0.1% | ||||||||
Bausch & Lomb, Inc. 9.875%, due 11/1/15 | 560,000 | 588,000 | ||||||
Health Care—Services 0.0%‡ | ||||||||
CIGNA Corp. 4.375%, due 12/15/20 | 270,000 | 276,520 | ||||||
Home Builders 1.3% | ||||||||
X K Hovnanian Enterprises, Inc. 10.625%, due 10/15/16 | 6,530,000 | 5,599,475 | ||||||
MDC Holdings, Inc. 5.625%, due 2/1/20 | 2,750,000 | 2,464,115 | ||||||
8,063,590 | ||||||||
Household Products & Wares 0.1% | ||||||||
Yankee Acquisition Corp. 8.50%, due 2/15/15 | 300,000 | 306,000 | ||||||
Insurance 3.1% | ||||||||
Allstate Corp. (The) 6.50%, due 5/15/57 (a) | 3,790,000 | 3,529,437 | ||||||
American International Group, Inc. 4.875%, due 3/15/67 | € | 1,300,000 | 1,279,404 | |||||
Series A2 5.75%, due 3/15/67 | £ | 700,000 | 816,010 | |||||
Hartford Financial Services Group, Inc. (The) 6.10%, due 10/1/41 | $ | 4,100,000 | 3,878,977 |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 15 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Insurance (continued) | ||||||||
Hartford Life, Inc. 7.65%, due 6/15/27 | $ | 355,000 | $ | 372,830 | ||||
Liberty Mutual Group, Inc. 7.80%, due 3/7/87 (c) | 1,760,000 | 1,601,600 | ||||||
10.75%, due 6/15/88 (a)(c) | 750,000 | 911,250 | ||||||
Pacific Life Insurance Co. 7.90%, due 12/30/23 (c) | 2,575,000 | 3,100,802 | ||||||
Progressive Corp. (The) 6.70%, due 6/15/67 (a) | 3,700,000 | 3,672,250 | ||||||
Teachers Insurance & Annuity Association of America 6.85%, due 12/16/39 (c) | 300,000 | 381,621 | ||||||
19,544,181 | ||||||||
Leisure Time 0.0%‡ | ||||||||
Travelport LLC 9.875%, due 9/1/14 | 400,000 | 280,000 | ||||||
Lodging 1.6% | ||||||||
Harrah’s Operating Co., Inc. 10.00%, due 12/15/18 | 1,800,000 | 1,356,750 | ||||||
11.25%, due 6/1/17 | 240,000 | 256,800 | ||||||
X MGM Resorts International | ||||||||
7.50%, due 6/1/16 | 8,530,000 | 8,103,500 | ||||||
10.375%, due 5/15/14 | 40,000 | 44,600 | ||||||
11.125%, due 11/15/17 | 80,000 | 90,800 | ||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp. 7.875%, due 11/1/17 | 240,000 | 262,950 | ||||||
10,115,400 | ||||||||
Machinery—Construction & Mining 0.3% | ||||||||
Terex Corp. 8.00%, due 11/15/17 | 1,800,000 | 1,768,500 | ||||||
Machinery—Diversified 0.0%‡ | ||||||||
Manitowoc Co., Inc. (The) 7.125%, due 11/1/13 | 240,000 | 240,600 | ||||||
Media 1.3% | ||||||||
Cequel Communications Holdings/LLC and Cequel Capital Corp. 8.625%, due 11/15/17 (c) | 3,625,000 | 3,788,125 | ||||||
Clear Channel Communications, Inc. 5.50%, due 12/15/16 | 1,035,000 | 548,550 | ||||||
6.875%, due 6/15/18 | 2,115,000 | 1,036,350 | ||||||
DISH DBS Corp. 7.125%, due 2/1/16 | 1,400,000 | 1,487,500 | ||||||
Mediacom Broadband LLC 8.50%, due 10/15/15 | 300,000 | 309,000 | ||||||
NBC Universal Media LLC 5.15%, due 4/30/20 | 160,000 | 179,811 | ||||||
Nielsen Finance LLC 11.50%, due 5/1/16 | 140,000 | 160,650 | ||||||
Time Warner Cable, Inc. 8.25%, due 2/14/14 | 340,000 | 387,972 | ||||||
Time Warner, Inc. 7.70%, due 5/1/32 | 300,000 | 390,648 | ||||||
8,288,606 | ||||||||
Mining 0.2% | ||||||||
Century Aluminum Co. 8.00%, due 5/15/14 | 1,313,000 | 1,329,413 | ||||||
Miscellaneous—Manufacturing 0.6% | ||||||||
Amsted Industries, Inc. 8.125%, due 3/15/18 (c) | 3,500,000 | 3,692,500 | ||||||
Office & Business Equipment 0.1% | ||||||||
Xerox Corp. 4.25%, due 2/15/15 | 300,000 | 316,344 | ||||||
Oil & Gas 1.2% | ||||||||
X Linn Energy LLC/Linn Energy Finance Corp. 8.625%, due 4/15/20 | 6,190,000 | 6,824,475 | ||||||
Nabors Industries, Inc. 5.00%, due 9/15/20 | 1,000,000 | 1,038,024 | ||||||
Pemex Project Funding Master Trust | ||||||||
6.625%, due 6/15/35 | 110,000 | 119,900 | ||||||
7,982,399 | ||||||||
Oil & Gas Services 0.4% | ||||||||
Basic Energy Services, Inc. 7.125%, due 4/15/16 | 1,730,000 | 1,755,950 | ||||||
Geokinetics Holdings USA, Inc. 9.75%, due 12/15/14 | 1,350,000 | 999,000 | ||||||
2,754,950 | ||||||||
Packaging & Containers 0.1% | ||||||||
Pregis Corp. 12.375%, due 10/15/13 | 245,000 | 222,950 | ||||||
Solo Cup Co. 10.50%, due 11/1/13 | 165,000 | 166,650 | ||||||
389,600 | ||||||||
Pipelines 0.5% | ||||||||
Energy Transfer Partners, L.P. 4.65%, due 6/1/21 | 2,250,000 | 2,233,600 |
The notes to the financial statements are an integral part of,
16 MainStay Income Builder Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Pipelines (continued) | ||||||||
MarkWest Energy Partners, L.P./MarkWest Energy Finance Corp. 6.25%, due 6/15/22 | $ | 140,000 | $ | 143,500 | ||||
8.75%, due 4/15/18 | 140,000 | 157,500 | ||||||
ONEOK, Inc. 6.00%, due 6/15/35 | 350,000 | 391,336 | ||||||
2,925,936 | ||||||||
Real Estate Investment Trusts 0.1% | ||||||||
Health Care Property Investors, Inc. 6.00%, due 1/30/17 | 290,000 | 309,251 | ||||||
ProLogis, L.P. 7.375%, due 10/30/19 | 195,000 | 221,423 | ||||||
530,674 | ||||||||
Retail 0.1% | ||||||||
CVS Caremark Corp. 5.789%, due 1/10/26 (c)(e) | 266,873 | 278,122 | ||||||
Wal-Mart Stores, Inc. 6.75%, due 10/15/23 | 314,000 | 421,181 | ||||||
699,303 | ||||||||
Semiconductors 0.3% | ||||||||
Freescale Semiconductor, Inc. 9.25%, due 4/15/18 (c) | 1,600,000 | 1,732,000 | ||||||
Storage & Warehousing 0.0%‡ | ||||||||
Mobile Mini, Inc. 6.875%, due 5/1/15 | 300,000 | 300,000 | ||||||
Telecommunications 0.2% | ||||||||
EH Holding Corp. 7.625%, due 6/15/21 (c) | 1,200,000 | 1,242,000 | ||||||
Qwest Communications International, Inc. Series B 7.50%, due 2/15/14 | 200,000 | 202,000 | ||||||
1,444,000 | ||||||||
Total Corporate Bonds (Cost $125,472,122) | 128,698,571 | |||||||
Foreign Bonds 1.6% | ||||||||
Banks 0.4% | ||||||||
EGG Banking PLC 6.875%, due 12/29/21 | £ | 1,200,000 | 1,727,532 | |||||
Societe Generale S.A. 5.75%, due 3/29/49 | 480,000 | 663,741 | ||||||
2,391,273 | ||||||||
Finance—Mortgage Loan/Banker 1.0% | ||||||||
X Northern Rock Asset Management PLC 9.375%, due 10/17/21 | 5,000,000 | $ | 6,190,417 | |||||
Packaging & Containers 0.2% | ||||||||
Rexam PLC 6.75%, due 6/29/67 | € | 1,250,000 | 1,591,255 | |||||
Total Foreign Bonds (Cost $9,616,063) | 10,172,945 | |||||||
Foreign Government Bonds 0.1% | ||||||||
Foreign Sovereign 0.1% | ||||||||
Republic of Panama 9.375%, due 4/1/29 | $ | 260,000 | 401,700 | |||||
Republic of Venezuela 6.00%, due 12/9/20 | 309,000 | 184,627 | ||||||
Total Foreign Government Bonds (Cost $527,658) | 586,327 | |||||||
Loan Assignments & Participations 2.3% (h) | ||||||||
Aerospace & Defense 1.1% | ||||||||
Hawker Beechcraft Acquisition Co. LLC LC Facility Deposits 2.369%, due 3/26/14 | 392,010 | 290,578 | ||||||
Term Loan 2.369%, due 3/26/14 | 6,339,346 | 4,699,040 | ||||||
U.S. Airways Group, Inc. Term Loan 2.746%, due 3/21/14 | 1,972,222 | 1,703,014 | ||||||
6,692,632 | ||||||||
Auto Manufacturers 0.4% | ||||||||
Allison Transmission, Inc. Term Loan B 2.75%, due 8/7/14 | 2,899,188 | 2,800,131 | ||||||
Containers, Packaging & Glass 0.2% | ||||||||
Reynolds Group Holdings, Inc. Tranche B Term Loan 6.50%, due 2/9/18 | 1,194,000 | 1,190,269 | ||||||
Machinery 0.0%‡ | ||||||||
BHM Technologies LLC Exit Term Loan B 8.50%, due 9/30/13 (e)(f)(i) | 46,635 | 312 | ||||||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 17 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Loan Assignments & Participations (continued) | ||||||||
Media 0.2% | ||||||||
Clear Channel Communications, Inc. Delayed Draw Term Loan 2 3.896%, due 1/29/16 | $ | 1,995,532 | $ | 1,486,672 | ||||
Telecommunications 0.4% | ||||||||
Intelsat Jackson Holdings S.A. Tranche B Term Loan 5.25%, due 4/2/18 | 2,487,500 | 2,468,844 | ||||||
Total Loan Assignments & Participations (Cost $16,345,165) | 14,638,860 | |||||||
Mortgage-Backed Securities 1.7% | ||||||||
Commercial Mortgage Loans (Collateralized Mortgage Obligations) 1.7% | ||||||||
Banc of America Commercial Mortgage, Inc. Series 2007-2, Class A4 5.645%, due 4/10/49 (j) | 400,000 | 426,640 | ||||||
Bayview Commercial Asset Trust | ||||||||
Series 2006-4A, Class A1 0.475%, due 12/25/36 (a)(c)(f) | 313,089 | 219,182 | ||||||
Bear Stearns Commercial Mortgage Securities | ||||||||
Series 2006-PW12, Class AAB 5.695%, due 9/11/38 (j) | 233,392 | 248,283 | ||||||
Series 2007-PW16, Class A4 5.715%, due 6/11/40 (j) | 400,000 | 437,406 | ||||||
Citigroup Commercial Mortgage Trust | ||||||||
Series 2008-C7, Class A4 6.072%, due 12/10/49 (j) | 200,000 | 220,719 | ||||||
Citigroup/Deutsche Bank Commercial Mortgage Trust | ||||||||
Series 2005-CD1, Class AM 5.226%, due 7/15/44 (j) | 1,000,000 | 1,046,628 | ||||||
Commercial Mortgage Pass-Through Certificates Series 2006-C8, Class AAB 5.291%, due 12/10/46 | 500,000 | 531,729 | ||||||
Four Times Square Trust | ||||||||
Series 2006-4TS, Class A 5.401%, due 12/13/28 (c) | 860,000 | 923,185 | ||||||
JP Morgan Chase Commercial Mortgage Securities Corp. | ||||||||
Series 2004-C3, Class A5 4.878%, due 1/15/42 | 510,000 | 554,827 | ||||||
Series 2007-CB20, Class A3 5.819%, due 2/12/51 | 500,000 | 532,477 | ||||||
Series 2007-LD12, Class A3 5.987%, due 2/15/51 (j) | 500,000 | 537,011 | ||||||
LB-UBS Commercial Mortgage Trust | ||||||||
Series 2006-C7, Class A3 5.347%, due 11/15/38 | 500,000 | 538,989 | ||||||
Series 2007-C6, Class AAB 5.855%, due 7/15/40 | 500,000 | 533,165 | ||||||
Series 2007-C6, Class A3 5.933%, due 7/15/40 | 500,000 | 529,971 | ||||||
Merrill Lynch/Countrywide Commercial Mortgage Trust | ||||||||
Series 2007-8, Class A2 5.929%, due 8/12/49 (j) | 500,000 | 526,053 | ||||||
Morgan Stanley Capital I | ||||||||
Series 2007-IQ14, Class AAB 5.654%, due 4/15/49 (a) | 500,000 | 530,958 | ||||||
Series 2006-HQ9, Class AM 5.773%, due 7/12/44 (a) | 500,000 | 530,218 | ||||||
Mortgage Equity Conversion Asset Trust | ||||||||
Series 2007-FF2, Class A 0.59%, due 2/25/42 (a)(c)(e)(f) | 703,342 | 633,007 | ||||||
Timberstar Trust | ||||||||
Series 2006-1, Class A 5.668%, due 10/15/36 (c) | 280,000 | 312,025 | ||||||
Wachovia Bank Commercial Mortgage Trust | ||||||||
Series 2006-C29, Class AM 5.339%, due 11/15/48 | 500,000 | 472,871 | ||||||
WaMu Mortgage Pass Through Certificates Series 2006-AR14, Class 1A1 4.298%, due 11/25/36 (j) | 947,445 | 673,254 | ||||||
Total Mortgage-Backed Securities (Cost $10,460,110) | 10,958,598 | |||||||
U.S. Government & Federal Agencies 2.5% | ||||||||
Federal Home Loan Mortgage Corporation (Mortgage Pass-Through Securities) 0.1% | ||||||||
6.50%, due 11/1/16 | 24,582 | 26,919 | ||||||
6.50%, due 2/1/27 | 374 | 417 | ||||||
6.50%, due 5/1/29 | 38,229 | 43,378 | ||||||
6.50%, due 6/1/29 | 52,476 | 59,545 | ||||||
6.50%, due 7/1/29 | 78,588 | 89,173 | ||||||
6.50%, due 8/1/29 | 36,170 | 41,042 | ||||||
6.50%, due 9/1/29 | 3,000 | 3,405 | ||||||
6.50%, due 6/1/32 | 16,909 | 19,123 | ||||||
6.50%, due 1/1/37 | 14,907 | 16,635 | ||||||
7.00%, due 3/1/26 | 354 | 406 | ||||||
7.00%, due 9/1/26 | 12,083 | 13,871 | ||||||
7.00%, due 10/1/26 | 13 | 14 | ||||||
7.00%, due 7/1/30 | 1,897 | 2,190 | ||||||
7.00%, due 7/1/32 | 40,510 | 46,753 | ||||||
7.50%, due 1/1/16 | 3,605 | 3,889 |
The notes to the financial statements are an integral part of,
18 MainStay Income Builder Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
U.S. Government & Federal Agencies (continued) | ||||||||
Federal Home Loan Mortgage Corporation (Mortgage Pass-Through Securities) (continued) | ||||||||
7.50%, due 5/1/32 | $ | 18,988 | $ | 22,184 | ||||
8.00%, due 11/1/12 | 118 | 118 | ||||||
389,062 | ||||||||
Federal National Mortgage Association (Mortgage Pass-Through Securities) 0.0%‡ | ||||||||
4.50%, due 7/1/20 | 15,407 | 16,513 | ||||||
4.50%, due 3/1/21 | 30,971 | 33,195 | ||||||
6.00%, due 4/1/19 | 3,591 | 3,939 | ||||||
7.00%, due 10/1/37 | 4,498 | 5,160 | ||||||
7.00%, due 11/1/37 | 43,674 | 50,103 | ||||||
7.50%, due 10/1/15 | 23,401 | 25,754 | ||||||
134,664 | ||||||||
Government National Mortgage Association (Mortgage Pass-Through Securities) 0.1% | ||||||||
5.00%, due 12/15/37 | 28,302 | 31,146 | ||||||
5.50%, due 9/15/35 | 50,332 | 56,086 | ||||||
6.50%, due 4/15/29 | 170 | 195 | ||||||
6.50%, due 5/15/29 | 468 | 536 | ||||||
6.50%, due 8/15/29 | 30 | 34 | ||||||
6.50%, due 10/15/31 | 8,262 | 9,462 | ||||||
7.00%, due 9/15/23 | 3,792 | 4,390 | ||||||
7.00%, due 7/15/25 | 2,047 | 2,374 | ||||||
7.00%, due 12/15/25 | 4,633 | 5,373 | ||||||
7.00%, due 5/15/26 | 9,595 | 11,155 | ||||||
7.00%, due 11/15/27 | 14,913 | 17,375 | ||||||
7.00%, due 12/15/27 | 73,367 | 85,481 | ||||||
7.00%, due 6/15/28 | 4,845 | 5,656 | ||||||
7.50%, due 3/15/26 | 9,259 | 10,808 | ||||||
7.50%, due 6/15/26 | 530 | 619 | ||||||
7.50%, due 10/15/30 | 29,500 | 34,675 | ||||||
8.00%, due 8/15/26 | 2,027 | 2,129 | ||||||
8.00%, due 9/15/26 | 158 | 167 | ||||||
8.00%, due 10/15/26 | 14,085 | 16,633 | ||||||
8.50%, due 11/15/26 | 23,939 | 28,845 | ||||||
323,139 | ||||||||
X United States Treasury Bonds 2.2% | ||||||||
3.75%, due 8/15/41 | 9,105,000 | 10,061,025 | ||||||
3.875%, due 8/15/40 | 3,485,000 | 3,930,972 | ||||||
4.375%, due 5/15/40 | 475,000 | 581,875 | ||||||
14,573,872 | ||||||||
United States Treasury Notes 0.1% | ||||||||
1.25%, due 3/15/14 | 235,000 | 240,142 | ||||||
3.625%, due 8/15/19 | 385,000 | 437,095 | ||||||
677,237 | ||||||||
Total U.S. Government & Federal Agencies (Cost $15,783,954) | $ | 16,097,974 | ||||||
Yankee Bonds 2.2% (k) | ||||||||
Banks 0.1% | ||||||||
HSBC Holdings PLC 5.10%, due 4/5/21 | 115,000 | 123,863 | ||||||
Lloyds TSB Bank PLC 4.375%, due 1/12/15 (c) | 500,000 | 501,376 | ||||||
Royal Bank of Scotland PLC (The) 4.875%, due 8/25/14 (c) | 275,000 | 280,464 | ||||||
905,703 | ||||||||
Diversified Financial Services 0.1% | ||||||||
Irish Life & Permanent Group Holdings PLC 3.60%, due 1/14/13 (c) | 400,000 | 348,624 | ||||||
Electric 0.1% | ||||||||
TransAlta Corp. 5.75%, due 12/15/13 | 280,000 | 301,878 | ||||||
Holding Company—Diversified 0.0%‡ | ||||||||
Hutchison Whampoa International, Ltd. 7.625%, due 4/9/19 (c) | 215,000 | 265,069 | ||||||
Insurance 0.4% | ||||||||
Oil Insurance, Ltd. 3.351%, due 12/29/49 (a)(c) | 1,320,000 | 1,247,163 | ||||||
Swiss Re Capital I, L.P. 6.854%, due 5/29/49 (a)(c) | 1,350,000 | 1,217,346 | ||||||
2,464,509 | ||||||||
Internet 0.0%‡ | ||||||||
UPC Holding B.V. 9.875%, due 4/15/18 (c) | 240,000 | 261,000 | ||||||
Mining 1.0% | ||||||||
Anglo American Capital PLC 9.375%, due 4/8/19 (c) | 250,000 | 323,943 | ||||||
Rio Tinto Finance USA, Ltd. 9.00%, due 5/1/19 | 1,300,000 | 1,775,483 | ||||||
Vedanta Resources PLC 8.25%, due 6/7/21 (c) | 1,690,000 | 1,563,250 | ||||||
Xstrata Finance Canada, Ltd. 5.80%, due 11/15/16 (c) | 2,700,000 | 2,943,942 | ||||||
6,606,618 | ||||||||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 19 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Yankee Bonds (continued) | ||||||||
Miscellaneous—Manufacturing 0.1% | ||||||||
Siemens Financieringsmaatschappij N.V. 6.125%, due 8/17/26 (c) | $ | 300,000 | $ | 365,910 | ||||
Oil & Gas 0.3% | ||||||||
ENI S.p.A 4.15%, due 10/1/20 (c) | 175,000 | 175,733 | ||||||
Gazprom International S.A. 7.201%, due 2/1/20 (c) | 256,760 | 282,437 | ||||||
OGX Petroleo e Gas Participacoes S.A. 8.50%, due 6/1/18 (c) | 1,345,000 | 1,331,550 | ||||||
TNK-BP Finance S.A. 7.50%, due 7/18/16 (c) | 200,000 | 221,000 | ||||||
2,010,720 | ||||||||
Transportation 0.1% | ||||||||
Hapag-Lloyd A.G. 9.75%, due 10/15/17 (c) | 375,000 | 296,250 | ||||||
Total Yankee Bonds (Cost $13,987,719) | 13,826,281 | |||||||
Total Long-Term Bonds (Cost $253,020,012) | 254,915,902 | |||||||
Shares | Value | |||||||
Common Stocks 50.5% | ||||||||
Aerospace & Defense 1.4% | ||||||||
BAE Systems PLC | 706,000 | 3,118,502 | ||||||
Lockheed Martin Corp. | 42,550 | 3,229,545 | ||||||
Meggitt PLC | 399,350 | 2,460,568 | ||||||
Triumph Group, Inc. | 5,012 | 291,197 | ||||||
9,099,812 | ||||||||
Agriculture 4.2% | ||||||||
Altria Group, Inc. | 179,048 | 4,932,772 | ||||||
British American Tobacco PLC | 60,047 | 2,747,888 | ||||||
X Imperial Tobacco Group PLC | 178,600 | 6,508,759 | ||||||
Lorillard, Inc. | 38,390 | 4,248,237 | ||||||
Philip Morris International, Inc. | 59,463 | 4,154,680 | ||||||
Reynolds American, Inc. | 111,120 | 4,298,122 | ||||||
26,890,458 | ||||||||
Auto Manufacturers 0.7% | ||||||||
Daimler A.G. | 61,300 | 3,114,205 | ||||||
Ford Motor Co. (d) | 125,000 | 1,460,000 | ||||||
4,574,205 | ||||||||
Banks 0.7% | ||||||||
CIT Group, Inc. (d) | 28,100 | 979,285 | ||||||
Citigroup, Inc. | 41,000 | 1,295,190 | ||||||
Westpac Banking Corp. | 82,356 | 1,916,833 | ||||||
4,191,308 | ||||||||
Beverages 2.0% | ||||||||
Anheuser-Busch InBev N.V. | 80,397 | 4,463,602 | ||||||
Coca-Cola Co. (The) | 27,160 | 1,855,571 | ||||||
Coca-Cola Enterprises, Inc. | 66,400 | 1,780,848 | ||||||
Diageo PLC, Sponsored ADR (l) | 39,750 | 3,294,480 | ||||||
PepsiCo., Inc. | 24,550 | 1,545,423 | ||||||
12,939,924 | ||||||||
Building Materials 0.1% | ||||||||
U.S. Concrete, Inc. (d)(f) | 83,147 | 300,992 | ||||||
Chemicals 1.7% | ||||||||
Air Liquide S.A. | 15,013 | 1,947,515 | ||||||
BASF S.E. | 60,494 | 4,396,511 | ||||||
Bayer A.G. | 26,750 | 1,706,111 | ||||||
E.I. du Pont de Nemours & Co. | 62,916 | 3,024,372 | ||||||
11,074,509 | ||||||||
Commercial Services 0.6% | ||||||||
Automatic Data Processing, Inc. | 37,450 | 1,959,759 | ||||||
R.R. Donnelley & Sons Co. | 125,600 | 2,047,280 | ||||||
4,007,039 | ||||||||
Computers 0.8% | ||||||||
Diebold, Inc. | 60,950 | 1,967,466 | ||||||
HTC Corp. | 62,260 | 1,384,446 | ||||||
Logica PLC | 1,144,100 | 1,720,967 | ||||||
5,072,879 | ||||||||
Distribution & Wholesale 0.3% | ||||||||
Genuine Parts Co. | 35,950 | 2,064,609 | ||||||
Electric 5.4% | ||||||||
CMS Energy Corp. | 119,000 | 2,477,580 | ||||||
CPFL Energia S.A. | 230,200 | 2,945,799 | ||||||
Duke Energy Corp. | 89,222 | 1,821,913 | ||||||
Enel S.p.A. | 379,400 | 1,783,658 | ||||||
Integrys Energy Group, Inc. | 33,100 | 1,751,321 | ||||||
National Grid PLC | 513,550 | 5,086,619 | ||||||
Progress Energy, Inc. | 70,384 | 3,667,006 | ||||||
SCANA Corp. | 47,058 | 1,989,612 | ||||||
Scottish & Southern Energy PLC | 162,000 | 3,481,574 | ||||||
Southern Co. | 78,450 | 3,389,040 | ||||||
TECO Energy, Inc. | 163,950 | 3,044,552 | ||||||
Terna S.p.A. | 875,000 | 3,341,281 | ||||||
34,779,955 | ||||||||
The notes to the financial statements are an integral part of,
20 MainStay Income Builder Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Electrical Components & Equipment 0.3% | ||||||||
Emerson Electric Co. | 38,473 | $ | 1,851,321 | |||||
Engineering & Construction 0.6% | ||||||||
Vinci S.A. | 74,945 | 3,678,413 | ||||||
Environmental Controls 0.4% | ||||||||
Waste Management, Inc. | 75,550 | 2,487,862 | ||||||
Food 2.0% | ||||||||
H.J. Heinz Co. | 33,750 | 1,803,600 | ||||||
Nestle S.A. Registered | 92,055 | 5,327,198 | ||||||
Orkla ASA | 194,400 | 1,684,349 | ||||||
Unilever PLC | 53,900 | 1,799,229 | ||||||
WM Morrison Supermarkets PLC | 422,150 | 2,042,828 | ||||||
12,657,204 | ||||||||
Food Services 0.3% | ||||||||
Compass Group PLC | 243,300 | 2,208,286 | ||||||
Gas 1.2% | ||||||||
NiSource, Inc. | 243,991 | 5,389,761 | ||||||
Vectren Corp. | 84,350 | 2,393,853 | ||||||
7,783,614 | ||||||||
Health Care—Products 0.4% | ||||||||
Johnson & Johnson | 39,667 | 2,554,158 | ||||||
Household Products & Wares 1.0% | ||||||||
Kimberly-Clark Corp. | 54,795 | 3,819,759 | ||||||
Reckitt Benckiser Group PLC | 46,250 | 2,372,310 | ||||||
6,192,069 | ||||||||
Insurance 1.6% | ||||||||
Arthur J. Gallagher & Co. | 106,750 | 3,298,575 | ||||||
Muenchener Rueckversicherungs-Gesellschaft A.G. Registered | 20,400 | 2,734,714 | ||||||
SCOR SE | 115,100 | 2,677,292 | ||||||
Travelers Cos., Inc. (The) | 30,450 | 1,776,758 | ||||||
10,487,339 | ||||||||
Investment Company 0.0%‡ | ||||||||
BGP Holdings PLC (d)(e)(f) | 20,068 | 3 | ||||||
Media 3.5% | ||||||||
Comcast Corp. Class A | 115,950 | 2,666,850 | ||||||
Dex One Corp. (d) | 2,323 | 1,445 | ||||||
X Pearson PLC | 321,550 | 5,919,747 | ||||||
Regal Entertainment Group Class A | 243,550 | 3,516,862 | ||||||
Shaw Communications, Inc. | 114,900 | 2,327,395 | ||||||
Time Warner, Inc. | 67,550 | 2,363,575 | ||||||
X Vivendi S.A. | 258,129 | 5,782,797 | ||||||
22,578,671 | ||||||||
Mining 0.3% | ||||||||
BHP Billiton, Ltd., Sponsored ADR (l) | 20,500 | 1,600,640 | ||||||
Miscellaneous—Manufacturing 0.3% | ||||||||
Honeywell International, Inc. | 38,850 | 2,035,740 | ||||||
Office Equipment/Supplies 0.4% | ||||||||
Pitney Bowes, Inc. | 140,077 | 2,854,769 | ||||||
Oil & Gas 3.2% | ||||||||
Chevron Corp. | 24,524 | 2,576,246 | ||||||
ConocoPhillips | 46,600 | 3,245,690 | ||||||
Diamond Offshore Drilling, Inc. | 41,200 | 2,700,248 | ||||||
ExxonMobil Corp. | 23,505 | 1,835,505 | ||||||
Royal Dutch Shell PLC Class A, ADR (l) | 71,200 | 5,048,792 | ||||||
Total S.A. | 95,568 | 4,997,584 | ||||||
20,404,065 | ||||||||
Oil & Gas Services 0.1% | ||||||||
Core Laboratories N.V. | 7,381 | 799,067 | ||||||
Pharmaceuticals 3.2% | ||||||||
Abbott Laboratories | 36,350 | 1,958,175 | ||||||
AstraZeneca PLC, Sponsored ADR (l) | 95,150 | 4,558,636 | ||||||
Bristol-Myers Squibb Co. | 134,135 | 4,237,325 | ||||||
GlaxoSmithKline PLC | 113,250 | 2,538,446 | ||||||
Merck & Co., Inc. | 66,209 | 2,284,210 | ||||||
Novartis A.G. | 43,150 | 2,437,656 | ||||||
Roche Holding A.G., Genusscheine | 15,550 | 2,556,479 | ||||||
20,570,927 | ||||||||
Pipelines 2.0% | ||||||||
Enterprise Products Partners, L.P. | 55,900 | 2,505,997 | ||||||
Kinder Morgan Energy Partners, L.P. | 46,450 | 3,529,735 | ||||||
MarkWest Energy Partners, L.P. | 35,300 | 1,758,999 | ||||||
Spectra Energy Corp. | 64,450 | 1,845,204 | ||||||
Williams Partners, L.P. | 49,750 | 2,951,667 | ||||||
12,591,602 | ||||||||
Retail 0.6% | ||||||||
JB Hi-Fi, Ltd. | 104,050 | 1,715,643 | ||||||
McDonald’s Corp. | 22,142 | 2,055,885 | ||||||
3,771,528 | ||||||||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 21 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Semiconductors 0.9% | ||||||||
Microchip Technology, Inc. | 47,300 | $ | 1,710,368 | |||||
Taiwan Semiconductor Manufacturing Co., Ltd., Sponsored ADR (l) | 333,850 | 4,213,187 | ||||||
5,923,555 | ||||||||
Software 1.0% | ||||||||
Microsoft Corp. | 102,773 | 2,736,845 | ||||||
Oracle Corp. | 111,603 | 3,657,230 | ||||||
6,394,075 | ||||||||
Telecommunications 7.7% | ||||||||
AT&T, Inc. | 124,527 | 3,649,886 | ||||||
X BCE, Inc. | 161,650 | 6,407,616 | ||||||
CenturyLink, Inc. | 135,901 | 4,791,869 | ||||||
China Mobile, Ltd., Sponsored ADR (l) | 74,100 | 3,524,196 | ||||||
Deutsche Telekom A.G., Registered | 184,350 | 2,337,241 | ||||||
France Telecom S.A. | 219,590 | 3,950,654 | ||||||
Mobistar S.A. | 37,050 | 2,101,766 | ||||||
Philippine Long Distance Telephone Co., Sponsored ADR (l) | 37,450 | 2,079,973 | ||||||
Rogers Communications, Inc. Class B | 75,650 | 2,758,844 | ||||||
Swisscom A.G. | 11,550 | 4,648,913 | ||||||
Telefonica S.A. | 114,625 | 2,445,519 | ||||||
Verizon Communications, Inc. | 113,524 | 4,198,118 | ||||||
X Vodafone Group PLC | 2,331,727 | 6,466,538 | ||||||
49,361,133 | ||||||||
Toys, Games & Hobbies 0.4% | ||||||||
Mattel, Inc. | 89,950 | 2,540,188 | ||||||
Transportation 0.7% | ||||||||
FirstGroup PLC | 779,650 | 4,163,164 | ||||||
Water 0.5% | ||||||||
United Utilities Group PLC | 332,550 | 3,235,035 | ||||||
Total Common Stocks (Cost $293,888,595) | 323,720,118 | |||||||
Convertible Preferred Stocks 1.8% | ||||||||
Auto Manufacturers 0.1% | ||||||||
General Motors Co. 4.75% | 8,400 | 349,104 | ||||||
Auto Parts & Equipment 0.1% | ||||||||
Goodyear Tire & Rubber Co. (The) 5.875% | 13,000 | 652,860 | ||||||
Banks 0.5% | ||||||||
Ally Financial, Inc. (c) 7.00% | 40 | 29,834 | ||||||
Citigroup, Inc. 7.00% | 13,200 | 1,254,528 | ||||||
Wells Fargo & Co. 7.50% Series L | 1,800 | 1,901,070 | ||||||
3,185,432 | ||||||||
Diversified Financial Services 0.3% | ||||||||
SG Preferred Capital II LLC (a)(c) 6.30% | 1,650 | 1,661,859 | ||||||
Insurance 0.2% | ||||||||
Hartford Financial Services Group, Inc. 7.25% | 75,400 | 1,580,384 | ||||||
Investment Management/Advisory Services 0.2% | ||||||||
Affiliated Managers Group, Inc. 5.10% | 30,100 | 1,309,350 | ||||||
Media 0.0%‡ | ||||||||
Nielsen Holdings N.V. 6.25% | 4,600 | 264,500 | ||||||
Oil & Gas 0.1% | ||||||||
Chesapeake Energy Corp. (c) 2.75% | 500 | 602,215 | ||||||
Telecommunications 0.3% | ||||||||
Crown Castle International Corp. 6.25% | 31,400 | 1,821,200 | ||||||
Total Convertible Preferred Stocks (Cost $12,491,914) | 11,426,904 | |||||||
Preferred Stock 0.4% | ||||||||
Insurance 0.4% | ||||||||
MetLife, Inc. 6.50% | 91,400 | 2,312,420 | ||||||
Total Preferred Stock (Cost $2,162,800) | 2,312,420 | |||||||
The notes to the financial statements are an integral part of,
22 MainStay Income Builder Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Number of | ||||||||
Warrants | Value | |||||||
Warrants 0.0%‡ | ||||||||
Media 0.0%‡ | ||||||||
ION Media Networks, Inc. Second Lien Expires 12/19/12 (d)(e)(f) | 6 | 0 | (m) | |||||
Unsecured Debt Expires 12/19/12 (d)(e)(f) | 6 | 0 | (m) | |||||
Total Warrants (Cost $20) | 0 | (m) | ||||||
Principal | ||||||||
Amount | ||||||||
Short-Term Investment 7.0% | ||||||||
Repurchase Agreement 7.0% | ||||||||
State Street Bank and Trust Co. 0.01%, dated 10/31/11 due 11/1/11 Proceeds at maturity $44,821,909 (Collateralized by United States Government and Federal Agency Securities with rates between 0.90%–4.625% and maturity dates between 9/12/14–2/15/40, with Principal Amount of $36,875,000 and a Market Value of $45,720,654) | $ | 44,821,897 | $ | 44,821,897 | ||||
Total Short-Term Investment (Cost $44,821,897) | 44,821,897 | |||||||
Total Investments (Cost $606,385,238) (p) | 99.5 | % | 637,197,241 | |||||
Other Assets, Less Liabilities | 0.5 | 3,351,454 | ||||||
Net Assets | 100.0 | % | $ | 640,548,695 | ||||
Unrealized | ||||||||
Contracts | Appreciation | |||||||
Long | (Depreciation) (n) | |||||||
Futures Contracts 0.7% | ||||||||
United States Treasury Notes December 2011 (10 Year) (o) | 95 | $ | (124,925 | ) | ||||
Standard & Poor’s 500 Index Mini December 2011 (o) | 1,060 | 4,412,250 | ||||||
Total Futures Contracts Long (Settlement Value $78,473,837) | 4,287,325 | |||||||
Unrealized | ||||||||
Contracts | Appreciation | |||||||
Short | (Depreciation) (n) | |||||||
United States Treasury Notes December 2011 (5 Year) (o) | (150 | ) | $ | 44,156 | ||||
Total Futures Contracts Short (Settlement Value $18,391,406) | $ | 44,156 | ||||||
Total Futures Contracts (Settlement Value $60,082,431) | $ | 4,331,481 | ||||||
††† | On a daily basis New York Life Investments confirms that the value of the Fund’s liquid assets (liquid portfolio securities and cash) is sufficient to cover its potential senior securities (e.g., futures, swaps, options). | |
‡ | Less than one-tenth of a percent. | |
(a) | Floating rate—Rate shown is the rate in effect at October 31, 2011. | |
(b) | Subprime mortgage investment and other asset-backed securities—The total market value of this security at October 31, 2011 is $310,241, which represents less than one-tenth of a percent of the Fund’s net assets. | |
(c) | May be sold to institutional investors only under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended. | |
(d) | Non-income producing security. | |
(e) | Fair valued security. The total market value of these securities at October 31, 2011 is $913,204, which represents 0.1% of the Fund’s net assets. | |
(f) | Illiquid security—The total market value of these securities at October 31, 2011 is $1,155,256, which represents 0.2% of the Fund’s net assets. | |
(g) | PIK (“Payment in Kind”)—interest or dividend payment is made with additional securities. | |
(h) | Floating Rate Loan—generally pays interest at rates which are periodically re-determined at a margin above the London InterBank Offered Rate or other short-term rates. The rate shown is the rate(s) in effect at October 31, 2011. Floating Rate Loans are generally considered restrictive in that the Fund is ordinarily contractually obligated to receive consent from the Agent Bank and/or borrower prior to disposition of a Floating Rate Loan. | |
(i) | Issue in default. | |
(j) | Collateral strip rate—Bond whose interest is based on the weighted net interest rate of the collateral. Coupon rate adjusts periodically based on a predetermined schedule. Rate shown is the rate in effect at October 31, 2011. | |
(k) | Yankee Bond—dollar-denominated bond issued in the United States by a foreign bank or corporation. | |
(l) | ADR—American Depositary Receipt. | |
(m) | Less than one dollar. | |
(n) | Represents the difference between the value of the contracts at the time they were opened and the value at October 31, 2011. | |
(o) | At October 31, 2011, cash in the amount of $4,297,500 is on deposit with the broker for futures transactions. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 23 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
(p) | At October 31, 2011, cost is $606,300,761 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 58,849,145 | ||
Gross unrealized depreciation | (27,952,665 | ) | ||
Net unrealized appreciation | $ | 30,896,480 | ||
The following abbreviations are used in the above portfolio:
€—Euro
£—British Pound Sterling
The following is a summary of the fair valuations according to the inputs used as of October 31, 2011, for valuing the Fund’s assets and liabilities.
Asset Valuation Inputs
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Long-Term Bonds | ||||||||||||||||
Asset-Backed Securities | $ | — | $ | 16,375,682 | $ | — | $ | 16,375,682 | ||||||||
Convertible Bonds | — | 43,560,664 | — | 43,560,664 | ||||||||||||
Corporate Bonds (b) | — | 128,418,689 | 279,882 | 128,698,571 | ||||||||||||
Foreign Bonds | — | 10,172,945 | — | 10,172,945 | ||||||||||||
Foreign Government Bonds | — | 586,327 | — | 586,327 | ||||||||||||
Loan Assignments & Participations (c) | — | 14,638,548 | 312 | 14,638,860 | ||||||||||||
Mortgage-Backed Securities (d) | — | 10,325,591 | 633,007 | 10,958,598 | ||||||||||||
U.S. Government & Federal Agencies | — | 16,097,974 | — | 16,097,974 | ||||||||||||
Yankee Bonds | — | 13,826,281 | — | 13,826,281 | ||||||||||||
Total Long-Term Bonds | — | 254,002,701 | 913,201 | 254,915,902 | ||||||||||||
Common Stocks (e)(f) | 196,666,790 | 127,053,325 | 3 | 323,720,118 | ||||||||||||
Convertible Preferred Stocks | 11,426,904 | — | — | 11,426,904 | ||||||||||||
Preferred Stock | 2,312,420 | — | — | 2,312,420 | ||||||||||||
Warrants (g) | — | — | 0 | (g) | 0 | (g) | ||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 44,821,897 | — | 44,821,897 | ||||||||||||
Total Investments in Securities | 210,406,114 | 425,877,923 | 913,204 | 637,197,241 | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts Long (h) | 4,412,250 | — | — | 4,412,250 | ||||||||||||
Futures Contracts Short (h) | 44,156 | — | — | 44,156 | ||||||||||||
Total Investments in Securities and Other Financial Instruments | $ | 214,862,520 | $ | 425,877,923 | $ | 913,204 | $ | 641,653,647 | ||||||||
The notes to the financial statements are an integral part of,
24 MainStay Income Builder Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Liability Valuation Inputs
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Foreign Currency Forward Contracts (i) | $ | — | $ | (5,617,997 | ) | $ | — | $ | (5,617,997 | ) | ||||||
Futures Contracts Long (h) | (124,925 | ) | — | — | (124,925 | ) | ||||||||||
Total Other Financial Instruments | $ | (124,925 | ) | $ | (5,617,997 | ) | $ | — | $ | (5,742,922 | ) | |||||
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The Level 3 securities valued at $1,760 and $278,122 are held in Commercial Services and Retail, respectively, within the Corporate Bonds section of the Portfolio of Investments. |
(c) | The Level 3 security valued at $312 is held in Machinery within the Loan Assignments & Participations section of the Portfolio of Investments. |
(d) | The Level 3 security valued at $633,007 is held in Commercial Mortgage Loans (Collateralized Mortgage Obligations) within the Mortgage-Backed Securities section of the Portfolio of Investments. |
(e) | Level 2 assets represent the following international equities: BAE Systems PLC, Meggitt PLC, British American Tobacco PLC, Imperial Tobacco Group PLC, Daimler A.G., Westpac Banking Corp., Anheuser-Busch InBev N.V., BASF S.E., Bayer A.G.,HTC Corp., Logica PLC, Enel S.p.A., National Grid PLC, Scottish & Southern Energy PLC, Terna S.p.A., Vinci S.A., Nestle S.A. Registered, Orkla ASA, Unilever PLC, WM Morrison Supermarkets PLC, Compass Group PLC, Reckitt Benckiser Group PLC, Muenchener Rueckversicherungs-Gesellschaft A.G. Registered, SCOR SE, Pearson PLC, Vivendi S.A., Total S.A., GlaxoSmithKline PLC, Novartis A.G., Roche Holding A.G., JB Hi-Fi, Ltd., Deutsche Telekom A.G., Registered, France Telecom S.A., Mobistar S.A., Swisscom A.G., Telefonica S.A., Vodafone Group PLC, FirstGroup PLC and United Utilities Group PLC. |
(f) | The Level 3 security valued at $3 is held in Investment Company within the Common Stocks section of the Portfolio of Investments. |
(g) | The Level 3 securities valued at less than one dollar are held in Media within the Warrants section of the Portfolio of Investments. |
(h) | The value listed for these securities reflects unrealized appreciation (depreciation) as shown on the Portfolio of Investments. |
(i) | The value listed for these securities reflects unrealized appreciation (depreciation) as shown on the table of foreign currency forward contracts. (See Note 5) |
The Fund recognizes transfers between the levels as of the beginning of the period.
During the year ended October 31, 2011, certain foreign equity securities with a market value of $110,962,007 held by the Fund at October 31, 2010, transferred from Level 1 to Level 2 due to these securities being fair valued at period end by applying factors provided by a third party vendor in accordance with the Fund’s policies and procedures. (See Note 2)
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 25 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
Change in | ||||||||||||||||||||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||||||||||||||||||
Appreciation | ||||||||||||||||||||||||||||||||||||||||
(Depreciation) | ||||||||||||||||||||||||||||||||||||||||
from | ||||||||||||||||||||||||||||||||||||||||
Balance | Change in | Balance | Investments | |||||||||||||||||||||||||||||||||||||
as of | Accrued | Realized | Unrealized | Transfers | Transfers | as of | Still Held at | |||||||||||||||||||||||||||||||||
October 31, | Discounts | Gain | Appreciation | in to | out of | October 31, | October 31, | |||||||||||||||||||||||||||||||||
Investments in Securities | 2010 | (Premiums) | (Loss) | (Depreciation) | Purchases | Sales | Level 3 | Level 3 | 2011 | 2011 (a) | ||||||||||||||||||||||||||||||
Long-Term Bonds | ||||||||||||||||||||||||||||||||||||||||
Corporate Bonds | ||||||||||||||||||||||||||||||||||||||||
Commercial Services | $ | 5,720 | $ | — | $ | — | $ | (3,960 | ) | $ | — | $ | — | $ | — | $ | — | $ | 1,760 | $ | (3,960 | ) | ||||||||||||||||||
Media | 432 | — | (31,004 | ) | 30,820 | — | (248 | ) | — | — | — | — | ||||||||||||||||||||||||||||
Retail | 292,245 | (803 | ) | (253 | ) | (907 | ) | 2,536 | (14,696 | ) | — | — | 278,122 | (465 | ) | |||||||||||||||||||||||||
Loan Assignments & Participations | ||||||||||||||||||||||||||||||||||||||||
Machinery | 126 | (15,214 | ) | — | 15,400 | — | — | — | — | 312 | 15,400 | |||||||||||||||||||||||||||||
Mortgage-Backed Securities | ||||||||||||||||||||||||||||||||||||||||
Commercial Mortgage Loans (Collateralized Mortgage Obligations) | 698,048 | — | — | (33,981 | ) | — | (31,060 | ) | — | — | 633,007 | (35,519 | ) | |||||||||||||||||||||||||||
Common Stocks | ||||||||||||||||||||||||||||||||||||||||
Investment Company | 3 | — | — | — | — | — | — | — | 3 | — | ||||||||||||||||||||||||||||||
Machinery | 43 | — | — | (43 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Preferred Stocks | ||||||||||||||||||||||||||||||||||||||||
Machinery | 1 | — | — | (1 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Warrants | ||||||||||||||||||||||||||||||||||||||||
Media | 0 | (b) | — | — | — | — | — | — | — | 0 | (b) | — | ||||||||||||||||||||||||||||
Total | $ | 996,618 | $ | (16,017 | ) | $ | (31,257 | ) | $ | 7,328 | $ | 2,536 | $ | (46,004 | ) | $ | — | $ | — | $ | 913,204 | $ | (24,544 | ) | ||||||||||||||||
(a) | Included in “Net change in unrealized appreciation (depreciation) on investments” in the Statement of Operations. |
(b) | Less than one dollar. |
The notes to the financial statements are an integral part of,
26 MainStay Income Builder Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statement of Assets and Liabilities as of October 31, 2011
Assets | ||||
Investment in securities, at value (identified cost $606,385,238) | $ | 637,197,241 | ||
Cash collateral on deposit at broker | 4,297,500 | |||
Cash denominated in foreign currencies (identified cost $1,215,385) | 1,244,132 | |||
Cash | 754,996 | |||
Receivables: | ||||
Dividends and interest | 4,688,288 | |||
Investment securities sold | 1,326,849 | |||
Fund shares sold | 298,756 | |||
Variation margin on futures contracts | 10,000 | |||
Other assets | 37,754 | |||
Total assets | 649,855,516 | |||
Liabilities | ||||
Payables: | ||||
Variation margin on futures contracts | 1,674,800 | |||
Investment securities purchased | 842,115 | |||
Manager (See Note 3) | 342,282 | |||
Fund shares redeemed | 327,853 | |||
Transfer agent (See Note 3) | 257,863 | |||
NYLIFE Distributors (See Note 3) | 141,978 | |||
Shareholder communication | 66,637 | |||
Professional fees | 23,767 | |||
Custodian | 7,503 | |||
Trustees | 2,612 | |||
Accrued expenses | 1,414 | |||
Unrealized depreciation on foreign currency forward contracts | 5,617,997 | |||
Total liabilities | 9,306,821 | |||
Net assets | $ | 640,548,695 | ||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 401,465 | ||
Additional paid-in capital | 667,910,026 | |||
668,311,491 | ||||
Undistributed net investment income | 1,671,718 | |||
Accumulated net realized gain (loss) on investments, futures transactions and foreign currency transactions | (58,996,660 | ) | ||
Net unrealized appreciation (depreciation) on investments and futures contracts | 35,143,484 | |||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (5,581,338 | ) | ||
Net assets | $ | 640,548,695 | ||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 163,168,365 | ||
Shares of beneficial interest outstanding | 10,245,766 | |||
Net asset value per share outstanding | $ | 15.93 | ||
Maximum sales charge (5.50% of offering price) | 0.93 | |||
Maximum offering price per share outstanding | $ | 16.86 | ||
Class A | ||||
Net assets applicable to outstanding shares | $ | 242,939,366 | ||
Shares of beneficial interest outstanding | 15,259,559 | |||
Net asset value per share outstanding | $ | 15.92 | ||
Maximum sales charge (5.50% of offering price) | 0.93 | |||
Maximum offering price per share outstanding | $ | 16.85 | ||
Class B | ||||
Net assets applicable to outstanding shares | $ | 59,225,409 | ||
Shares of beneficial interest outstanding | 3,703,189 | |||
Net asset value and offering price per share outstanding | $ | 15.99 | ||
Class C | ||||
Net assets applicable to outstanding shares | $ | 10,898,626 | ||
Shares of beneficial interest outstanding | 682,423 | |||
Net asset value and offering price per share outstanding | $ | 15.97 | ||
Class I | ||||
Net assets applicable to outstanding shares | $ | 164,316,929 | ||
Shares of beneficial interest outstanding | 10,255,561 | |||
Net asset value and offering price per share outstanding | $ | 16.02 | ||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 27 |
Table of Contents
Statement of Operations for the year ended October 31, 2011
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 18,273,620 | ||
Dividends (a) | 15,938,726 | |||
Total income | 34,212,346 | |||
Expenses | ||||
Manager (See Note 3) | 4,295,605 | |||
Distribution/Service—Investor Class (See Note 3) | 419,323 | |||
Distribution/Service—Class A (See Note 3) | 627,821 | |||
Distribution/Service—Class B (See Note 3) | 666,827 | |||
Distribution/Service—Class C (See Note 3) | 111,970 | |||
Transfer agent (See Note 3) | 1,538,141 | |||
Shareholder communication | 139,359 | |||
Professional fees | 121,099 | |||
Registration | 82,327 | |||
Custodian | 80,001 | |||
Trustees | 18,354 | |||
Miscellaneous | 50,880 | |||
Total expenses | 8,151,707 | |||
Net investment income (loss) | 26,060,639 | |||
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Security transactions | 23,212,835 | |||
Futures transactions | 15,296,189 | |||
Foreign currency transactions | 3,026,279 | |||
Net realized gain (loss) on investments, futures transactions and foreign currency transactions | 41,535,303 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (17,968,099 | ) | ||
Futures contracts | (4,817,094 | ) | ||
Translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (5,160,119 | ) | ||
Net change in unrealized appreciation (depreciation) on investments, futures contracts and foreign currency transactions | (27,945,312 | ) | ||
Net realized and unrealized gain (loss) on investments, futures transactions and foreign currency transactions | 13,589,991 | |||
Net increase (decrease) in net assets resulting from operations | $ | 39,650,630 | ||
(a) | Dividends recorded net of foreign withholding taxes in the amount of $815,536. |
The notes to the financial statements are an integral part of,
28 MainStay Income Builder Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statements of Changes in Net Assets
for the years ended October 31, 2011 and October 31, 2010
2011 | 2010 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 26,060,639 | $ | 27,834,731 | ||||
Net realized gain (loss) on investments, futures transactions and foreign currency transactions | 41,535,303 | 21,579,052 | ||||||
Net change in unrealized appreciation (depreciation) on investments, futures contracts and foreign currency transactions | (27,945,312 | ) | 53,208,307 | |||||
Net increase (decrease) in net assets resulting from operations | 39,650,630 | 102,622,090 | ||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (5,865,470 | ) | (6,170,095 | ) | ||||
Class A | (9,611,379 | ) | (9,381,903 | ) | ||||
Class B | (1,746,756 | ) | (2,138,828 | ) | ||||
Class C | (304,467 | ) | (291,114 | ) | ||||
Class I | (6,884,253 | ) | (7,728,545 | ) | ||||
Total dividends to shareholders | (24,412,325 | ) | (25,710,485 | ) | ||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 59,978,153 | 40,354,493 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 23,685,357 | 25,008,836 | ||||||
Cost of shares redeemed | (114,713,132 | ) | (149,084,523 | ) | ||||
Increase (decrease) in net assets derived from capital share transactions | (31,049,622 | ) | (83,721,194 | ) | ||||
Net increase (decrease) in net assets | (15,811,317 | ) | (6,809,589 | ) | ||||
Net Assets | ||||||||
Beginning of year | 656,360,012 | 663,169,601 | ||||||
End of year | $ | 640,548,695 | $ | 656,360,012 | ||||
Undistributed net investment income at end of year | $ | 1,671,718 | $ | 905,719 | ||||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 29 |
Table of Contents
Financial Highlights selected per share data and ratios
Investor Class | ||||||||||||||||||
February 28, | ||||||||||||||||||
2008** | ||||||||||||||||||
through | ||||||||||||||||||
Year ended October 31, | October 31, | |||||||||||||||||
2011 | 2010 | 2009 | 2008 | |||||||||||||||
Net asset value at beginning of period | $ | 15.58 | $ | 13.89 | $ | 12.58 | $ | 16.50 | ||||||||||
Net investment income (loss) (a) | 0.60 | 0.59 | 0.30 | 0.19 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.37 | 1.81 | 1.36 | (3.89 | ) | |||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.05 | ) | (0.16 | ) | 0.00 | ‡ | 0.01 | |||||||||||
Total from investment operations | 0.92 | 2.24 | 1.66 | (3.69 | ) | |||||||||||||
Less dividends: | ||||||||||||||||||
From net investment income | (0.57 | ) | (0.55 | ) | (0.35 | ) | (0.23 | ) | ||||||||||
Net asset value at end of period | $ | 15.93 | $ | 15.58 | $ | 13.89 | $ | 12.58 | ||||||||||
Total investment return (b) | 5.92 | % | 16.39 | % | 13.57 | % | (22.65 | %)(c) | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||
Net investment income (loss) | 3.73 | % | 4.02 | % | 2.40 | % | 1.84 | % †† | ||||||||||
Net expenses | 1.40 | % | 1.50 | % | 1.40 | % | 1.29 | % †† | ||||||||||
Expenses (before waiver/reimbursement) | 1.40 | % | 1.50 | % | 1.72 | % | 1.50 | % †† | ||||||||||
Portfolio turnover rate | 33 | % | 76 | % | 182 | % (d) | 101 | % (d) | ||||||||||
Net assets at end of period (in 000’s) | $ | 163,168 | $ | 170,852 | $ | 161,824 | $ | 136,858 |
** | Commencement of operations. | |
†† | Annualized. | |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the period. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. | |
(c) | Total investment return is not annualized. | |
(d) | The portfolio turnover rates not including mortgage dollar rolls were 151% and 86% for the years ended October 31, 2009 and 2008, respectively. |
The notes to the financial statements are an integral part of,
30 MainStay Income Builder Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class A | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 15.58 | $ | 13.88 | $ | 12.57 | $ | 20.10 | $ | 19.82 | ||||||||||||
Net investment income (loss) (a) | 0.66 | 0.64 | 0.33 | 0.32 | 0.35 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.35 | 1.82 | 1.36 | (5.27 | ) | 1.88 | ||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.05 | ) | (0.16 | ) | 0.00 | ‡ | 0.01 | — | ||||||||||||||
Total from investment operations | 0.96 | 2.30 | 1.69 | (4.94 | ) | 2.23 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.62 | ) | (0.60 | ) | (0.38 | ) | (0.32 | ) | (0.35 | ) | ||||||||||||
From net realized gain on investments | — | — | — | (2.27 | ) | (1.60 | ) | |||||||||||||||
Total dividends and distributions | (0.62 | ) | (0.60 | ) | (0.38 | ) | (2.59 | ) | (1.95 | ) | ||||||||||||
Net asset value at end of year | $ | 15.92 | $ | 15.58 | $ | 13.88 | $ | 12.57 | $ | 20.10 | ||||||||||||
Total investment return (b) | 6.21 | % | 16.80 | % | 13.82 | % | (27.88 | %) | 12.18 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 4.05 | % | 4.37 | % | 2.60 | % | 1.93 | % | 1.81 | % | ||||||||||||
Net expenses | 1.08 | % | 1.15 | % | 1.20 | % | 1.18 | % | 1.19 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.08 | % | 1.15 | % | 1.23 | % | 1.26 | % | 1.27 | % | ||||||||||||
Portfolio turnover rate | 33 | % | 76 | % | 182 | % (c) | 101 | % (c) | 68 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 242,939 | $ | 239,564 | $ | 222,648 | $ | 185,491 | $ | 518,547 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. | |
(c) | The portfolio turnover rates not including mortgage dollar rolls were 151% and 86% for the years ended October 31, 2009 and 2008, respectively. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 31 |
Table of Contents
Financial Highlights selected per share data and ratios
Class B | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 15.64 | $ | 13.93 | $ | 12.61 | $ | 20.15 | $ | 19.86 | ||||||||||||
Net investment income (loss) (a) | 0.49 | 0.48 | 0.21 | 0.18 | 0.21 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.35 | 1.84 | 1.35 | (5.28 | ) | 1.89 | ||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.05 | ) | (0.17 | ) | 0.00 | ‡ | 0.01 | — | ||||||||||||||
Total from investment operations | 0.79 | 2.15 | 1.56 | (5.09 | ) | 2.10 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.44 | ) | (0.44 | ) | (0.24 | ) | (0.18 | ) | (0.21 | ) | ||||||||||||
From net realized gain on investments | — | — | — | (2.27 | ) | (1.60 | ) | |||||||||||||||
Total dividends and distributions | (0.44 | ) | (0.44 | ) | (0.24 | ) | (2.45 | ) | (1.81 | ) | ||||||||||||
Net asset value at end of year | $ | 15.99 | $ | 15.64 | $ | 13.93 | $ | 12.61 | $ | 20.15 | ||||||||||||
Total investment return (b) | 5.14 | % | 15.53 | % | 12.77 | % | (28.53 | %) | 11.37 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 2.98 | % | 3.25 | % | 1.65 | % | 1.12 | % | 1.06 | % | ||||||||||||
Net expenses | 2.15 | % | 2.24 | % | 2.14 | % | 1.99 | % | 1.94 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 2.15 | % | 2.24 | % | 2.47 | % | 2.15 | % | 2.02 | % | ||||||||||||
Portfolio turnover rate | 33 | % | 76 | % | 182 | % (c) | 101 | % (c) | 68 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 59,225 | $ | 71,239 | $ | 79,742 | $ | 76,420 | $ | 156,346 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. | |
(c) | The portfolio turnover rates not including mortgage dollar rolls were 151% and 86% for the years ended October 31, 2009 and 2008, respectively. |
The notes to the financial statements are an integral part of,
32 MainStay Income Builder Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class C | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 15.62 | $ | 13.92 | $ | 12.59 | $ | 20.12 | $ | 19.84 | ||||||||||||
Net investment income (loss) (a) | 0.48 | 0.48 | 0.22 | 0.18 | 0.21 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.36 | 1.82 | 1.35 | (5.27 | ) | 1.88 | ||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.05 | ) | (0.16 | ) | 0.00 | ‡ | 0.01 | — | ||||||||||||||
Total from investment operations | 0.79 | 2.14 | 1.57 | (5.08 | ) | 2.09 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.44 | ) | (0.44 | ) | (0.24 | ) | (0.18 | ) | (0.21 | ) | ||||||||||||
From net realized gain on investments | — | — | — | (2.27 | ) | (1.60 | ) | |||||||||||||||
Total dividends and distributions | (0.44 | ) | (0.44 | ) | (0.24 | ) | (2.45 | ) | (1.81 | ) | ||||||||||||
Net asset value at end of year | $ | 15.97 | $ | 15.62 | $ | 13.92 | $ | 12.59 | $ | 20.12 | ||||||||||||
Total investment return (b) | 5.08 | % | 15.55 | % | 12.69 | % | (28.47 | %) | 11.33 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 2.98 | % | 3.27 | % | 1.67 | % | 1.12 | % | 1.06 | % | ||||||||||||
Net expenses | 2.15 | % | 2.24 | % | 2.17 | % | 1.99 | % | 1.94 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 2.15 | % | 2.24 | % | 2.47 | % | 2.15 | % | 2.02 | % | ||||||||||||
Portfolio turnover rate | 33 | % | 76 | % | 182 | % (c) | 101 | % (c) | 68 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 10,899 | $ | 10,312 | $ | 9,622 | $ | 1,563 | $ | 2,980 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. | |
(c) | The portfolio turnover rates not including mortgage dollar rolls were 151% and 86% for the years ended October 31, 2009 and 2008, respectively. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 33 |
Table of Contents
Financial Highlights selected per share data and ratios
Class I | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 15.67 | $ | 13.97 | $ | 12.65 | $ | 20.25 | $ | 19.90 | ||||||||||||
Net investment income (loss) (a) | 0.70 | 0.68 | 0.77 | 0.37 | 0.44 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.36 | 1.82 | 0.97 | (5.33 | ) | 1.93 | ||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.05 | ) | (0.16 | ) | 0.00 | ‡ | 0.01 | — | ||||||||||||||
Total from investment operations | 1.01 | 2.34 | 1.74 | (4.95 | ) | 2.37 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.66 | ) | (0.64 | ) | (0.42 | ) | (0.38 | ) | (0.42 | ) | ||||||||||||
From net realized gain on investments | — | — | — | (2.27 | ) | (1.60 | ) | |||||||||||||||
Total dividends and distributions | (0.66 | ) | (0.64 | ) | (0.42 | ) | (2.65 | ) | (2.02 | ) | ||||||||||||
Net asset value at end of year | $ | 16.02 | $ | 15.67 | $ | 13.97 | $ | 12.65 | $ | 20.25 | ||||||||||||
Total investment return (b) | 6.50 | % | 17.07 | % | 14.14 | % | (27.60 | %) | 12.65 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 4.30 | % | 4.60 | % | 3.74 | % | 2.31 | % | 2.23 | % | ||||||||||||
Net expenses | 0.83 | % | 0.89 | % | 0.97 | % | 0.79 | % | 0.81 | % | ||||||||||||
Expenses (before reimbursement/waiver) | 0.83 | % | 0.89 | % | 0.97 | % | 0.97 | % | 0.93 | % | ||||||||||||
Portfolio turnover rate | 33 | % | 76 | % | 182 | % (c) | 101 | % (c) | 68 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 164,317 | $ | 164,393 | $ | 189,333 | $ | 43 | $ | 29 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. | |
(c) | The portfolio turnover rates not including mortgage dollar rolls were 151% and 86% for the years ended October 31, 2009 and 2008, respectively. |
The notes to the financial statements are an integral part of,
34 MainStay Income Builder Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Notes to Financial Statements
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of fourteen funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay Income Builder Fund (the “Fund”), a diversified fund.
The Fund currently offers five classes of shares. Class A shares commenced operations on January 3, 1995. Class B shares commenced operations on December 29, 1987. Class C shares commenced operations on September 1, 1998. Class I shares commenced operations on January 2, 2004. Investor Class shares commenced operations on February 28, 2008. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies on investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The five classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class and Class A shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I shares are not subject to a distribution and/or service fee.
The Fund’s investment objective is to seek to realize current income consistent with reasonable opportunity for future growth of capital and income.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (usually 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are determined within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish 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 developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in determining the fair value of investments) |
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may utilize some of the following fair value techniques: multi-dimensional relational pricing models, option adjusted spread pricing and estimating the price that would have prevailed in a liquid market for an international equity security given information available at the time of evaluation, when there are significant events after the close of local foreign markets.
The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2011, there have been no changes to the fair value methodologies.
The aggregate value by input level, as of October 31, 2011, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
Equity securities and Exchange Traded Funds are valued at the latest quoted sales prices as of the close of regular trading on the Exchange on each valuation date. Securities that are not traded on the valuation
mainstayinvestments.com 35
Table of Contents
Notes to Financial Statements (continued)
date are valued at the mean of the latest quoted bid and asked prices. Prices normally are taken from the principal market in which each security trades. Futures contracts are valued at the last posted settlement price on the market where such futures are primarily traded. Options contracts are valued at the last posted settlement price on the market where such options are principally traded. Investments in other mutual funds are valued at their 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 are valued at the evaluated bid prices supplied by a pricing agent or brokers selected by the Fund’s Manager (as defined in Note 3(A)) in consultation with the Fund’s Subadvisor (as defined in Note 3(A)) whose prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Fund’s Manager, in consultation with the Fund’s Subadvisor, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities, including corporate bonds, U.S. government & federal agency bonds, municipal bonds, foreign bonds, Yankee bonds, convertible bonds, asset-backed securities, and mortgage-backed securities, are generally categorized as Level 2 in the hierarchy.
Temporary cash investments acquired over 60 days prior to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of the difference between such cost and the value on maturity date. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not obtained from a quoted price in an active market. These securities are all generally categorized as Level 2 in the hierarchy.
Foreign currency forward contracts are valued at their fair market values determined 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 are valued by single broker quotes obtained from the engaged independent pricing service and are generally categorized as Level 3 in the hierarchy.
Securities for which market quotations are not readily available are valued by methods deemed in good faith by the Fund’s Board to represent fair value. Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security the trading for which 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 the market price of which is not available from an independent pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor reflect the security’s market value; and (vi) a security where the trading on that security’s principal market is temporarily closed at a time when, under normal conditions, it would be open. These securities are generally categorized as Level 3 in the hierarchy. At October 31, 2011, the Fund held securities with a value of $913,204 that were fair valued in such a manner.
Certain events may occur between the time that foreign markets close, on which securities held by the Fund principally trade, and the time at which the Fund’s NAV is calculated. These events may include, but are not limited to, situations relating to a single issuer in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. Should the Manager or Subadvisor conclude that such events may have affected the accuracy of the last price reported on the local foreign market, the Manager or Subadvisor may, pursuant to procedures adopted by the Fund’s Board, adjust the value of the local price to reflect the 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, 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 the Fund’s policies and procedures and are generally categorized as Level 2 in the hierarchy. At October 31, 2011, certain foreign equity securities held by the Fund were fair valued in such a manner.
Generally, a security is considered illiquid if it cannot be sold or disposed of in the ordinary course of business at approximately the price at which it is valued. Its illiquidity might prevent the sale of such security at a time when the Manager or Subadvisor might wish to sell, and these securities could have the effect of decreasing the overall level of a Fund’s liquidity. Further, the lack of an established secondary market may make it more difficult to value illiquid securities, requiring the Fund to rely on judgments that may be somewhat subjective in determining value, which could vary from the amount that the Fund could realize upon disposition. Difficulty in selling illiquid securities may result in a loss or may be costly to the Fund. Under the supervision of the Board, the Manager or Subadvisor 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 generally will be valued in such manner as the Board in good faith deems appropriate to reflect their fair market value.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provision is required. Investment income received by
36 MainStay Income Builder Fund
Table of Contents
the Fund from foreign sources may be subject to foreign income taxes. These foreign income taxes are generally withheld at the source.
Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provision for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income, if any, quarterly and distributions of net realized capital and currency gains, if any, annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(D) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method and include gains and losses from repayments of principal on mortgage-backed securities. Dividend income is recognized on the ex-dividend date and interest income is accrued as earned using the effective interest rate method. Discounts and premiums on securities purchased, other than Short-Term Investments, for the Fund are accreted and amortized, respectively, on the effective interest rate method over the life of the respective securities or, in the case of a callable security, over the period to the first date of call. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
(E) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(F) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(G) Purchased and Written Options. The Fund may write covered call and put options on its portfolio securities or foreign currencies. These securities are subject to equity price risk and interest rate risk in the normal course of investing in these transactions. Premiums received are recorded as assets, and the market value of the written options are recorded as liabilities. The liabilities are subsequently adjusted and unrealized appreciation or depreciation is recorded to reflect the current value of the options written. Premiums received from writing options that expire are treated as realized gains. Premiums received from writing options that are exercised or are cancelled in closing purchase transactions are added to the proceeds or netted against the amount paid on the transaction to determine the realized gain or loss. The Fund, in exchange for the premium, accepts the risk of a decline in the market value of the underlying security or foreign currency below the exercise price. A call option may be covered by the call writer’s owning the underlying security throughout the option period. A call option may also be covered by the call writer’s maintaining liquid assets valued at greater than the exercise price of the call written. When writing a covered call option, the Fund, in return for the premium on the option, gives up the opportunity to profit from a price increase in the underlying securities above the exercise price. However, as long as the obligation as the writer continues, the Fund has retained the risk of loss should the price of the underlying security decline. After writing a put option, the Fund may incur risk exposure equal to the difference between the exercise price of the option and the sum of the market value of the underlying security plus the premium received from the sale of the option. The Fund writes covered call options to try to realize greater return on the sale of a stock. The Fund writes put options to help protect against unanticipated adverse developments.
The Fund may purchase call and put options on its portfolio securities or foreign currencies. The Fund may purchase call options to protect against an increase in the price of the security or foreign currency it anticipates purchasing. The Fund may purchase put options on its securities or foreign currencies to protect against a decline in the value of the security or foreign currency or to close out covered written put positions. The Fund may also purchase options to seek to enhance returns. Risks may arise from an imperfect correlation between the change in market value of the securities or foreign currencies held by the Fund and the prices of options relating to the securities or foreign currencies purchased or sold by the Fund and from the possible lack of a liquid secondary market for an option. The maximum risk exposure for any purchased option is limited to the premium initially paid for the option. The Fund did not invest in purchased or written options during the year ended October 31, 2011.
(H) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisor to be creditworthy, pursuant to guidelines established by the Fund’s Board. Repurchase agreements are
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Notes to Financial Statements (continued)
considered under the 1940 Act to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in such repurchase agreements. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default of 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, in the event of default or bankruptcy by the other party 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 invests in loan assignments and loan participations. Loan assignments and participations (“loans”) are agreements to make money available (a “commitment”) to a borrower in a specified amount, at a specified rate and within a specified time. Such loans are typically senior, secured and collateralized in nature. The Fund records an investment when the borrower withdraws money and records interest as earned. These loans pay interest at rates that are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate.
The loans in which the Fund invests are generally readily marketable, but may be subject to some restrictions on resale. For example, the Fund may be contractually obligated to receive approval from the agent bank and/or borrower prior to the sale of these investments.
The Fund assumes the credit risk of the borrower, the selling participant and any other persons interpositioned between the Fund and the borrower (“intermediate participants”). In the event that the borrower, selling participant or intermediate participants become insolvent or enters into bankruptcy, the Fund may incur certain costs and delays in realizing payment, or may suffer a loss of principal and/or interest.
Unfunded commitments represent the remaining obligation of the Fund to the borrower. At any point in time, up to the maturity date of the issue, the borrower may demand the unfunded portion. These unfunded amounts are marked to market and recorded in the Statement of Assets and Liabilities. At October 31, 2011, the Fund did not hold unfunded commitments.
(J) Futures Contracts. A futures contract is an agreement to purchase or sell a specified quantity of an underlying instrument at a specified future date and price, or to make or receive a cash payment based on the value of a financial instrument (e.g., foreign currency, interest rate, security, or securities index). The Fund is subject to equity price risk and interest rate risk in the normal course of investing in these transactions. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by “marking to market” such contract on a daily basis to reflect the market value of the contract at the end of each day’s trading. The Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as “variation margin.” When the futures contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract.
The use of futures contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract or notional amounts and variation margin reflect the extent of the Fund’s involvement in open futures positions. Risks arise from the possible imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets, and the possible inability of counterparties to meet the terms of their contracts. However, the Fund’s activities in futures contracts have minimal counterparty risk as they are conducted through regulated exchanges that guarantee the futures against default by the counterparty. In the event of a bankruptcy or insolvency of a broker that holds margin on behalf of the Fund, the Fund may not be entitled to the return of all of the margin owed to the Fund, potentially resulting in a loss. The Fund may also invest in futures contracts to help manage the duration and yield curve of the portfolio while minimizing the exposure to wider bid/ask spreads in traditional bonds. The Fund’s investment in futures contracts and other derivatives may increase the volatility of the Fund’s NAV and may result in a loss to the Fund.
(K) Foreign Currency Forward Contracts. The Fund may enter into foreign currency forward contracts, which are agreements to buy or sell currencies of different countries on a specified future date at a specified rate. The Fund is subject to foreign currency exchange rate risk in the normal course of investing in these transactions. During the period the forward contract is open, changes in the value of the contract are recognized as unrealized gains or losses by “marking-to-market” such contract on a daily basis to reflect the market value of the contract at the end of each day’s trading. 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 enters into foreign currency forward contracts to reduce currency risk versus the benchmark or for trade settlement.
The use of foreign currency forward contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract amount reflects the extent of the Fund’s involvement in these financial instruments. Risks arise from the possible movements in the foreign exchange rates underlying these instruments. While the Fund may enter into forward contracts to reduce currency exchange risks, changes in currency exchange rates may result in poorer overall performance for the Fund than if it had not engaged in such transactions. Exchange rate movements can be large, depending on the currency, and can last for extended periods of time, affecting the value of the Fund’s assets. Moreover, there may be an imperfect correlation between the Fund’s holdings of securities denominated in a particular currency and the forward contracts entered into by the Fund. Such imperfect correlation may prevent the Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. The unrealized appreciation (depreciation) on forward contracts reflects the Fund’s
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exposure at valuation date to credit loss in the event of a counterparty’s failure to perform its obligations. (See Note 5)
(L) Foreign Currency Transactions. The books and records of the Fund are kept in U.S. dollars. Prices of securities denominated in foreign currency amounts are translated into U.S. dollars at the mean between the buying and selling exchange 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) Mortgage Dollar Rolls. The Fund may enter into mortgage dollar roll (“MDR”) 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 MDR transactions of the Fund are classified as purchase and sale transactions. The securities sold in connection with the MDRs are removed from the portfolio and a realized gain or loss is recognized. The securities the 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. MDRs may be renewed without physical delivery of the securities subject to the contract. The Fund maintains liquid assets from its portfolio having a value not less than the repurchase price, including accrued interest. MDR transactions involve certain risks, including the risk that the MBS returned to the Fund at the end of the roll, while substantially similar, could be inferior to what was initially sold to the counterparty.
(N) Rights and Warrants. A right is a certificate that permits the holder to purchase a certain number of shares, or a fractional share, of a new stock from the issuer at a specific price. A warrant is an instrument that entitles the holder to buy an equity security at a specific price for a specific period of time. The Fund generally enters into rights and warrants when securities are acquired through a corporate action. With respect to warrants in international markets, the securities are only purchased when the underlying security cannot be purchased due to the many restrictions an industry and/or country might place on foreign investors. 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 the warrant is not exercised by the date of its expiration. The securities are sold as soon as the opportunity becomes available. The Fund is exposed to risk until each sale is completed. At October 31, 2011, the Fund did not hold any rights.
(O) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act, and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund’s cash collateral in accordance with the Lending Agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue to receive interest and dividends on the securities loaned and any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the account of the Fund.
Although the Fund and New York Life Investments (as defined in Note 3(A)) have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund had no portfolio securities on loan as of October 31, 2011.
(P) Restricted Securities. A restricted security is a security which has been purchased through a private offering and cannot be resold to the general public without prior registration under the Securities Act of 1933, as amended. The Fund may not have the right to demand that such securities be registered. Disposal of these securities may involve time-consuming negotiations and expenses and it may be difficult to obtain a prompt sale at an acceptable price.
(Q) Concentration of Risk. The Fund invests in high-yield securities (sometimes called “junk bonds”), which are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities pay investors a premium—a high interest rate or yield—because of the increased risk of loss. These securities can also be subject to greater price volatility.
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Notes to Financial Statements (continued)
The Fund invests in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic instruments. These risks include those resulting from currency fluctuations, future adverse political and economic developments and possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. These risks are likely to be greater in emerging markets than in developed markets. The ability of issuers of 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 invests in floating rate loans. The floating rate loans in which the Fund principally invests are usually rated below investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. Moreover, such securities may, under certain circumstances, be less liquid than higher quality debt securities. Although certain floating rate loans are collateralized, there is no guarantee that the value of the collateral will be sufficient to repay the loan. In the event of a recession or serious credit event, among other eventualities, the Fund’s investments in floating rate loans are more likely to decline.
(R) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
(S) Quantitative Disclosure of Derivative Holdings.
The following tables show additional disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial positions, performance and cash flows. These derivatives are not accounted for as hedging instruments.
Fair value of derivatives as of October 31, 2011:
Asset Derivatives
Foreign | Interest | |||||||||||||||||
Statement of | Exchange | Equity | Rate | |||||||||||||||
Assets and Liabilities | Contracts | Contracts | Contracts | |||||||||||||||
Location | Risk | Risk | Risk | Total | ||||||||||||||
Warrants | Investments in securities, at value | $ | — | $ | 0 | (a) | $ | — | $ | 0 | (a) | |||||||
Futures Contracts | Net Assets—Net unrealized appreciation (depreciation) on investments and futures contracts (b) | — | 4,412,250 | 44,156 | 4,456,406 | |||||||||||||
Total Fair Value | $ | — | $ | 4,412,250 | $ | 44,156 | $ | 4,456,406 | ||||||||||
Liability Derivatives
Foreign | Interest | |||||||||||||||||
Statement of | Exchange | Equity | Rate | |||||||||||||||
Assets and Liabilities | Contracts | Contracts | Contracts | |||||||||||||||
Location | Risk | Risk | Risk | Total | ||||||||||||||
Futures Contracts | Net Assets—Net unrealized appreciation (depreciation) on investments and futures contracts (b) | $ | — | $ | — | $ | (124,925 | ) | $ | (124,925 | ) | |||||||
Forward Contracts | Unrealized depreciation on foreign currency forward contracts | (5,617,997 | ) | — | — | (5,617,997 | ) | |||||||||||
Total Fair Value | $ | (5,617,997 | ) | $ | — | $ | (124,925 | ) | $ | (5,742,922 | ) | |||||||
(a) | Less than one dollar. |
(b) | Includes cumulative appreciation (depreciation) of futures contracts as reported in the Portfolio of Investments. Only the current day’s variation margin is reported within the Statement of Assets and Liabilities. |
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The effect of derivative instruments on the Statement of Operations for the year ended October 31, 2011:
Realized Gain (Loss)
Foreign | Interest | |||||||||||||||||
Statement of | Exchange | Equity | Rate | |||||||||||||||
Operations | Contracts | Contracts | Contracts | |||||||||||||||
Location | Risk | Risk | Risk | Total | ||||||||||||||
Futures Contracts | Net realized gain (loss) on futures transactions | $ | — | $ | 15,296,189 | $ | — | $ | 15,296,189 | |||||||||
Forward Contracts | Net realized gain (loss) on foreign currency transactions | 2,974,844 | — | — | 2,974,844 | |||||||||||||
Total Realized Gain (Loss) | $ | 2,974,844 | $ | 15,296,189 | $ | — | $ | 18,271,033 | ||||||||||
Change in Unrealized Appreciation (Depreciation)
Foreign | Interest | |||||||||||||||||
Statement of | Exchange | Equity | Rate | |||||||||||||||
Operations | Contracts | Contracts | Contracts | |||||||||||||||
Location | Risk | Risk | Risk | Total | ||||||||||||||
Warrants | Net change in unrealized appreciation (depreciation) on investments | $ | — | $ | (1 | ) | $ | — | $ | (1 | ) | |||||||
Futures Contracts | Net change in unrealized appreciation (depreciation) on futures contracts | — | (4,736,325 | ) | (80,769 | ) | (4,817,094 | ) | ||||||||||
Forward Contracts | Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (5,173,559 | ) | — | — | (5,173,559 | ) | |||||||||||
Total Change in Unrealized Appreciation (Depreciation) | $ | (5,173,559 | ) | $ | (4,736,326 | ) | $ | (80,769 | ) | $ | (9,990,654 | ) | ||||||
Number of Contracts, Notional Amounts or Shares/Units (1)
Foreign | Interest | |||||||||||||||
Exchange | Equity | Rate | ||||||||||||||
Contracts | Contracts | Contracts | ||||||||||||||
Risk | Risk | Risk | Total | |||||||||||||
Warrants (2) | — | 12 | — | 12 | ||||||||||||
Futures Contracts Long (2) | — | 1,638 | 95 | 1,733 | ||||||||||||
Futures Contracts Short (2) | — | (150 | ) | — | (150 | ) | ||||||||||
Forward Contracts Long (3) | $ | 45,358,942 | — | — | $ | 45,358,942 | ||||||||||
Forward Contracts Short (3) | $ | (163,371,879 | ) | — | — | $ | (163,371,879 | ) | ||||||||
(1) | Amount disclosed represents the weighted average held during the year ended October 31, 2011. |
(2) | Amount(s) represent(s) number of contracts or number of shares/units. |
(3) | Amount(s) represent(s) notional amount. |
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), 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, including a portion of the total compensation of the Chief Compliance Officer (“CCO”) of the Fund which is the responsibility of all investment companies for which the CCO serves, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. MacKay Shields LLC (“MacKay Shields” or “Subadvisor”), a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life, serves as Subadvisor to the fixed-income portion of the Fund, is responsible for the overall asset allocation decisions of the Fund and is responsible for the day-to-day portfolio management of the fixed-income portion of the Fund. Epoch Investment Partners, Inc. (“Epoch” or “Subadvisor”), a registered investment advisor, serves as Subadvisor to the equity portion of the Fund and is responsible for the day-to-day portfolio management of the equity portion of the Fund.
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Notes to Financial Statements (continued)
Pursuant to the terms of separate Subadvisory Agreements between New York Life Investments and each Subadvisor, New York Life Investments pays for the services of the Subadvisors.
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.64% up to $500 million; 0.60% from $500 million to $1 billion; and 0.575% in excess of $1 billion, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. The effective management fee rate was 0.64% for the year ended October 31, 2011, inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets.
For the year ended October 31, 2011, New York Life Investments earned fees from the Fund in the amount of $4,295,605.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution and Service Fees. The Trust, on behalf of the Fund, has entered into a Distribution Agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the ”Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class and Class A Plans, the Distributor receives a monthly distribution fee from the Investor Class and Class A shares at an annual rate of 0.25% of the average daily net assets of the Investor Class and Class A shares for distribution or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average daily net assets of the Class B and Class C shares along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 1.00%. Class I shares are not subject to a distribution or service fee.
The Plans provide that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund’s shares and service activities.
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $20,649 and $21,489, respectively, for the year ended October 31, 2011. The Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Class B and Class C shares of $2,537, $70,392 and $781, respectively, for the year ended October 31, 2011.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2011, were as follows:
Investor Class | $ | 726,131 | ||
Class A | 282,748 | |||
Class B | 288,850 | |||
Class C | 48,476 | |||
Class I | 191,936 | |||
(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. At October 31, 2011, New York Life and its affiliates beneficially held shares of the Fund with the following values and percentages of net assets as follows:
Class A | $ | 1,691 | 0.0 | %‡ | ||||
Class B | 1,358 | 0.0 | ‡ | |||||
Class C | 1,683 | 0.0 | ‡ | |||||
Class I | 69,691,214 | 42.4 | ||||||
‡ | Less than one-tenth of a percent. |
(G) Other. Pursuant to a Legal Services Agreement, a portion of the cost of legal services provided to the Fund by the Office of the General Counsel of New York Life Investments was payable directly by the Fund through March 17, 2011. For the year ended October 31, 2011, these fees, which are included in professional fees shown on the Statement of Operations, were $10,661. Effective March 18, 2011, the Legal Services Agreement expired and was not renewed. Therefore, the Fund is no longer directly responsible for any portion of the cost of legal services.
Note 4–Federal Income Tax
As of October 31, 2011, the components of accumulated gain (loss) on a tax basis were as follows:
Accumulated | ||||||||||||||||||
Capital | Other | Unrealized | Total | |||||||||||||||
Ordinary | and Other | Temporary | Appreciation | Accumulated | ||||||||||||||
Income | Gain (Loss) | Differences | (Depreciation) | Gain (Loss) | ||||||||||||||
$ | 1,671,892 | $ | (60,336,681 | ) | $ | (175 | ) | $ | 30,902,168 | $ | (27,762,796 | ) | ||||||
The difference between book-basis and tax basis unrealized appreciation is primarily due to wash sale deferrals, marking to market of foreign currency forward contracts and futures contracts, partnership
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basis adjustments, interest income on defaulted securities and basis adjustment due to class action payments.
The following table discloses the current year reclassifications between undistributed net investment income, accumulated net realized income (loss) on investments, and additional paid-in capital arising from permanent differences; net assets at October 31, 2011 were not affected.
Accumulated | ||||||||||
Undistributed | Net Realized | |||||||||
Net Investment | Gain (Loss) on | Additional | ||||||||
Income (Loss) | Investments | Paid-In Capital | ||||||||
$ | (882,315 | ) | $ | 665,671 | $ | 216,644 | ||||
The reclassifications for the Fund are primarily due to foreign currency gain (loss), partnership basis adjustments, reclassification of amendment fee, reclassification of consent fee, modified debt instrument adjustments and premium amortization adjustments.
Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
At October 31, 2011, for federal income tax purposes, capital loss carryforwards of $60,336,681 were available as shown in the table below, to the extent provided by the regulations to offset future realized gains of the Fund through the years indicated. To the extent that these capital loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to shareholders. No capital gain distributions shall be made until any capital loss carryforwards have been fully utilized or expired.
Capital Loss | Capital Loss | |||||
Available Through | Amounts (000’s) | |||||
2015 | $ | 8,884 | ||||
2016 | 22,045 | |||||
2017 | 29,408 | |||||
Total | $ | 60,337 | ||||
The Fund utilized $30,661,534 of capital loss carryforwards during the year ended October 31, 2011.
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 shown in the Statements of Changes in Net Assets was as follows:
2011 | 2010 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 24,412,325 | $ | 25,710,486 | ||||
Note 5–Foreign Currency Forward Contracts and Foreign Currency Transactions
As of October 31, 2011, the Fund held the following foreign currency forward contracts:
Contract | Contract | Unrealized | ||||||||||||||
Amount | Amount | Appreciation | ||||||||||||||
Counterparty | Sold | Purchased | (Depreciation) | |||||||||||||
Foreign Currency Sale Contracts: | ||||||||||||||||
Euro vs. U.S. Dollar, expiring 11/18/11 | JPMorgan Chase Bank | EUR | 49,595,000 | USD | 65,771,897 | USD | (2,841,594 | ) | ||||||||
Pound Sterling vs. U.S. Dollar, expiring 11/18/11 | JPMorgan Chase Bank | GBP | 40,113,000 | 61,711,043 | (2,776,403 | ) | ||||||||||
Net unrealized appreciation (depreciation) on foreign currency forward contracts | USD | (5,617,997 | ) | |||||||||||||
As of October 31, 2011, the Fund held the following foreign currencies:
Currency | Cost | Value | ||||||||||
Canadian Dollar | CAD | 7,608 | USD | 7,673 | USD | 7,632 | ||||||
Euro | EUR | 197,378 | 261,794 | 273,112 | ||||||||
New Taiwan Dollar | TWD | 1,693,980 | 58,404 | 56,621 | ||||||||
Pound Sterling | GBP | 563,944 | 887,514 | 906,767 | ||||||||
Total | USD | 1,215,385 | USD | 1,244,132 | ||||||||
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Notes to Financial Statements (continued)
Note 6–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 7–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 31, 2011, under an amended credit agreement, the aggregate commitment amount is $125,000,000 with an optional maximum amount of $175,000,000. The commitment rate is an annual rate of 0.08% of the average commitment amount, payable quarterly, regardless of usage, to The Bank of New York Mellon, which serves as the agent to the syndicate. The commitment fee is allocated among certain MainStay Funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The amended credit agreement expires on August 29, 2012, although the MainStay Funds and the syndicate of banks may renew the amended credit agreement for an additional year on the same or different terms. Prior to August 31, 2011, the commitment rate was an annual rate of 0.10% of the average commitment amount, plus a 0.02% up-front payment. There were no borrowings made or outstanding with respect to the Fund on the amended credit agreement during the year ended October 31, 2011.
Note 8–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2011, purchases and sales of U.S. government securities were $31,241 and $23,671, respectively. Purchases and sales of securities, other than U.S. government securities and short-term securities, were $177,649 and $191,647, respectively.
Note 9–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 301,623 | $ | 4,894,870 | |||||
Shares issued to shareholders in reinvestment of dividends | 362,106 | 5,822,096 | ||||||
Shares redeemed | (1,274,246 | ) | (20,699,932 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (610,517 | ) | (9,982,966 | ) | ||||
Shares converted into Investor Class (See Note 1) | 618,525 | 9,861,583 | ||||||
Shares converted from Investor Class (See Note 1) | (728,615 | ) | (11,845,881 | ) | ||||
Net increase (decrease) | (720,607 | ) | $ | (11,967,264 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 269,030 | $ | 3,980,277 | |||||
Shares issued to shareholders in reinvestment of dividends | 419,736 | 6,123,130 | ||||||
Shares redeemed | (1,460,056 | ) | (21,510,484 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (771,290 | ) | (11,407,077 | ) | ||||
Shares converted into Investor Class (See Note 1) | 620,638 | 9,166,706 | ||||||
Shares converted from Investor Class (See Note 1) | (537,045 | ) | (8,004,721 | ) | ||||
Net increase (decrease) | (687,697 | ) | $ | (10,245,092 | ) | |||
Class A | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 961,146 | $ | 15,591,460 | |||||
Shares issued to shareholders in reinvestment of dividends | 564,789 | 9,077,397 | ||||||
Shares redeemed | (2,421,542 | ) | (39,109,362 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (895,607 | ) | (14,440,505 | ) | ||||
Shares converted into Class A (See Note 1) | 987,670 | 16,038,026 | ||||||
Shares converted from Class A (See Note 1) | (211,977 | ) | (3,277,620 | ) | ||||
Net increase (decrease) | (119,914 | ) | $ | (1,680,099 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 633,963 | $ | 9,341,576 | |||||
Shares issued to shareholders in reinvestment of dividends | 608,065 | 8,870,850 | ||||||
Shares redeemed | (2,628,874 | ) | (38,687,886 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (1,386,846 | ) | (20,475,460 | ) | ||||
Shares converted into Class A (See Note 1) | 841,510 | 12,520,687 | ||||||
Shares converted from Class A (See Note 1) | (97,123 | ) | (1,477,723 | ) | ||||
Shares converted from Class A (a) | (14,502 | ) | (211,583 | ) | ||||
Net increase (decrease) | (656,961 | ) | $ | (9,644,079 | ) | |||
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Class B | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 320,728 | $ | 5,219,365 | |||||
Shares issued to shareholders in reinvestment of dividends | 105,511 | 1,706,694 | ||||||
Shares redeemed | (615,040 | ) | (10,014,062 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (188,801 | ) | (3,088,003 | ) | ||||
Shares converted from Class B (See Note 1) | (663,457 | ) | (10,776,108 | ) | ||||
Net increase (decrease) | (852,258 | ) | $ | (13,864,111 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 320,395 | $ | 4,739,788 | |||||
Shares issued to shareholders in reinvestment of dividends | 143,193 | 2,095,655 | ||||||
Shares redeemed | (805,011 | ) | (11,888,593 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (341,423 | ) | (5,053,150 | ) | ||||
Shares converted from Class B (See Note 1) | (825,665 | ) | (12,204,949 | ) | ||||
Net increase (decrease) | (1,167,088 | ) | $ | (17,258,099 | ) | |||
Class C | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 135,557 | $ | 2,204,643 | |||||
Shares issued to shareholders in reinvestment of dividends | 13,722 | 221,566 | ||||||
Shares redeemed | (127,134 | ) | (2,065,857 | ) | ||||
Net increase (decrease) | 22,145 | $ | 360,352 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 78,242 | $ | 1,161,750 | |||||
Shares issued to shareholders in reinvestment of dividends | 13,968 | 204,126 | ||||||
Shares redeemed | (123,353 | ) | (1,820,970 | ) | ||||
Net increase (decrease) | (31,143 | ) | $ | (455,094 | ) | |||
Class I | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 1,956,364 | $ | 32,067,815 | |||||
Shares issued to shareholders in reinvestment of dividends | 424,064 | 6,857,604 | ||||||
Shares redeemed | (2,614,201 | ) | (42,823,919 | ) | ||||
Net increase (decrease) | (233,773 | ) | $ | (3,898,500 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 1,432,293 | $ | 21,131,102 | |||||
Shares issued to shareholders in reinvestment of dividends | 525,824 | 7,715,075 | ||||||
Shares redeemed | (5,040,461 | ) | (75,176,590 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (3,082,344 | ) | (46,330,413 | ) | ||||
Shares converted into Class I (a) | 14,413 | 211,583 | ||||||
Net increase (decrease) | (3,067,931 | ) | $ | (46,118,830 | ) | |||
(a) | In addition to any automatic conversion features described above in Note 1 with respect to Investor Class, Class A and Class B shares, investors generally may also elect to convert their shares on a voluntary basis into another share class of the same MainStay Fund subject to satisfying the eligibility requirements of the new share class, if any. However, the following limitations apply: |
• | Investor Class, Class A and Class C shares that remain subject to a CDSC are ineligible for a voluntary conversion; and | |
• | All Class B shares are ineligible for a voluntary conversion. |
These limitations do not impact any automatic conversion features described elsewhere in Note 1 with respect to Investor Class, Class A and Class B shares.
An investor or an investor’s financial intermediary may contact the MainStay Funds to request a voluntary conversion between share classes of the same MainStay Fund. Investors may be required to provide sufficient information to establish eligibility to convert to the new share class. All permissible conversions will be made on the basis of the relevant NAVs of the two classes without the imposition of any sales load, fee or other charge. If an investor fails to remain eligible for the new share class, they may be converted automatically back to their original share class, or into another share class, if appropriate. Although the MainStay Funds expect that a conversion between share classes of the same MainStay Fund should not result in the recognition of a gain or loss for tax purposes, shareholders should consult with their own tax adviser with respect to the tax treatment of their investment in a MainStay Fund. The MainStay Funds may change, suspend or terminate this conversion feature at any time.
Note 10–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2011, events and transactions subsequent to October 31, 2011 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.
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Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Income Builder Fund (“the Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Income Builder Fund of The MainStay Funds as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 22, 2011
December 22, 2011
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Federal Income Tax Information (Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders within 60 days of the Fund’s fiscal year end (October 31, 2011) as to the federal tax status of dividends paid by the Fund during such fiscal years.
For the fiscal year ended October 31, 2011, the Fund designated approximately $15,119,721 under the Internal Revenue Code as qualified dividend income eligible for reduced tax rates.
The dividends paid by the Fund during the fiscal year ended October 31, 2011, should be multiplied by 25.2% to arrive at the corporate dividends received deduction.
In February 2012, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2011. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2011.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling (1-800-SEC-0330).
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Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, Eclipse Funds, Eclipse Funds Inc., MainStay Funds Trust, and MainStay VP Funds Trust) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s). Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation upon reaching age 72. A Board Member reaching the age of 72 may continue for additional one-year periods with the approval of the Board’s Nominating and Governance Committee.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Interested Board Member* | ||||||||
John Y. Kim 9/24/60 | Indefinite; Eclipse Funds: Trustee since 2008 (2 funds); Eclipse Funds Inc.: Director since 2008 (1 fund); The MainStay Funds: Trustee since 2008 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc. since 2008 (21 portfolios). | Member of the Board of Managers (since 2011) of New York Life Enterprises LLC; Chairman (since 2011), Member of the Board of Managers, Chief Executive Officer and President (since 2008) of New York Life Investment Management LLC and New York Life Investment Management Holdings LLC; Executive Vice President (since 2011) of New York Life Foundation; Member of the Board of Managers and Chairman of the Board of Private Advisors, L.L.C. (since 2010); Executive Vice President, New York Life Insurance Company (since 2008); Chairman of the Board (2008-2010) and Member of the Boards of Managers (since 2008) of MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, Madison Square Investors LLC, NYLCAP Manager LLC and McMorgan & Company LLC; Chairman of the Board and Chief Executive Officer, NYLIFE Distributors LLC (2008-2010); Executive Vice President of NYLIFE Insurance Company of Arizona and New York Life Insurance and Annuity Corporation (since 2008); President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 66 | None | ||||
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Susan B. Kerley 8/12/51 | Indefinite; Eclipse Funds: Chairman since 2005, and Trustee since 2000 (2 funds); Eclipse Funds Inc.: Chairman since 2005 and Director since 1990 (1 fund); The MainStay Funds: Chairman and Board Member since 2007 (14 funds); MainStay Funds Trust: Chairman and Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Chairman and Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | President, Strategic Management Advisors LLC (since 1990) | 66 | Trustee, Legg Mason Partners Funds, since 1991 (58 portfolios) | ||||
Alan R. Latshaw 3/27/51 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2006 (14 funds); MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 66 | Trustee, State Farm Associates Funds Trusts since 2005 (4 portfolios); Trustee, State Farm Mutual Fund Trust since 2005 (15 portfolios); Trustee, State Farm Variable Product Trust since 2005 (9 portfolios) | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Peter Meenan 12/5/41 | Indefinite; Eclipse Funds: Trustee since 2002 (2 funds); Eclipse Funds Inc.: Director since 2002 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Independent Consultant; President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 66 | None | ||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2006 (21 portfolios). | Managing Director, ICC Capital Management; President—Shields/Alliance, Alliance Capital Management (1994 to 2004) | 66 | None | ||||
Richard S. Trutanic 2/13/52 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 1994 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 66 | None | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Roman L. Weil 5/22/40 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1994 and Audit Committee Financial Expert since 2003 (21 portfolios). | Visiting Professor, NYU Stem School of Business, New York University (since 2011); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School of Business, University of Chicago (1965-2008) | 66 | None | ||||
John A. Weisser 10/22/41 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1997 (21 portfolios). | Retired. Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 66 | Trustee, Direxion Funds since 2007 (27 portfolios); Direxion Insurance Trust since 2007 (1 portfolio); Trustee, Direxion Shares ETF Trust, since 2008 (50 portfolios) | ||||
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The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.
Positions(s) Held | ||||
Name and | with the Funds | Principal Occupation(s) | ||
Date of Birth | and Length of Service | During Past Five Years | ||
Officers | ||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007); Vice President, Prudential Investments (2000 to 2007); Assistant Treasurer, JennisonDryden Family of Funds, Target Portfolio Trust, The Prudential Series Fund and American Skandia Trust (2006 to 2007); Treasurer and Principal Financial Officer, The Greater China Fund (2007) | ||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance (since 2009), Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Assistant Secretary NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2009); Assistant Secretary, The MainStay Funds and ICAP Funds, Inc. (2006 to 2008); Assistant Secretary, Eclipse Funds, Eclipse Funds, Inc. and MainStay VP Series Fund, Inc. (2005 to 2008) | ||
Stephen P. Fisher 2/22/59 | President, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Director, Senior Vice President, New York Life Insurance and Annuity Corporation (since 2011); Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2007); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007) | ||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2010); Director and Counsel of Credit Suisse, Chief Legal Officer and Secretary of Credit Suisse Asset Management, LLC and Credit Suisse Funds (2003 to 2010) | ||
Scott T. Harrington 2/8/59 | Vice President — Administration, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Director (since 2009), New York Life Trust Company FSB; Vice President—Administration, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2005) | ||
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one-year term. |
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay offerings is listed here, with information about the manager, subadvisors, legal counsel, and independent registered public accounting firm.
Equity Funds
MainStay 130/30 Core Fund
MainStay Common Stock Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Fund
MainStay Equity Index Fund1
MainStay Growth Equity Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Small Cap Fund
Income Funds
MainStay Flexible Bond Opportunities Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Municipal Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Money Market Fund
MainStay Principal Preservation Fund
MainStay Short Term Bond Fund
MainStay Tax Free Bond Fund
Blended Funds
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
International Funds
MainStay 130/30 International Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay Global High Income Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
Asset Allocation Funds
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
Retirement Funds
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC2
Chicago, Illinois
MacKay Shields LLC2
New York, New York
Madison Square Investors LLC2
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management, Inc.
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firm
KPMG LLP
1. | Closed to new investors and new purchases as of January 1, 2002. |
2. | An affiliate of New York Life Investment Management LLC. |
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mainstayinvestments.com
The MainStay Funds are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors is a Member FINRA/SIPC.
MainStay Investments is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
© 2012 by NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency | ||||||||
NYLIM-25020 MS284-11 | MSIB11-12/11 |
N14
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MainStay International Equity Fund
Message from the President and Annual Report
October 31, 2011
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Message from the President
Volatility was the keynote of the 12 months ended October 31, 2011. U.S. stocks generally advanced, but a variety of domestic and international forces influenced the market.
Early in November 2010, the Federal Open Market Committee (FOMC) announced its intention to extend quantitative easing by purchasing additional longer-term Treasury securities. The stock market reacted positively to this news—and to the midterm elections—and stocks generally advanced through mid-February.
Beginning in December 2010, a wave of protests and civil unrest across North Africa and the Middle East led to a substantial rise in the price of oil. By mid-February, stock prices started to decline. In March, a major earthquake and tsunami in Japan caused manufacturing supply-line interruptions and further setbacks for equity investors. After a sharp decline and a rapid recovery, stocks reached their high point for the 12-month period at the end of April 2011.
Pressed by a weak economy, lackluster employment and widespread concerns about European sovereign debt, the stock market faced wide fluctuations in the coming months. The volatility included a precipitous decline at the end of July into early August. Shortly thereafter, the FOMC expressed its expectation that economic conditions were “likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
After several unsuccessful attempts to recover from their dramatic drop, U.S. stocks reached their low point for the reporting period in early October. Then, buoyed by positive economic data and progress in the European debt situation, the U.S. stock market advanced rapidly in October, to close the reporting period with its best monthly performance in nearly a decade.
International stocks suffered from the turmoil in the Middle East and North Africa, the natural disasters in Japan, the sovereign debt concerns in Europe and the added threat of an economic slowdown in China. For the 12-month period, international stocks declined overall, with particular weakness in Europe.
The bond markets felt the impact of the European debt crisis, and several European nations suffered downgrades. In July, the United States faced a congressional deadlock on raising the debt ceiling and reducing deficit spending. In early August, Standard & Poor’s downgraded the debt of the United States of America to AA+.
Slow progress in resolving the European debt situation led to a flight to quality (or a movement toward securities perceived to carry lower risk). Amid strong demand, U.S. Treasury securities saw prices rise and yields decline, despite the downgrade by Standard & Poor’s. High-grade corporate
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
Throughout the 12-month reporting period, our portfolio managers took note of shifting market forces. But their primary focus was on the investment objectives of their respective Funds and the long-term strategies they were pursuing to achieve them. Some may have sought to capitalize on day-to-day market inefficiencies, but all remained focused on the long-term interests of our shareholders. They sought to apply time-tested investment principles consistently throughout the reporting period.
The information that follows provides specifics about the securities, decisions and market forces that affected your MainStay Fund(s) during the 12 months ended October 31, 2011. Behind the details, we hope you’ll recognize the professionalism and discipline that guided our portfolio managers during this volatile period.
We thank you for investing with MainStay and look forward to serving you for many years to come.
Sincerely,
Stephen P. Fisher
President
President
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Table of Contents
Annual Report | ||
Investment and Performance Comparison | 5 | |
Portfolio Management Discussion and Analysis | 9 | |
Portfolio of Investments | 11 | |
Financial Statements | 15 | |
Notes to Financial Statements | 26 | |
Report of Independent Registered Public Accounting Firm | 36 | |
Board Consideration and Approval of Subadvisory Agreement | 37 | |
Federal Income Tax Information | 39 | |
Proxy Voting Policies and Procedures and Proxy Voting Record | 39 | |
Shareholder Reports and Quarterly Portfolio Disclosure | 39 | |
Board Members and Officers | 40 | |
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at
mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
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Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2011
Gross | ||||||||||||||||||||
Expense | ||||||||||||||||||||
Class | Sales Charge | One Year | Five Years | Ten Years | Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 5.5% Initial Sales Charge | With sales charges | –17 | .02% | –3 | .56% | 5 | .46% | 1 | .75% | ||||||||||
Excluding sales charges | –12 | .19 | –2 | .47 | 6 | .06 | 1 | .75 | ||||||||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges | –16 | .80 | –3 | .38 | 5 | .56 | 1 | .44 | ||||||||||
Excluding sales charges | –11 | .96 | –2 | .28 | 6 | .16 | 1 | .44 | ||||||||||||
Class B Shares | Maximum 5% CDSC | With sales charges | –17 | .07 | –3 | .51 | 5 | .24 | 2 | .50 | ||||||||||
if Redeemed Within the First Six Years of Purchase | Excluding sales charges | –12 | .81 | –3 | .22 | 5 | .24 | 2 | .50 | |||||||||||
Class C Shares | Maximum 1% CDSC | With sales charges | –13 | .74 | –3 | .21 | 5 | .25 | 2 | .50 | ||||||||||
if Redeemed Within One Year of Purchase | Excluding sales charges | –12 | .88 | –3 | .21 | 5 | .25 | 2 | .50 | |||||||||||
Class I Shares4 | No Sales Charge | –11 | .73 | –1 | .93 | 6 | .57 | 1 | .18 | |||||||||||
Class R1 Shares4 | No Sales Charge | –11 | .89 | –2 | .03 | 6 | .43 | 1 | .29 | |||||||||||
Class R2 Shares4 | No Sales Charge | –12 | .09 | –2 | .27 | 6 | .20 | 1 | .54 | |||||||||||
Class R3 Shares5 | No Sales Charge | –12 | .28 | –2 | .50 | 5 | .86 | 1 | .79 | |||||||||||
1. | The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or Fund-share redemptions. Total returns reflect maximum applicable sales charges as indicated in the table above, change in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the periods of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. Performance figures shown reflect non-recurring reimbursements from affiliates for professional fees and losses attributable to shareholder trading arrangements. If these non-recurring reimbursements had not been made the total return (excluding sales charges) would have been 6.14% for Class A, 5.22% for Class B, 5.23% for Class C, 6.55% for Class I, 6.40% for Class R1, and 6.17% for Class R2 for the ten-year period ended October 31, 2011. Investor Class and Class R3 shares were not affected, because the reimbursement occurred prior to the launch of these share classes. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Investor Class shares might have been lower. |
4. | Performance figures for Class I, R1 and R2 shares, each of which was first offered on January 2, 2004, include the historical performance of Class B shares through January 1, 2004, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class I, R1 and R2 shares might have been lower. |
5. | Performance figures for Class R3 shares, which were first offered on April 28, 2006, include the historical performance of Class B shares through April 27, 2006, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class R3 shares might have been lower. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com 5
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One | Five | Ten | ||||||||||
Benchmark Performance | Year | Years | Years | |||||||||
MSCI EAFE® Index6 | –4 | .08% | –2 | .41% | 5 | .73% | ||||||
Average Lipper International Multi-Cap Core Fund7 | –6 | .17 | –1 | .80 | 6 | .74 | ||||||
6. | The MSCI Europe, Australasia and Far East (“MSCI EAFE®”) Index consists of international stocks representing the developed world outside of North America. The MSCI EAFE® Index is the Fund’s broad-based securities market index for comparison purposes. Results assume reinvestment of all income and capital gains. An investment cannot be made directly in an index. |
7. | The average Lipper international multi-cap 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. International multi-cap core funds typically have an average price-to-cash flow ratio, price-to-book ratio, and three-year sales-per-share growth value compared to the S&P/Citigroup World ex-U.S. BMI. 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
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Cost in Dollars of a $1,000 Investment in MainStay International Equity Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2011, to October 31, 2011, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2011, to October 31, 2011.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2011. 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.
Ending Account | ||||||||||||||||||||||
Ending Account | Value (Based | |||||||||||||||||||||
Value (Based | on Hypothetical | |||||||||||||||||||||
Beginning | on Actual | Expenses | 5% Annualized | Expenses | ||||||||||||||||||
Account | Returns and | Paid | Return and | Paid | ||||||||||||||||||
Value | Expenses) | During | Actual Expenses) | During | ||||||||||||||||||
Share Class | 5/1/11 | 10/31/11 | Period1 | 10/31/11 | Period1 | |||||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 815.20 | $ | 7.78 | $ | 1,016.60 | $ | 8.64 | ||||||||||||
Class A Shares | $ | 1,000.00 | $ | 815.80 | $ | 6.68 | $ | 1,017.80 | $ | 7.43 | ||||||||||||
Class B Shares | $ | 1,000.00 | $ | 811.60 | $ | 11.19 | $ | 1,012.90 | $ | 12.43 | ||||||||||||
Class C Shares | $ | 1,000.00 | $ | 811.60 | $ | 11.19 | $ | 1,012.90 | $ | 12.43 | ||||||||||||
Class I Shares | $ | 1,000.00 | $ | 817.00 | $ | 5.54 | $ | 1,019.10 | $ | 6.16 | ||||||||||||
Class R1 Shares | $ | 1,000.00 | $ | 815.80 | $ | 6.00 | $ | 1,018.60 | $ | 6.67 | ||||||||||||
Class R2 Shares | $ | 1,000.00 | $ | 815.50 | $ | 7.09 | $ | 1,017.40 | $ | 7.88 | ||||||||||||
Class R3 Shares | $ | 1,000.00 | $ | 814.20 | $ | 8.23 | $ | 1,016.10 | $ | 9.15 | ||||||||||||
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.70% for Investor Class, 1.46% for Class A, 2.45% for Class B and Class C, 1.21% for Class I, 1.31% for Class R1, 1.55% for Class R2 and 1.80% for Class R3) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the one-half year period). The table above represents the actual expenses incurred during the one-half year period. |
mainstayinvestments.com 7
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Portfolio Composition as of October 31, 2011 (Unaudited)
Common Stocks | 97.4 | |||
Other Assets, Less Liabilities | 2.0 | |||
Short-Term Investment | 0.6 |
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
Top Ten holdings as of October 31, 2011 (excluding short-term investment)
1. | Svenska Handelsbanken AB Class A | |
2. | Fresenius Medical Care A.G. & Co. KGaA | |
3. | Standard Chartered PLC | |
4. | Intertek Group PLC | |
5. | Li & Fung, Ltd. | |
6. | Teva Pharmaceutical Industries, Ltd., Sponsored ADR | |
7. | SABMiller PLC | |
8. | FLSmidth & Co. A/S | |
9. | IGM Financial, Inc. | |
10. | Grifols S.A. |
8 MainStay International Equity Fund
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Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio manager Edward Ramos, CFA, of Madison Square Investors LLC, the Fund’s Subadvisor.
How did MainStay International Equity Fund perform relative to its peers and its benchmark during the 12 months ended October 31, 2011?
Excluding all sales charges, MainStay International Equity Fund returned –12.19% for Investor Class shares, –11.96% for Class A shares, –12.81% for Class B shares and –12.88% for Class C shares for the 12 months ended October 31, 2011. Over the same period, the Fund’s Class I shares returned –11.73%, Class R1 shares returned –11.89%, Class R2 shares returned –12.09% and Class R3 shares returned –12.28%. All share classes underperformed the –6.17% return of the average Lipper1 international multi-cap core fund and the –4.08% return of the MSCI EAFE® Index2 for the 12 months ended October 31, 2011. The MSCI EAFE® Index is the Fund’s broad-based securities-market index. See page 5 for Fund returns with sales charges.
Were there any changes in the Fund’s day-to-day management and investment approach during the reporting period?
Effective May 27, 2011, Edward Ramos became the portfolio manager of the Fund. Effective July 1, 2011, the Fund changed its Subadvisor from MacKay Shields LLC to Madison Square Investors LLC. At that time, Mr. Ramos became an employee of Madison Square Investors and remained the Fund’s portfolio manager. For more information about these changes, please refer to the relevant Prospectus Supplements dated May 31, 2011, and June 30, 2011.
Effective October 31, 2011, the principal investment strategies and principal risks of the Fund were modified. For more information about the changes to the Fund’s strategies and risks, please refer to the Prospectus Supplement dated October 31, 2011.
What factors affected the Fund’s relative performance during the reporting period?
The Fund’s underperformance relative to the MSCI EAFE® Index was driven largely by poor stock selection in the information technology and consumer discretionary sectors, as well as poor stock selection among companies headquartered in Ireland. The negative impact of these factors was somewhat offset by favor-able stock selection in the utilities sector and among compa-nies headquartered in China.
During the reporting period, how was the Fund’s performance materially affected by investments in derivatives?
The Fund’s performance was negatively affected by its investment in warrants issued by German exchange Deutsche Boerse and by its transactions in currency forward contracts.
During the reporting period, which sectors were the strongest contributors to the Fund’s relative perfor-mance and which sectors were particularly weak?
The combined effects of sector allocation and stock selection relative to the MSCI EAFE® Index helped make the utilities, materials and telecommunication services sectors the strongest contributors to the Fund’s relative performance. (Contributions take weightings and total returns into account.) In contrast, the combined effects of sector allocation and stock selection in the information technology, consumer discretionary and consumer staples sectors negatively affected the Fund’s performance relative to the MSCI EAFE® Index.
During the reporting period, which individual stocks made the strongest contributions to the Fund’s absolute performance and which stocks detracted the most?
During the reporting period, the strongest contributions to the Fund’s absolute performance came from Scandinavian banking group Svenska Handelsbanken, which benefitted from its lack of exposure to heavily indebted European nations. Danish engineering equipment maker FLSmidth was also a strong contributor. The company saw continued demand for cement plant equipment and services. A third strong contributor was Japanese cigarette maker Japan Tobacco, which benefited from its rising market share in Eastern Europe and the Middle East.
The most substantial detractor from the Fund’s absolute performance was U.K. asset manager Man Group PLC, which faced redemptions from its funds as risk aversion increased during the reporting period. Switzerland-based capital markets company Credit Suisse Group A.G. also detracted. The company was hurt by poor performance in its investment banking division. Hong Kong–listed China Yurun Food Group was also a weak contributor, hurt by concerns about food safety in the Chinese pork-processing industry.
Did the Fund make any significant purchases or sales during the reporting period?
During the reporting period, the Fund initiated positions in Hong Kong–listed sourcing group Li & Fung and German dialysis provider Fresenius Medical Care. Li & Fung is likely to benefit from retailer outsourcing of its procurement functions, while Fresenius should experience revenue and earnings growth driven by the increased global prevalence of diabetes. During the 12-month reporting period, the Fund exited positions in Japanese video-game maker Nintendo and Dutch food retailer Royal Ahold. Nintendo continues to face competitive pressures from other video-game console makers as well as from games distributed directly through the Internet. Ahold faces intense competitive pressure in its U.S. grocery store division.
1. See footnote on page 6 for more information on Lipper Inc.
2. See footnote on page 6 for more information on the MSCI EAFE® Index.
mainstayinvestments.com 9
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How did the Fund’s sector weightings change during the reporting period?
During the reporting period, the Fund increased its weightings in the health care and information technology sectors. Over the same period, the Fund reduced its weightings in materials, telecommunication services and utilities.
How was the Fund positioned at the end of October 2011?
As of October 31, 2011, the Fund’s most significantly overweight positions relative to the MSCI EAFE® Index were in the health care and information technology sectors. The Fund’s most significantly underweight positions were in materials and telecommunication services.
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 made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
10 MainStay International Equity Fund
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Portfolio of Investments October 31, 2011
Shares | Value | |||||||
Common Stocks 97.4%† | ||||||||
Australia 3.1% | ||||||||
Computershare, Ltd. (IT Services) | 1,363,795 | $ | 10,787,830 | |||||
Bermuda 8.0% | ||||||||
China Yurun Food Group, Ltd. (Food Products) | 5,068,000 | 8,636,614 | ||||||
Genpact, Ltd. (IT Services) (a) | 328,157 | 5,299,736 | ||||||
X Li & Fung, Ltd. (Distributors) | 6,969,200 | 13,453,253 | ||||||
27,389,603 | ||||||||
Canada 5.1% | ||||||||
X IGM Financial, Inc. (Capital Markets) | 270,500 | 11,680,281 | ||||||
Tim Hortons, Inc. (Hotels, Restaurants & Leisure) | 118,000 | 5,807,956 | ||||||
17,488,237 | ||||||||
China 2.1% | ||||||||
China Shenhua Energy Co., Ltd. (Oil, Gas & Consumable Fuels) | 1,537,200 | 7,037,364 | ||||||
Czech Republic 1.4% | ||||||||
Komercni Banka A.S. (Commercial Banks) | 25,450 | 4,904,021 | ||||||
Denmark 6.0% | ||||||||
Coloplast A/S Class B (Health Care Equipment & Supplies) | 62,018 | 9,006,059 | ||||||
X FLSmidth & Co. A/S (Construction & Engineering) | 186,076 | 11,784,454 | ||||||
20,790,513 | ||||||||
France 4.0% | ||||||||
Essilor International S.A. (Health Care Equipment & Supplies) | 68,457 | 4,952,005 | ||||||
Ipsen S.A. (Pharmaceuticals) | 261,688 | 8,620,618 | ||||||
13,572,623 | ||||||||
Germany 9.9% | ||||||||
Adidas A.G. (Textiles, Apparel & Luxury Goods) | 98,487 | 6,928,455 | ||||||
Deutsche Boerse A.G. (Diversified Financial Services) (a) | 57,322 | 3,162,743 | ||||||
X Fresenius Medical Care A.G. & Co. KGaA (Health Care Providers & Services) | 190,253 | 13,841,549 | ||||||
United Internet A.G. (Internet Software & Services) | 506,980 | 9,971,030 | ||||||
33,903,777 | ||||||||
Hong Kong 3.1% | ||||||||
China Mobile, Ltd., Sponsored ADR (Wireless Telecommunication Services) (b) | 75,882 | 3,608,948 | ||||||
CNOOC, Ltd. (Oil, Gas & Consumable Fuels) | 3,787,000 | 7,157,729 | ||||||
10,766,677 | ||||||||
Ireland 0.9% | ||||||||
ICON PLC, Sponsored ADR (Life Sciences Tools & Services) (a)(b) | 189,131 | 3,177,401 | ||||||
Israel 6.6% | ||||||||
Check Point Software Technologies, Ltd. (Software) (a) | 164,626 | 9,487,397 | ||||||
X Teva Pharmaceutical Industries, Ltd., Sponsored ADR (Pharmaceuticals) (b) | 324,471 | 13,254,640 | ||||||
22,742,037 | ||||||||
Japan 4.2% | ||||||||
Daito Trust Construction Co., Ltd. (Real Estate Management & Development) | 121,700 | 10,808,341 | ||||||
Japan Tobacco, Inc. (Tobacco) | 709 | 3,554,418 | ||||||
14,362,759 | ||||||||
Spain 4.3% | ||||||||
X Grifols S.A. (Biotechnology) (a) | 608,782 | 11,319,725 | ||||||
Indra Sistemas S.A. (IT Services) | 215,600 | 3,617,048 | ||||||
14,936,773 | ||||||||
Sweden 4.3% | ||||||||
Modern Times Group AB Class B (Media) | 7,800 | 410,670 | ||||||
X Svenska Handelsbanken AB Class A (Commercial Banks) | 506,113 | 14,494,704 | ||||||
14,905,374 | ||||||||
Switzerland 4.3% | ||||||||
Actelion, Ltd. Registered (Biotechnology) (a) | 144,700 | 5,350,801 | ||||||
Nestle S.A. Registered (Food Products) | 78,300 | 4,531,199 | ||||||
Roche Holding A.G., Genusscheine (Pharmaceuticals) | 29,975 | 4,928,004 | ||||||
14,810,004 | ||||||||
Thailand 1.5% | ||||||||
Kasikornbank PCL (Commercial Banks) | 1,248,400 | 5,018,175 | ||||||
United Kingdom 26.2% | ||||||||
Experian PLC (Professional Services) | 572,569 | 7,418,684 | ||||||
X Intertek Group PLC (Professional Services) | 410,229 | 13,477,520 | ||||||
Johnson Matthey PLC (Chemicals) | 354,633 | 10,656,411 | ||||||
Lloyds TSB Group PLC (Commercial Banks) (a) | 2,776,609 | 1,430,273 | ||||||
Man Group PLC (Capital Markets) | 3,812,485 | 9,089,383 | ||||||
Petrofac, Ltd. (Energy Equipment & Services) | 402,111 | 9,235,528 | ||||||
X SABMiller PLC (Beverages) | 364,271 | 13,218,065 |
† | Percentages indicated are based on Fund net assets. |
X | Among the Fund’s 10 largest holdings, as of October 31, 2011, excluding short-term investment. May be subject to change daily. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 11 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
United Kingdom (continued) | ||||||||
Shire PLC (Pharmaceuticals) | 262,303 | $ | 8,236,332 | |||||
X Standard Chartered PLC (Commercial Banks) | 592,491 | 13,802,805 | ||||||
Tesco PLC (Food & Staples Retailing) | 554,853 | 3,575,980 | ||||||
90,140,981 | ||||||||
United States 2.4% | ||||||||
ResMed, Inc. (Health Care Equipment & Supplies) (a) | 292,764 | 8,285,221 | ||||||
Total Common Stocks (Cost $337,699,793) | 335,019,370 | |||||||
Principal | ||||||||
Amount | ||||||||
Short-Term Investment 0.6% | ||||||||
Repurchase Agreement 0.6% | ||||||||
United States 0.6% | ||||||||
State Street Bank and Trust Co. 0.01%, dated 10/31/11 due 11/1/11 Proceeds at Maturity $2,122,709 (Collateralized by a Federal Home Loan Bank Corp. Security with a rate of 0.90% and a maturity date of 9/12/14, with a Principal Amount of $2,165,000 and a Market Value of $2,169,362) (Capital Markets) | $ | 2,122,708 | 2,122,708 | |||||
Total Short-Term Investment (Cost $2,122,708) | 2,122,708 | |||||||
Total Investments (Cost $339,822,501) (c) | 98.0 | % | 337,142,078 | |||||
Other Assets, Less Liabilities | 2.0 | 6,822,765 | ||||||
Net Assets | 100.0 | % | $ | 343,964,843 | ||||
(a) | Non-income producing security. | |
(b) | ADR–American Depositary Receipt. | |
(c) | At October 31, 2011, cost is $340,022,688 for federal income tax purposes and net unrealized depreciation is as follows: |
Gross unrealized appreciation | $ | 13,105,416 | ||
Gross unrealized depreciation | (15,986,026 | ) | ||
Net unrealized depreciation | $ | (2,880,610 | ) | |
The notes to the financial statements are an integral part of,
12 MainStay International Equity Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
The following is a summary of the fair valuations according to the inputs used as of October 31, 2011, for valuing the Fund’s assets.
Asset Valuation Inputs
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Common Stocks (b) | $ | 60,601,580 | $ | 274,417,790 | $ | — | $ | 335,019,370 | ||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 2,122,708 | — | 2,122,708 | ||||||||||||
Total Investments in Securities | $ | 60,601,580 | $ | 276,540,498 | $ | — | $ | 337,142,078 | ||||||||
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | Level 1 assets represent ADR’s, securities listed under Canada, United States and the following common stocks whose primary exchange is the New York Stock Exchange: Genpact, Ltd. under Bermuda and Check Point Software Technologies, Ltd. under Israel. |
The Fund recognizes transfers between the levels as of the beginning of the period.
During the year ended October 31, 2011, certain foreign equity securities with a market value of $132,245,505 held by the Fund at October 31, 2010, transferred from Level 1 to Level 2 due to these securities being fair valued at year end by applying factors provided by a third party vendor in accordance with the Fund’s policies and procedures. (See Note 2)
At October 31, 2011, the Fund did not hold any investments with significant unobservable inputs (Level 3). (See Note 2)
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 13 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
The table below sets forth the diversification of MainStay International Equity Fund investments by industry.
Industry Diversification (Unaudited)
Value | Percent † | |||||||
Beverages | $ | 13,218,065 | 3.8 | % | ||||
Biotechnology | 16,670,526 | 4.9 | ||||||
Capital Markets | 22,892,372 | 6.7 | ||||||
Chemicals | 10,656,411 | 3.1 | ||||||
Commercial Banks | 39,649,978 | 11.5 | ||||||
Construction & Engineering | 11,784,454 | 3.4 | ||||||
Distributors | 13,453,253 | 3.9 | ||||||
Diversified Financial Services | 3,162,743 | 0.9 | ||||||
Energy Equipment & Services | 9,235,528 | 2.7 | ||||||
Food & Staples Retailing | 3,575,980 | 1.0 | ||||||
Food Products | 13,167,813 | 3.8 | ||||||
Health Care Equipment & Supplies | 22,243,285 | 6.5 | ||||||
Health Care Providers & Services | 13,841,549 | 4.0 | ||||||
Hotels, Restaurants & Leisure | 5,807,956 | 1.7 | ||||||
Internet Software & Services | 9,971,030 | 2.9 | ||||||
IT Services | 19,704,614 | 5.7 | ||||||
Life Sciences Tools & Services | 3,177,401 | 0.9 | ||||||
Media | 410,670 | 0.1 | ||||||
Oil, Gas & Consumable Fuels | 14,195,093 | 4.1 | ||||||
Pharmaceuticals | 35,039,594 | 10.2 | ||||||
Professional Services | 20,896,204 | 6.1 | ||||||
Real Estate Management & Development | 10,808,341 | 3.1 | ||||||
Software | 9,487,397 | 2.8 | ||||||
Textiles, Apparel & Luxury Goods | 6,928,455 | 2.0 | ||||||
Tobacco | 3,554,418 | 1.1 | ||||||
Wireless Telecommunication Services | 3,608,948 | 1.1 | ||||||
337,142,078 | 98.0 | |||||||
Other Assets, Less Liabilities | 6,822,765 | 2.0 | ||||||
Net Assets | $ | 343,964,843 | 100.0 | % | ||||
† | Percentages indicated are based on Fund net assets. |
The notes to the financial statements are an integral part of,
14 MainStay International Equity Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statement of Assets and Liabilities as of October 31, 2011
Assets | ||||
Investment in securities, at value (identified cost $339,822,501) | $ | 337,142,078 | ||
Cash denominated in foreign currencies (identified cost $3,236,863) | 3,210,742 | |||
Receivables: | ||||
Investment securities sold | 7,152,476 | |||
Dividends and interest | 813,231 | |||
Fund shares sold | 349,873 | |||
Other assets | 50,258 | |||
Total assets | 348,718,658 | |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 3,608,363 | |||
Fund shares redeemed | 589,614 | |||
Manager (See Note 3) | 260,597 | |||
Transfer agent (See Note 3) | 167,589 | |||
Shareholder communication | 52,967 | |||
NYLIFE Distributors (See Note 3) | 52,863 | |||
Professional fees | 13,381 | |||
Custodian | 4,961 | |||
Trustees | 1,625 | |||
Accrued expenses | 1,855 | |||
Total liabilities | 4,753,815 | |||
Net assets | $ | 343,964,843 | ||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 319,489 | ||
Additional paid-in capital | 456,515,189 | |||
456,834,678 | ||||
Undistributed net investment income | 9,049,517 | |||
Accumulated net realized gain (loss) on investments, futures transactions and foreign currency transactions | (119,309,106 | ) | ||
Net unrealized depreciation (depreciation) on investments | (2,680,423 | ) | ||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies | 70,177 | |||
Net assets | $ | 343,964,843 | ||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 34,894,853 | ||
Shares of beneficial interest outstanding | 3,227,749 | |||
Net asset value per share outstanding | $ | 10.81 | ||
Maximum sales charge (5.50% of offering price) | 0.63 | |||
Maximum offering price per share outstanding | $ | 11.44 | ||
Class A | ||||
Net assets applicable to outstanding shares | $ | 72,698,799 | ||
Shares of beneficial interest outstanding | 6,720,876 | |||
Net asset value per share outstanding | $ | 10.82 | ||
Maximum sales charge (5.50% of offering price) | 0.63 | |||
Maximum offering price per share outstanding | $ | 11.45 | ||
Class B | ||||
Net assets applicable to outstanding shares | $ | 20,508,937 | ||
Shares of beneficial interest outstanding | 2,060,732 | |||
Net asset value and offering price per share outstanding | $ | 9.95 | ||
Class C | ||||
Net assets applicable to outstanding shares | $ | 12,960,132 | ||
Shares of beneficial interest outstanding | 1,301,737 | |||
Net asset value and offering price per share outstanding | $ | 9.96 | ||
Class I | ||||
Net assets applicable to outstanding shares | $ | 184,373,300 | ||
Shares of beneficial interest outstanding | 16,926,545 | |||
Net asset value and offering price per share outstanding | $ | 10.89 | ||
Class R1 | ||||
Net assets applicable to outstanding shares | $ | 4,759,924 | ||
Shares of beneficial interest outstanding | 439,942 | |||
Net asset value and offering price per share outstanding | $ | 10.82 | ||
Class R2 | ||||
Net assets applicable to outstanding shares | $ | 12,176,455 | ||
Shares of beneficial interest outstanding | 1,123,667 | |||
Net asset value and offering price per share outstanding | $ | 10.84 | ||
Class R3 | ||||
Net assets applicable to outstanding shares | $ | 1,592,443 | ||
Shares of beneficial interest outstanding | 147,639 | |||
Net asset value and offering price per share outstanding | $ | 10.79 | ||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 15 |
Table of Contents
Statement of Operations for the year ended October 31, 2011
Investment Income (Loss) | ||||
Income | ||||
Dividends (a) | $ | 15,654,117 | ||
Interest | 14,383 | |||
Total income | 15,668,500 | |||
Expenses | ||||
Manager (See Note 3) | 4,166,281 | |||
Transfer agent (See Note 3) | 1,043,174 | |||
Distribution/Service—Investor Class (See Note 3) | 95,014 | |||
Distribution/Service—Class A (See Note 3) | 245,905 | |||
Distribution/Service—Class B (See Note 3) | 270,638 | |||
Distribution/Service—Class C (See Note 3) | 170,860 | |||
Distribution/Service—Class R2 (See Note 3) | 32,710 | |||
Distribution/Service—Class R3 (See Note 3) | 6,562 | |||
Shareholder communication | 126,407 | |||
Registration | 119,542 | |||
Custodian | 113,675 | |||
Professional fees | 85,593 | |||
Shareholder service (See Note 3) | 19,954 | |||
Trustees | 11,700 | |||
Miscellaneous | 32,563 | |||
Total expenses | 6,540,578 | |||
Net investment income (loss) | 9,127,922 | |||
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Security transactions | (32,250,827 | ) | ||
Futures transactions | 2,093,492 | |||
Foreign currency transactions | (1,687,370 | ) | ||
Net realized gain (loss) on investments, futures transactions and foreign currency transactions | (31,844,705 | ) | ||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (22,680,251 | ) | ||
Futures contracts | (740,862 | ) | ||
Translation of other assets and liabilities in foreign currencies | (1,265,477 | ) | ||
Net change in unrealized appreciation (depreciation) on investments, futures contracts and foreign currency transactions | (24,686,590 | ) | ||
Net realized and unrealized gain (loss) on investments, futures transactions and foreign currency transactions | (56,531,295 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (47,403,373 | ) | |
(a) | Dividends recorded net of foreign withholding taxes in the amount of $1,476,345. |
The notes to the financial statements are an integral part of,
16 MainStay International Equity Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statements of Changes in Net Assets
for the years ended October 31, 2011 and October 31, 2010
2011 | 2010 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 9,127,922 | $ | 13,230,874 | ||||
Net realized gain (loss) on investments, futures transactions, written option transactions and foreign currency transactions | (31,844,705 | ) | 20,473,721 | |||||
Net change in unrealized appreciation (depreciation) on investments, written options, futures contracts and foreign currency transactions | (24,686,590 | ) | 682,039 | |||||
Net increase (decrease) in net assets resulting from operations | (47,403,373 | ) | 34,386,634 | |||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (1,105,464 | ) | (1,038,451 | ) | ||||
Class A | (3,107,422 | ) | (3,373,550 | ) | ||||
Class B | (672,597 | ) | (746,981 | ) | ||||
Class C | (420,464 | ) | (413,731 | ) | ||||
Class I | (10,291,930 | ) | (12,028,290 | ) | ||||
Class R1 | (195,343 | ) | (171,522 | ) | ||||
Class R2 | (322,439 | ) | (235,960 | ) | ||||
Class R3 | (25,620 | ) | (8,861 | ) | ||||
Total dividends to shareholders | (16,141,279 | ) | (18,017,346 | ) | ||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 90,448,988 | 148,463,186 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 14,107,001 | 14,768,171 | ||||||
Cost of shares redeemed | (282,849,754 | ) | (207,005,556 | )(a) | ||||
Increase (decrease) in net assets derived from capital share transactions | (178,293,765 | ) | (43,774,199 | ) | ||||
Net increase (decrease) in net assets | (241,838,417 | ) | (27,404,911 | ) | ||||
Net Assets | ||||||||
Beginning of year | 585,803,260 | 613,208,171 | ||||||
End of year | $ | 343,964,843 | $ | 585,803,260 | ||||
Undistributed net investment income at end of year | $ | 9,049,517 | $ | 14,830,408 | ||||
(a) | Cost of shares redeemed net of redemption fees of $24,691 for the year ended October 31, 2010. (See Note 2 (N)). |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 17 |
Table of Contents
Financial Highlights selected per share data and ratios
Investor Class | ||||||||||||||||||
February 28, | ||||||||||||||||||
2008** | ||||||||||||||||||
through | ||||||||||||||||||
Year ended October 31, | October 31, | |||||||||||||||||
2011 | 2010 | 2009 | 2008 | |||||||||||||||
Net asset value at beginning of period | $ | 12.66 | $ | 12.24 | $ | 10.96 | $ | 14.70 | ||||||||||
Net investment income (loss) (a) | 0.21 | 0.22 | (b) | 0.23 | 0.36 | |||||||||||||
Net realized and unrealized gain (loss) on investments | (1.62 | ) | 0.44 | 1.73 | (4.31 | ) | ||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.09 | ) | 0.08 | 0.18 | 0.21 | |||||||||||||
Total from investment operations | (1.50 | ) | 0.74 | 2.14 | (3.74 | ) | ||||||||||||
Less dividends: | ||||||||||||||||||
From net investment income | (0.35 | ) | (0.32 | ) | (0.86 | ) | — | |||||||||||
Redemption fee (a)(c) | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||
Net asset value at end of period | $ | 10.81 | $ | 12.66 | $ | 12.24 | $ | 10.96 | ||||||||||
Total investment return (d) | (12.19 | %) | 6.11 | % | 21.20 | % | (25.44 | %)(e) | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||
Net investment income (loss) | 1.77 | % | 1.82 | %(b) | 2.19 | % | 3.91 | % †† | ||||||||||
Net expenses | 1.71 | % | 1.75 | % | 1.71 | % | 1.70 | % †† | ||||||||||
Expenses (before waiver/reimbursement) | 1.71 | % | 1.75 | % | 1.86 | % | 1.73 | % †† | ||||||||||
Portfolio turnover rate | 80 | % | 54 | % | 88 | % | 82 | % | ||||||||||
Net assets at end of period (in 000’s) | $ | 34,895 | $ | 39,843 | $ | 39,969 | $ | 35,429 |
** | Commencement of operations. | |
†† | Annualized. | |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the period. | |
(b) | Included in net investment income per share and the ratio of net investment income to average net assets are $0.03 per share and 0.29%, respectively, resulting from a special one-time dividend from Ryanair Holdings PLC that paid $0.30 per share. | |
(c) | The redemption fee was discontinued as of April 1, 2010. | |
(d) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. | |
(e) | Total investment return is not annualized. |
The notes to the financial statements are an integral part of,
18 MainStay International Equity Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class A | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 12.66 | $ | 12.24 | $ | 10.97 | $ | 18.09 | $ | 16.69 | ||||||||||||
Net investment income (loss) (a) | 0.26 | 0.25 | (b) | 0.26 | 0.41 | 0.22 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | (1.63 | ) | 0.44 | 1.73 | (6.10 | ) | 2.54 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.09 | ) | 0.08 | 0.18 | 0.30 | (0.17 | ) | |||||||||||||||
Total from investment operations | (1.46 | ) | 0.77 | 2.17 | (5.39 | ) | 2.59 | |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.38 | ) | (0.35 | ) | (0.90 | ) | (0.05 | ) | (0.07 | ) | ||||||||||||
From net realized gain on investments | — | — | — | (1.68 | ) | (1.12 | ) | |||||||||||||||
Total dividends and distributions | (0.38 | ) | (0.35 | ) | (0.90 | ) | (1.73 | ) | (1.19 | ) | ||||||||||||
Redemption fee (a)(c) | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
Net asset value at end of year | $ | 10.82 | $ | 12.66 | $ | 12.24 | $ | 10.97 | $ | 18.09 | ||||||||||||
Total investment return (d) | (11.96 | %) | 6.31 | % | 21.57 | % | (32.67 | %) | 16.30 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 2.11 | % | 2.11 | %(b) | 2.40 | % | 2.79 | % | 1.25 | % | ||||||||||||
Net expenses | 1.46 | % | 1.44 | % | 1.39 | % | 1.47 | % | 1.58 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.46 | % | 1.44 | % | 1.42 | % | 1.47 | % | 1.55 | % | ||||||||||||
Portfolio turnover rate | 80 | % | 54 | % | 88 | % | 82 | % | 49 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 72,699 | $ | 104,169 | $ | 117,023 | $ | 63,470 | $ | 186,738 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Included in net investment income per share and the ratio of net investment income to average net assets are $0.03 per share and 0.29%, respectively, resulting from a special one-time dividend from Ryanair Holdings PLC that paid $0.30 per share. | |
(c) | The redemption fee was discontinued as of April 1, 2010. | |
(d) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 19 |
Table of Contents
Financial Highlights selected per share data and ratios
Class B | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 11.67 | $ | 11.33 | $ | 10.17 | $ | 16.99 | $ | 15.78 | ||||||||||||
Net investment income (loss) (a) | 0.11 | 0.12 | (b) | 0.14 | 0.28 | 0.09 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | (1.49 | ) | 0.39 | 1.61 | (5.70 | ) | 2.40 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.08 | ) | 0.07 | 0.16 | 0.28 | (0.16 | ) | |||||||||||||||
Total from investment operations | (1.46 | ) | 0.58 | 1.91 | (5.14 | ) | 2.33 | |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.26 | ) | (0.24 | ) | (0.75 | ) | — | — | ||||||||||||||
From net realized gain on investments | — | — | — | (1.68 | ) | (1.12 | ) | |||||||||||||||
Total dividends and distributions | (0.26 | ) | (0.24 | ) | (0.75 | ) | (1.68 | ) | (1.12 | ) | ||||||||||||
Redemption fee (a)(c) | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
Net asset value at end of year | $ | 9.95 | $ | 11.67 | $ | 11.33 | $ | 10.17 | $ | 16.99 | ||||||||||||
Total investment return (d) | (12.81 | %) | 5.17 | % | 20.31 | % | (33.36 | %) | 15.48 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 1.02 | % | 1.04 | %(b) | 1.41 | % | 2.10 | % | 0.52 | % | ||||||||||||
Net expenses | 2.46 | % | 2.50 | % | 2.46 | % | 2.40 | % | 2.35 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 2.46 | % | 2.50 | % | 2.62 | % | 2.42 | % | 2.30 | % | ||||||||||||
Portfolio turnover rate | 80 | % | 54 | % | 88 | % | 82 | % | 49 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 20,509 | $ | 31,314 | $ | 36,397 | $ | 37,098 | $ | 76,081 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Included in net investment income per share and the ratio of net investment income to average net assets are $0.03 per share and 0.29%, respectively, resulting from a special one-time dividend from Ryanair Holdings PLC that paid $0.30 per share. | |
(c) | The redemption fee was discontinued as of April 1, 2010. | |
(d) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of,
20 MainStay International Equity Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class C | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 11.68 | $ | 11.32 | $ | 10.17 | $ | 16.98 | $ | 15.77 | ||||||||||||
Net investment income (loss) (a) | 0.12 | 0.12 | (b) | 0.13 | 0.29 | 0.09 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | (1.50 | ) | 0.41 | 1.61 | (5.69 | ) | 2.40 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.08 | ) | 0.07 | 0.16 | 0.27 | (0.16 | ) | |||||||||||||||
Total from investment operations | (1.46 | ) | 0.60 | 1.90 | (5.13 | ) | 2.33 | |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.26 | ) | (0.24 | ) | (0.75 | ) | — | — | ||||||||||||||
From net realized gain on investments | — | — | — | (1.68 | ) | (1.12 | ) | |||||||||||||||
Total dividends and distributions | (0.26 | ) | (0.24 | ) | (0.75 | ) | (1.68 | ) | (1.12 | ) | ||||||||||||
Redemption fee (a)(c) | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
Net asset value at end of year | $ | 9.96 | $ | 11.68 | $ | 11.32 | $ | 10.17 | $ | 16.98 | ||||||||||||
Total investment return (d) | (12.88 | %) | 5.23 | % | 20.32 | % | (33.32 | %) | 15.49 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 1.07 | % | 1.09 | %(b) | 1.34 | % | 2.12 | % | 0.53 | % | ||||||||||||
Net expenses | 2.46 | % | 2.50 | % | 2.46 | % | 2.39 | % | 2.33 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 2.46 | % | 2.50 | % | 2.60 | % | 2.41 | % | 2.30 | % | ||||||||||||
Portfolio turnover rate | 80 | % | 54 | % | 88 | % | 82 | % | 49 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 12,960 | $ | 19,242 | $ | 19,079 | $ | 10,976 | $ | 25,677 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Included in net investment income per share and the ratio of net investment income to average net assets are $0.03 per share and 0.29%, respectively, resulting from a special one-time dividend from Ryanair Holdings PLC that paid $0.30 per share. | |
(c) | The redemption fee was discontinued as of April 1, 2010. | |
(d) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 21 |
Table of Contents
Financial Highlights selected per share data and ratios
Class I | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 12.75 | $ | 12.33 | $ | 11.05 | $ | 18.23 | $ | 16.79 | ||||||||||||
Net investment income (loss) (a) | 0.26 | 0.29 | (b) | 0.29 | 0.50 | 0.31 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | (1.62 | ) | 0.43 | 1.75 | (6.16 | ) | 2.56 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.09 | ) | 0.08 | 0.18 | 0.30 | (0.16 | ) | |||||||||||||||
Total from investment operations | (1.45 | ) | 0.80 | 2.22 | (5.36 | ) | 2.71 | |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.41 | ) | (0.38 | ) | (0.94 | ) | (0.14 | ) | (0.15 | ) | ||||||||||||
From net realized gain on investments | — | — | — | (1.68 | ) | (1.12 | ) | |||||||||||||||
Total dividends and distributions | (0.41 | ) | (0.38 | ) | (0.94 | ) | (1.82 | ) | (1.27 | ) | ||||||||||||
Redemption fee (a)(c) | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
Net asset value at end of year | $ | 10.89 | $ | 12.75 | $ | 12.33 | $ | 11.05 | $ | 18.23 | ||||||||||||
Total investment return (d) | (11.73 | %) | 6.61 | % | 22.01 | % | (32.44 | %) | 16.96 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 2.16 | % | 2.40 | %(b) | 2.70 | % | 3.48 | % | 1.80 | % | ||||||||||||
Net expenses | 1.21 | % | 1.18 | % | 1.08 | % | 1.03 | % | 1.03 | % | ||||||||||||
Expenses (before reimbursement/waiver) | 1.21 | % | 1.18 | % | 1.17 | % | 1.05 | % | 1.02 | % | ||||||||||||
Portfolio turnover rate | 80 | % | 54 | % | 88 | % | 82 | % | 49 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 184,373 | $ | 373,332 | $ | 387,245 | $ | 371,975 | $ | 631,206 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Included in net investment income per share and the ratio of net investment income to average net assets are $0.03 per share and 0.29%, respectively, resulting from a special one-time dividend from Ryanair Holdings PLC that paid $0.30 per share. | |
(c) | The redemption fee was discontinued as of April 1, 2010. | |
(d) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. |
The notes to the financial statements are an integral part of,
22 MainStay International Equity Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class R1 | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 12.67 | $ | 12.25 | $ | 10.98 | $ | 18.13 | $ | 16.71 | ||||||||||||
Net investment income (loss) (a) | 0.26 | 0.27 | (b) | 0.28 | 0.49 | 0.29 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | (1.62 | ) | 0.44 | 1.74 | (6.13 | ) | 2.55 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.09 | ) | 0.08 | 0.18 | 0.30 | (0.16 | ) | |||||||||||||||
Total from investment operations | (1.45 | ) | 0.79 | 2.20 | (5.34 | ) | 2.68 | |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.40 | ) | (0.37 | ) | (0.93 | ) | (0.13 | ) | (0.14 | ) | ||||||||||||
From net realized gain on investments | — | — | — | (1.68 | ) | (1.12 | ) | |||||||||||||||
Total dividends and distributions | (0.40 | ) | (0.37 | ) | (0.93 | ) | (1.81 | ) | (1.26 | ) | ||||||||||||
Redemption fee (a)(c) | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
Net asset value at end of year | $ | 10.82 | $ | 12.67 | $ | 12.25 | $ | 10.98 | $ | 18.13 | ||||||||||||
Total investment return (d) | (11.89 | %) | 6.58 | % | 21.89 | % | (32.53 | %) | 16.88 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 2.12 | % | 2.30 | %(b) | 2.58 | % | 3.40 | % | 1.68 | % | ||||||||||||
Net expenses | 1.31 | % | 1.29 | % | 1.19 | % | 1.13 | % | 1.13 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.31 | % | 1.29 | % | 1.27 | % | 1.15 | % | 1.12 | % | ||||||||||||
Portfolio turnover rate | 80 | % | 54 | % | 88 | % | 82 | % | 49 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 4,760 | $ | 6,225 | $ | 5,348 | $ | 2,755 | $ | 4,158 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Included in net investment income per share and the ratio of net investment income to average net assets are $0.03 per share and 0.29%, respectively, resulting from a special one-time dividend from Ryanair Holdings PLC that paid $0.30 per share. | |
(c) | The redemption fee was discontinued as of April 1, 2010. | |
(d) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R1 shares are not subject to sales charges. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 23 |
Table of Contents
Financial Highlights selected per share data and ratios
Class R2 | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 12.69 | $ | 12.27 | $ | 10.99 | $ | 18.14 | $ | 16.72 | ||||||||||||
Net investment income (loss) (a) | 0.24 | 0.25 | (b) | 0.16 | 0.46 | 0.24 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | (1.63 | ) | 0.43 | 1.82 | (6.14 | ) | 2.57 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.09 | ) | 0.08 | 0.19 | 0.30 | (0.16 | ) | |||||||||||||||
Total from investment operations | (1.48 | ) | 0.76 | 2.17 | (5.38 | ) | 2.65 | |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.37 | ) | (0.34 | ) | (0.89 | ) | (0.09 | ) | (0.11 | ) | ||||||||||||
From net realized gain on investments | — | — | — | (1.68 | ) | (1.12 | ) | |||||||||||||||
Total dividends and distributions | (0.37 | ) | (0.34 | ) | (0.89 | ) | (1.77 | ) | (1.23 | ) | ||||||||||||
Redemption fee (a)(c) | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
Net asset value at end of year | $ | 10.84 | $ | 12.69 | $ | 12.27 | $ | 10.99 | $ | 18.14 | ||||||||||||
Total investment return (d) | (12.09 | %) | 6.32 | % | 21.53 | % | (32.63 | %) | 16.49 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 2.02 | % | 2.09 | %(b) | 1.39 | % | 3.24 | % | 1.38 | % | ||||||||||||
Net expenses | 1.55 | % | 1.54 | % | 1.50 | % | 1.38 | % | 1.38 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.55 | % | 1.54 | % | 1.54 | % | 1.40 | % | 1.37 | % | ||||||||||||
Portfolio turnover rate | 80 | % | 54 | % | 88 | % | 82 | % | 49 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 12,176 | $ | 10,942 | $ | 7,826 | $ | 274 | $ | 358 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Included in net investment income per share and the ratio of net investment income to average net assets are $0.03 per share and 0.29%, respectively, resulting from a special one-time dividend from Ryanair Holdings PLC that paid $0.30 per share. | |
(c) | The redemption fee was discontinued as of April 1, 2010. | |
(d) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R2 shares are not subject to sales charges. |
The notes to the financial statements are an integral part of,
24 MainStay International Equity Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class R3 | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 12.64 | $ | 12.24 | $ | 10.95 | $ | 18.10 | $ | 16.70 | ||||||||||||
Net investment income (loss) (a) | 0.24 | 0.24 | (b) | 0.26 | 0.42 | 0.13 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | (1.65 | ) | 0.41 | 1.72 | (6.13 | ) | 2.64 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.09 | ) | 0.07 | 0.17 | 0.30 | (0.17 | ) | |||||||||||||||
Total from investment operations | (1.50 | ) | 0.72 | 2.15 | (5.41 | ) | 2.60 | |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.35 | ) | (0.32 | ) | (0.86 | ) | (0.06 | ) | (0.08 | ) | ||||||||||||
From net realized gain on investments | — | — | — | (1.68 | ) | (1.12 | ) | |||||||||||||||
Total dividends and distributions | (0.35 | ) | (0.32 | ) | (0.86 | ) | (1.74 | ) | (1.20 | ) | ||||||||||||
Redemption fee (a)(c) | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
Net asset value at end of year | $ | 10.79 | $ | 12.64 | $ | 12.24 | $ | 10.95 | $ | 18.10 | ||||||||||||
Total investment return (d) | (12.28 | %) | 5.99 | % | 21.31 | % | (32.86 | %) | 16.35 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 1.98 | % | 2.00 | %(b) | 2.45 | % | 2.93 | % | 0.76 | % | ||||||||||||
Net expenses | 1.80 | % | 1.79 | % | 1.69 | % | 1.63 | % | 1.63 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.80 | % | 1.79 | % | 1.77 | % | 1.65 | % | 1.62 | % | ||||||||||||
Portfolio turnover rate | 80 | % | 54 | % | 88 | % | 82 | % | 49 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 1,592 | $ | 737 | $ | 322 | $ | 37 | $ | 57 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Included in net investment income per share and the ratio of net investment income to average net assets are $0.03 per share and 0.29%, respectively, resulting from a special one-time dividend from Ryanair Holdings PLC that paid $0.30 per share. | |
(c) | The redemption fee was discontinued as of April 1, 2010. | |
(d) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R3 shares are not subject to sales charges. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 25 |
Table of Contents
Notes to Financial Statements
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of fourteen funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay International Equity Fund (the “Fund”), a diversified fund.
The Fund currently offers eight classes of shares. Class A shares commenced operations on January 3, 1995. Class B shares commenced operations on September 13, 1994. Class C shares commenced operations on September 1, 1998. Class I, Class R1 and Class R2 shares commenced operations on January 2, 2004. Class R3 shares commenced operations on April 28, 2006. Investor Class shares commenced operations on February 28, 2008. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies on investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I, Class R1, Class R2 and Class R3 shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The eight classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class, Class A, Class R2 and Class R3 shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I and Class R1 shares are not subject to a distribution and/or service fee. Class R1, Class R2 and Class R3 shares are subject to a shareholder service fee. This is in addition to any fees paid under a distribution plan, where applicable.
The Fund’s investment objective is to seek to provide long-term growth of capital commensurate with an acceptable level of risk by investing in a portfolio consisting primarily of non-U.S. equity securities. Current income is a secondary objective.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (usually 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are determined within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish 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 developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in determining the fair value of investments) |
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may utilize some of the following fair value techniques: multi-dimensional relational pricing models, option adjusted spread pricing and estimating the price that would have prevailed in a liquid market for an international equity security given information available at the time of evaluation, when there are significant events after the close of local foreign markets.
The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2011, there have been no changes to the fair value methodologies.
The aggregate value by input level, as of October 31, 2011, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
26 MainStay International Equity Fund
Table of Contents
Equity securities and Exchange Traded Funds are valued at the latest quoted sales prices as of the close of regular trading on the Exchange on each valuation date. Securities that are not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Prices normally are taken from the principal market in which each security trades. Futures contracts are valued at the last posted settlement price on the market where such futures are primarily traded. Options contracts are valued at the last posted settlement price on the market where such options are principally traded. Investments in other mutual funds are valued at their 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 over 60 days prior to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of the difference between such cost and the value on maturity date. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not obtained from a quoted price in an active market. These securities are all generally categorized as Level 2 in the hierarchy.
Foreign currency forward contracts are valued at their fair market values determined 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.
Securities for which market quotations are not readily available are valued by methods deemed in good faith by the Fund’s Board to represent fair value. Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security the trading for which 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 the market price of which is not available from an independent pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor (as defined in Note 3(A)) reflect the security’s market value; and (vi) a security where the trading on that security’s principal market is temporarily closed at a time when, under normal conditions, it would be open. These securities are generally categorized as Level 3 in the hierarchy. At October 31, 2011, the Fund did not hold any securities that were fair valued in such a manner.
Certain events may occur between the time that foreign markets close, on which securities held by the Fund principally trade, and the time at which the Fund’s NAV is calculated. These events may include, but are not limited to, situations relating to a single issuer in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. Should the Manager or Subadvisor conclude that such events may have affected the accuracy of the last price reported on the local foreign market, the Manager or Subadvisor may, pursuant to procedures adopted by the Fund’s Board, adjust the value of the local price to reflect the 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, 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 the Fund’s policies and procedures and are generally categorized as Level 2 in the hierarchy. At October 31, 2011, certain foreign equity securities held by the Fund were fair valued in such a manner.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to foreign income taxes. These foreign income taxes are generally withheld at the source.
Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provision for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income and distributions of net realized capital and currency gains, if any, annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(D) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Dividend income is recognized on the ex-dividend date and interest income is accrued as earned using the effective interest rate method. Discounts and premiums on securities purchased, other than Short-Term Investments, for the Fund are accreted and amortized, respectively, on the effective interest rate method over the life of the respective securities or, in the case of a callable security, over the period to the first date of call. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-
mainstayinvestments.com 27
Table of Contents
Notes to Financial Statements (continued)
line method. Income from payment-in-kind securities is recorded daily based on the effective interest method of accrual.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
(E) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(F) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(G) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisor to be creditworthy, pursuant to guidelines established by the Fund’s Board. Repurchase agreements are considered under the 1940 Act to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in such repurchase agreements. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default of 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, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(H) Purchased and Written Options. The Fund may write covered call and put options on its portfolio securities or foreign currencies. These securities are subject to equity price risk in the normal course of investing in these transactions. Premiums received are recorded as assets, and the market value of the written options are recorded as liabilities. The liabilities are subsequently adjusted and unrealized appreciation or depreciation is recorded to reflect the current value of the options written. Premiums received from writing options that expire are treated as realized gains. Premiums received from writing options that are exercised or are cancelled in closing purchase transactions are added to the proceeds or netted against the amount paid on the transaction to determine the realized gain or loss. When writing a covered call option, the Fund, in return for the premium on the option, gives up the opportunity to profit from a price increase in the underlying securities above the exercise price. The Fund, in exchange for the premium, accepts the risk of a decline in the market value of the underlying security or foreign currency below the exercise price. A call option may be covered by the call writer’s owning the underlying security throughout the option period. A call option may also be covered by the call writer’s maintaining liquid assets valued at greater than the exercise price of the call written. However, as long as the obligation as the writer continues, the Fund has retained the risk of loss should the price of the underlying security decline. After writing a put option, the Fund may incur risk exposure equal to the difference between the exercise price of the option and the sum of the market value of the underlying security plus the premium received from the sale of the option. The Fund writes covered call options to try to realize greater return on the sale of a stock. The Fund writes put options to help protect against unanticipated adverse developments.
The Fund may purchase call and put options on its portfolio securities or foreign currencies. The Fund may purchase call options to protect against an increase in the price of the security or foreign currency it anticipates purchasing. The Fund may purchase put options on its securities or foreign currencies to protect against a decline in the value of the security or foreign currency or to close out covered written put positions. The Fund may also purchase options to seek to enhance returns. Risks may arise from an imperfect correlation between the change in market value of the securities or foreign currencies held by the Fund and the prices of options relating to the securities or foreign currencies purchased or sold by the Fund and from the possible lack of a liquid secondary market for an option. The maximum risk exposure for any purchased option is limited to the premium initially paid for the option. As of October 31, 2011, the Fund did not hold any purchased or written options.
(I) Rights and Warrants. A right is a certificate that permits the holder to purchase a certain number of shares, or a fractional share, of a new stock from the issuer at a specific price. A warrant is an instrument that entitles the holder to buy an equity security at a specific price for a specific period of time. The Fund generally enters into rights and warrants when securities are acquired through a corporate action. With respect to warrants in international markets, the securities are only purchased when the underlying security cannot be purchased due to the many restrictions an industry and/or country might place on foreign investors. 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 the warrant is not exercised by the date of its expiration. The securities are sold as soon as the opportunity becomes available. The Fund is exposed to risk until each sale is completed. At October 31, 2011, the Fund did not hold any rights or warrants.
(J) Futures Contracts. A futures contract is an agreement to purchase or sell a specified quantity of an underlying instrument at a specified future date and price, or to make or receive a cash payment based on the value of a financial instrument (e.g., foreign currency, interest rate, security, or securities index). During the period the futures contract is open, changes in the value of the contract are
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recognized as unrealized gains or losses by “marking to market” such contract on a daily basis to reflect the market value of the contract at the end of each day’s trading. The Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as “variation margin.” When the futures contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract. The Fund enters into futures contracts for hedging purposes and market exposure.
The use of futures contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract or notional amounts and variation margin reflect the extent of the Fund’s involvement in open futures positions. Risks arise from the possible imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets, and the possible inability of counterparties to meet the terms of their contracts. However, the Fund’s activities in futures contracts have minimal counterparty risk as they are conducted through regulated exchanges that guarantee the futures against default by the counterparty. In the event of a bankruptcy or insolvency of a broker that holds margin on behalf of the Fund, the Fund may not be entitled to the return of all of the margin owed to the Fund, potentially resulting in a loss. The Fund may also enter into futures contracts traded on foreign futures exchanges such as those located in Frankfurt, Tokyo, London or Paris as long as trading on foreign exchanges does not subject a Fund to risks that are materially greater than the risks associated with trading on U.S. exchanges. The Fund’s investment in futures contracts and other derivatives may increase the volatility of the Fund’s NAV and may result in a loss to the Fund. The Fund invests in futures contracts to reduce the Fund’s return volatility. At October 31, 2011, the Fund did hold any futures contracts.
(K) Foreign Currency Forward Contracts. The Fund may enter into foreign currency forward contracts, which are agreements to buy or sell currencies of different countries on a specified future date at a specified rate. The Fund is subject to foreign currency exchange rate risk in the normal course of investing in these transactions. During the period the forward contract is open, changes in the value of the contract are recognized as unrealized gains or losses by “marking-to-market” such contract on a daily basis to reflect the market value of the contract at the end of each day’s trading. 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 enters into foreign currency forward contracts to reduce currency risk versus the benchmark or for trade settlement.
The use of foreign currency forward contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract amount reflects the extent of the Fund’s involvement in these financial instruments. Risks arise from the possible movements in the foreign exchange rates underlying these instruments. While the Fund may enter into forward contracts to reduce currency exchange risks, changes in currency exchange rates may result in poorer overall performance for the Fund than if it had not engaged in such transactions. Exchange rate movements can be large, depending on the currency, and can last for extended periods of time, affecting the value of the Fund’s assets. Moreover, there may be an imperfect correlation between the Fund’s holdings of securities denominated in a particular currency and the forward contracts entered into by the Fund. Such imperfect correlation may prevent the Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. The unrealized appreciation (depreciation) on forward contracts reflects the Fund’s exposure at valuation date to credit loss in the event of a counterparty’s failure to perform its obligations. At October 31, 2011, the Fund did not hold any foreign currency forward contracts.
(L) Foreign Currency Transactions. The books and records of the Fund are kept in U.S. dollars. Prices of securities denominated in foreign currency amounts are translated into U.S. dollars at the mean between the buying and selling exchange 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. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund’s cash collateral in accordance with the Lending Agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will
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Notes to Financial Statements (continued)
continue to receive interest and dividends on the securities loaned and any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the account of the Fund.
Although the Fund and New York Life Investments (as defined in Note 3(A)) have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund had no portfolio securities on loan as of October 31, 2011.
(N) Redemption Fee. Prior to April 1, 2010, the Fund imposed a 2.00% redemption fee on redemptions (including exchanges) of Fund shares made within 60 days of their date of purchase for any class. The redemption fee was designed to offset brokerage commissions and other costs associated with short-term trading and was not assessed on shares acquired through the reinvestment of dividends or distributions paid by the Fund. The redemption fees are included in the Statement of Changes in Net Assets’ shares redeemed amount and were retained by the Fund for the fiscal year ended October 31, 2010.
(O) Concentration of Risk. The Fund invests in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic instruments. These risks include those resulting from currency fluctuations, future adverse political and economic developments and possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. These risks are likely to be greater in emerging markets than in developed markets. The ability of issuers of securities held by the Fund to meet their obligations may be affected by economic and political developments in a specific country, industry or region.
(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 about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial positions, performance and cash flows. These derivatives are not accounted for as hedging instruments.
The effect of derivative instruments on the Statement of Operations for the year ended October 31, 2011:
Realized Gain (Loss)
Foreign | ||||||||||||||
Statement of | Exchange | Equity | ||||||||||||
Operations | Contracts | Contracts | ||||||||||||
Location | Risk | Risk | Total | |||||||||||
Purchased Options | Net realized gain (loss) on security transactions | $ | — | $ | (64,512 | ) | $ | (64,512 | ) | |||||
Rights | Net realized gain (loss) on security transactions | — | 344,402 | 344,402 | ||||||||||
Warrants | Net realized gain (loss) on security transactions | — | 504,265 | 504,265 | ||||||||||
Futures Contracts | Net realized gain (loss) on futures contracts | — | 2,093,492 | 2,093,492 | ||||||||||
Forward Contracts | Net realized gain (loss) on foreign currency transactions | (2,919,836 | ) | — | (2,919,836 | ) | ||||||||
Total Realized Gain (Loss) | $ | (2,919,836 | ) | $ | 2,877,647 | $ | (42,189 | ) | ||||||
Change in Unrealized Appreciation (Depreciation)
Foreign | ||||||||||||||
Statement of | Exchange | Equity | ||||||||||||
Operations | Contracts | Contracts | ||||||||||||
Location | Risk | Risk | Total | |||||||||||
Warrants | Net change in unrealized appreciation (depreciation) on investments | $ | — | $ | (5,332,757 | ) | $ | (5,332,757 | ) | |||||
Future Contracts | Net change in unrealized appreciation (depreciation) on futures contracts | — | (740,862 | ) | (740,862 | ) | ||||||||
Forward contracts | Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies | (828,934 | ) | — | (828,934 | ) | ||||||||
Total Change in Unrealized Appreciation (Depreciation) | $ | (828,934 | ) | $ | (6,073,619 | ) | $ | (6,902,553 | ) | |||||
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Number of Contracts, Notional Amounts or Shares/Units (1)
Foreign | ||||||||||||
Exchange | Equity | |||||||||||
Contracts | Contracts | |||||||||||
Risk | Risk | Total | ||||||||||
Purchased Options (2) | — | 336 | 336 | |||||||||
Rights (2) | — | 553,062 | 553,062 | |||||||||
Warrants (2) | — | 3,598,661 | 3,598,661 | |||||||||
Futures Contracts (2) | — | 894 | 894 | |||||||||
Forward Contracts Long (3) | $ | 56,626,414 | — | $ | 56,626,414 | |||||||
Forward Contracts Short (3) | $ | (56,626,414 | ) | — | $ | (56,626,414 | ) | |||||
(1) | Amount disclosed represents the weighted average held during the year ended October 31, 2011. |
(2) | Amount(s) represent(s) number of contracts or number of shares/units. |
(3) | Amount(s) represent(s) notional amount. |
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), 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, including a portion of the total compensation of the Chief Compliance Officer (“CCO”) of the Fund which is the responsibility of all investment companies for which the CCO serves, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. Prior to July 1, 2011 Mackay Shields LLC, a registered investment adviser and an indirect, wholly owned subsidiary of New York Life, served as subadvisor to the Fund and was responsible for the day-to-day portfolio management of the Fund. Effective July 1, 2011, Madison Square Investors LLC (“MSI” or “Subadvisor”), a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life, serves as Subadvisor to the Fund and is responsible for the day-to-day portfolio management of the Fund. Pursuant to the terms of a Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and MSI, New York Life Investments pays for the services of the Subadvisor.
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.90% up to $500 million and 0.85% in excess of $500 million, plus a fee for fund accounting services furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. The effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.92% for the year ended October 31, 2011, inclusive of the effective fund accounting services rate of 0.02% of the Fund’s average daily net assets.
The Manager has voluntarily agreed to waive fees and/or reimburse expenses so that Total Annual Fund Operating Expenses of a class do not exceed the following percentages of average daily net assets: Investor Class, 1.85%; Class B, 2.60%; and Class C, 2.60%. These voluntary waivers or reimbursements may be discontinued at any time. Total Annual Fund Operating Expenses excludes taxes, interest, litigation, extraordinary expenses, brokerage and other transaction expenses relating to the purchase or sale of portfolio investments, and acquired (underlying) fund fees and expenses.
For the year ended October 31, 2011, New York Life Investments earned fees from the Fund in the amount of $4,166,281.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution, Service and Shareholder Service Fees. The Trust, on behalf of the Fund, has entered into a Distribution Agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class, Class A and Class R2 Plans, the Distributor receives a monthly distribution fee from the Investor Class, Class A and Class R2 shares, at an annual rate of 0.25% of the average daily net assets of the Investor Class, Class A and Class R2 shares for distribution and/or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average daily net assets of the Class B and Class C shares, along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 1.00%. Pursuant to the Class R3 Plan, the Distributor receives a monthly distribution and/or service fee from the Class R3 shares at an annual rate of 0.50% of the average daily net assets of the Class R3 shares. Class I and Class R1 shares are not subject to a distribution and/or service fee.
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The Plans provide that the distribution and/or 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 is entitled to a Shareholder Service Fee accrued daily and paid monthly at an annual rate of 0.10% of the average daily net assets of the Class R1, Class R2 and Class R3 shares. This is in addition to any fees paid under a distribution plan, where applicable.
Shareholder Service Fees incurred by the Fund for the year ended October 31, 2011, were as follows:
Class R1 | $ | 5,559 | ||
Class R2 | 13,083 | |||
Class R3 | 1,312 | |||
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $14,269 and $15,611, respectively, for the year ended October 31, 2011.
The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $123, $1,035, $44,494 and $4,599, respectively, for the year ended October 31, 2011.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2011, were as follows:
Investor Class | $ | 164,906 | ||
Class A | 180,966 | |||
Class B | 117,457 | |||
Class C | 74,077 | |||
Class I | 469,024 | |||
Class R1 | 10,231 | |||
Class R2 | 24,094 | |||
Class R3 | 2,419 | |||
(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. At October 31, 2011, New York Life and its affiliates beneficially held shares of the Fund with the following values and percentages of net assets as follows:
Class A | $ | 214 | 0.0 | %‡ | ||||
Class C | 134 | 0.0 | ‡ | |||||
Class I | 49,407,690 | 26.8 | ||||||
Class R1 | 1,400 | 0.0 | ‡ | |||||
Class R2 | 1,379 | 0.0 | ‡ | |||||
Class R3 | 9,642 | 0.6 | ||||||
‡ | Less than one-tenth of a percent. |
(G) Other. Pursuant to a Legal Services Agreement, a portion of the cost of legal services provided to the Fund by the Office of the General Counsel of New York Life Investments was payable directly by the Fund through March 17, 2011. For the year ended October 31, 2011, these fees, which are included in professional fees shown on the Statement of Operations, were $7,763. Effective March 18, 2011, the Legal Services Agreement expired and was not renewed. Therefore, the Fund is no longer directly responsible for any portion of the cost of legal services.
Note 4–Federal Income Tax
As of October 31, 2011, the components of accumulated gain (loss) on a tax basis were as follows:
Accumulated | ||||||||||||||||||
Capital | Other | Unrealized | Total | |||||||||||||||
Ordinary | and Other | Temporary | Appreciation | Accumulated | ||||||||||||||
Income | Gain (Loss) | Differences | (Depreciation) | Gain (Loss) | ||||||||||||||
$ | 9,049,517 | $ | (119,143,681 | ) | $ | — | $ | (2,775,671 | ) | $ | (112,869,835 | ) | ||||||
The difference between book-basis and tax basis unrealized appreciation (depreciation) is primarily due to wash sale deferrals and marking to market of foreign currency forward contracts.
The following table discloses the current year reclassifications between undistributed net investment income, accumulated net realized income (loss) on investments, and additional paid-in capital arising from permanent differences; net assets at October 31, 2011 were not affected.
Accumulated | ||||||||||
Undistributed | Net Realized | Additional | ||||||||
Net Investment | Gain (Loss) on | Paid-In | ||||||||
Income (Loss) | Investments | Capital | ||||||||
$ | 1,232,466 | $ | (1,232,466 | ) | $ | — | ||||
The reclassifications for the Fund are primarily due to foreign currency gain (loss).
Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be
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required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
At October 31, 2011, for federal income tax purposes, capital loss carryforwards of $119,143,681 were available as shown in the table below, to the extent provided by the regulations to offset future realized gains of the Fund through the years indicated. To the extent that these capital loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to shareholders. No capital gain distributions shall be made until any capital loss carryforwards have been fully utilized or expired.
Capital Loss | Capital Loss | |||||
Available Through | Amounts (000’s) | |||||
2016 | $ | 29,857 | ||||
2017 | 53,694 | |||||
2019 | 35,593 | |||||
Total | $ | 119,144 | ||||
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 shown in the Statements of Changes in Net Assets was as follows:
2011 | 2010 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 16,141,279 | $ | 18,017,346 | ||||
Note 5–Foreign Currency Transactions
As of October 31, 2011, the Fund held the following foreign currencies:
Currency | Cost | Value | ||||||||||
Canadian Dollar | CAD | 2,207,128 | USD | 2,222,830 | USD | 2,214,325 | ||||||
Euro (a) | EUR | (52 | ) | (72 | ) | (72 | ) | |||||
Japanese Yen | JPY | 47,075,214 | 620,078 | 602,139 | ||||||||
Norwegian Krone | NOK | 454,252 | 83,470 | 81,566 | ||||||||
Pound Sterling | GBP | 102,063 | 164,739 | 164,106 | ||||||||
Singapore Dollar | SGD | 32,658 | 25,904 | 26,027 | ||||||||
Swiss Franc | CHF | 106,953 | 119,115 | 121,842 | ||||||||
Thailand Baht | THB | 24,868 | 799 | 809 | ||||||||
Total | USD | 3,236,863 | USD | 3,210,742 | ||||||||
(a) Currency was overdrawn as of October 31, 2011.
Note 6–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 7–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 31, 2011, under an amended credit agreement, the aggregate commitment amount is $125,000,000 with an optional maximum amount of $175,000,000. The commitment rate is an annual rate of 0.08% of the average commitment amount, payable quarterly, regardless of usage, to The Bank of New York Mellon, which serves as the agent to the syndicate. The commitment fee is allocated among certain MainStay Funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The amended credit agreement expires on August 29, 2012, although the MainStay Funds and the syndicate of banks may renew the amended credit agreement for an additional year on the same or different terms. Prior to August 31, 2011, the commitment rate was an annual rate of 0.10% of the average commitment amount, plus a 0.02% up-front payment. There were no borrowings made or outstanding with respect to the Fund on the amended credit agreement during the year ended October 31, 2011.
Note 8–Purchases and Sales of Securities
(in 000’s)
(in 000’s)
During the year ended October 31, 2011, purchases and sales of securities, other than short-term securities, were $351,971 and $516,611, respectively.
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Note 9–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 255,410 | $ | 3,104,372 | |||||
Shares issued to shareholders in reinvestment of dividends | 88,910 | 1,098,040 | ||||||
Shares redeemed | (549,047 | ) | (6,635,729 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (204,727 | ) | (2,433,317 | ) | ||||
Shares converted into Investor Class (See Note 1) | 373,694 | 4,153,993 | ||||||
Shares converted from Investor Class (See Note 1) | (89,414 | ) | (1,099,827 | ) | ||||
Net increase (decrease) | 79,553 | $ | 620,849 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 262,880 | $ | 3,176,295 | |||||
Shares issued to shareholders in reinvestment of dividends | 84,216 | 1,031,647 | ||||||
Shares redeemed | (605,885 | ) | (7,225,258 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (258,789 | ) | (3,017,316 | ) | ||||
Shares converted into Investor Class (See Note 1) | 225,549 | 2,702,090 | ||||||
Shares converted from Investor Class (See Note 1) | (83,487 | ) | (1,015,195 | ) | ||||
Net increase (decrease) | (116,727 | ) | $ | (1,330,421 | ) | |||
Class A | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 1,961,197 | $ | 24,241,634 | |||||
Shares issued to shareholders in reinvestment of dividends | 215,220 | 2,653,664 | ||||||
Shares redeemed | (3,688,192 | ) | (43,375,045 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (1,511,775 | ) | (16,479,747 | ) | ||||
Shares converted into Class A (See Note 1) | 201,074 | 2,412,655 | ||||||
Shares converted from Class A (See Note 1) | (193,869 | ) | (1,973,995 | ) | ||||
Net increase (decrease) | (1,504,570 | ) | $ | (16,041,087 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 2,517,126 | $ | 30,522,416 | |||||
Shares issued to shareholders in reinvestment of dividends | 234,250 | 2,862,540 | ||||||
Shares redeemed | (3,771,494 | ) | (44,406,529 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (1,020,118 | ) | (11,021,573 | ) | ||||
Shares converted into Class A (See Note 1) | 199,980 | 2,405,187 | ||||||
Shares converted from Class A (See Note 1) | (52,650 | ) | (644,178 | ) | ||||
Shares converted from Class A (a) | (458,901 | ) | (5,387,502 | ) | ||||
Net increase (decrease) | (1,331,689 | ) | $ | (14,648,066 | ) | |||
Class B | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 215,858 | $ | 2,445,662 | |||||
Shares issued to shareholders in reinvestment of dividends | 55,069 | 629,984 | ||||||
Shares redeemed | (577,541 | ) | (6,436,816 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (306,614 | ) | (3,361,170 | ) | ||||
Shares converted from Class B (See Note 1) | (314,841 | ) | (3,492,826 | ) | ||||
Net increase (decrease) | (621,455 | ) | $ | (6,853,996 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 302,160 | $ | 3,373,463 | |||||
Shares issued to shareholders in reinvestment of dividends | 61,310 | 697,097 | ||||||
Shares redeemed | (582,168 | ) | (6,400,715 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (218,698 | ) | (2,330,155 | ) | ||||
Shares converted from Class B (See Note 1) | (312,717 | ) | (3,447,904 | ) | ||||
Net increase (decrease) | (531,415 | ) | $ | (5,778,059 | ) | |||
Class C | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 215,489 | $ | 2,484,165 | |||||
Shares issued to shareholders in reinvestment of dividends | 26,446 | 302,804 | ||||||
Shares redeemed | (588,079 | ) | (6,641,709 | ) | ||||
Net increase (decrease) | (346,144 | ) | $ | (3,854,740 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 496,946 | $ | 5,608,311 | |||||
Shares issued to shareholders in reinvestment of dividends | 28,179 | 320,677 | ||||||
Shares redeemed | (562,111 | ) | (6,195,553 | ) | ||||
Net increase (decrease) | (36,986 | ) | $ | (266,565 | ) | |||
Class I | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 3,952,695 | $ | 48,215,141 | |||||
Shares issued to shareholders in reinvestment of dividends | 721,480 | 8,939,145 | ||||||
Shares redeemed | (17,027,206 | ) | (212,987,403 | ) | ||||
Net increase (decrease) | (12,353,031 | ) | $ | (155,833,117 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 8,029,733 | $ | 97,871,809 | |||||
Shares issued to shareholders in reinvestment of dividends | 772,194 | 9,482,538 | ||||||
Shares redeemed | (11,397,225 | ) | (138,274,309 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (2,595,298 | ) | (30,919,962 | ) | ||||
Shares converted into Class I (a) | 456,568 | 5,387,502 | ||||||
Net increase (decrease) | (2,138,730 | ) | $ | (25,532,460 | ) | |||
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Class R1 | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 154,670 | $ | 1,841,336 | |||||
Shares issued to shareholders in reinvestment of dividends | 15,410 | 189,846 | ||||||
Shares redeemed | (221,660 | ) | (2,788,670 | ) | ||||
Net increase (decrease) | (51,580 | ) | $ | (757,488 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 115,722 | $ | 1,420,742 | |||||
Shares issued to shareholders in reinvestment of dividends | 13,721 | 167,532 | ||||||
Shares redeemed | (74,563 | ) | (905,475 | ) | ||||
Net increase (decrease) | 54,880 | $ | 682,799 | |||||
Class R2 | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 532,831 | $ | 6,566,352 | |||||
Shares issued to shareholders in reinvestment of dividends | 21,675 | 267,898 | ||||||
Shares redeemed | (293,374 | ) | (3,497,639 | ) | ||||
Net increase (decrease) | 261,132 | $ | 3,336,611 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 484,331 | $ | 5,892,843 | |||||
Shares issued to shareholders in reinvestment of dividends | 16,104 | 197,279 | ||||||
Shares redeemed | (275,687 | ) | (3,373,623 | ) | ||||
Net increase (decrease) | 224,748 | $ | 2,716,499 | |||||
Class R3 | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 126,679 | $ | 1,550,326 | |||||
Shares issued to shareholders in reinvestment of dividends | 2,078 | 25,620 | ||||||
Shares redeemed | (39,423 | ) | (486,743 | ) | ||||
Net increase (decrease) | 89,334 | $ | 1,089,203 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 50,108 | $ | 597,307 | |||||
Shares issued to shareholders in reinvestment of dividends | 724 | 8,861 | ||||||
Shares redeemed | (18,860 | ) | (224,094 | ) | ||||
Net increase (decrease) | 31,972 | $ | 382,074 | |||||
(a) | In addition to any automatic conversion features described above in Note 1 with respect to Investor Class, Class A and Class B shares, investors generally may also elect to convert their shares on a voluntary basis into another share class of the same MainStay Fund subject to satisfying the eligibility requirements of the new share class, if any. However, the following limitations apply: |
• | Investor Class, Class A and Class C shares that remain subject to a CDSC are ineligible for a voluntary conversion; and | |
• | All Class B shares are ineligible for a voluntary conversion. |
These limitations do not impact any automatic conversion features described elsewhere in Note 1 with respect to Investor Class, Class A and Class B shares.
An investor or an investor’s financial intermediary may contact the MainStay Funds to request a voluntary conversion between share classes of the same MainStay Fund. Investors may be required to provide sufficient information to establish eligibility to convert to the new share class. All permissible conversions will be made on the basis of the relevant NAVs of the two classes without the imposition of any sales load, fee or other charge. If an investor fails to remain eligible for the new share class, they may be converted automatically back to their original share class, or into another share class, if appropriate. Although the MainStay Funds expect that a conversion between share classes of the same MainStay Fund should not result in the recognition of a gain or loss for tax purposes, shareholders should consult with their own tax adviser with respect to the tax treatment of their investment in a MainStay Fund. The MainStay Funds may change, suspend or terminate this conversion feature at any time.
Note 10–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2011, events and transactions subsequent to October 31, 2011 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.
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Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay International Equity Fund (“the Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay International Equity Fund of The MainStay Funds as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
-s- KPMG LLP
Philadelphia, Pennsylvania
December 22, 2011
December 22, 2011
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Board Consideration and Approval of Subadvisory Agreement
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 trustees who are “not interested persons” of the fund, as defined in the 1940 Act (the “Independent Trustees”), review and approve the fund’s investment advisory agreements. At its June 28-29, 2011 meeting, the Board of Trustees of The MainStay Funds (the “Board” of the “Trust”) unanimously approved the assignment of the Subadvisory Agreement (the “Assignment” of the “Agreement”) between New York Life Investment Management LLC (“New York Life Investments”), the manager of the Trust, and MacKay Shields LLC (“MacKay”), on behalf of the MainStay International Equity Fund (the “Fund”), from MacKay to Madison Square Investors LLC (“Madison Square Investors”).
In reaching its decision to approve the Assignment, the Board considered information presented to it as part of its consideration and approval of the Assignment at the Board’s meeting in June 2011, as well as other relevant information furnished to it throughout the year by New York Life Investments, MacKay and Madison Square Investors at regular and special Board meetings. The Board also requested and received responses from New York Life Investments to a comprehensive list of questions encompassing a variety of topics prepared on behalf of the Board by independent legal counsel to the Board. The Board noted that it had also requested and received responses to similar questions in connection with its approvals of the Agreement with MacKay during the Board’s meetings in June 2010 and December 2010 (the “Prior Contract Review Processes”). The Board considered its historical experience with Madison Square Investor’s capabilities and resources, and its evaluation of Madison Square Investors in connection with the Prior Contract Review Processes.
In determining to approve the Assignment, the members of the Board reviewed and evaluated all of the information and factors they believed to be relevant and appropriate in light of legal advice furnished to them by independent legal counsel and through the exercise of their own business judgment. The broad factors considered by the Board are discussed in greater detail below, and included, among other things: (i) the nature, extent, and quality of the services to be provided to the Fund by Madison Square Investors; (ii) the investment performance of the Fund and Madison Square Investors; (iii) the costs of the services to be provided and the profits to be realized by New York Life Investments and its affiliates, including Madison Square Investors as subadvisor to the Fund, from their relationships with the Fund; (iv) the extent to which economies of scale may be realized as the Fund grows, and the extent to which economies of scale may benefit Fund investors; and (v) the reasonableness of the Fund’s management and subadvisory fee levels and overall total ordinary operating expenses.
While the members of the Board may have weighed certain factors differently, the Board’s decision to approve the Assignment was based on a comprehensive consideration of all the information provided to the Board, including information provided to the Board in connection with its review of Madison Square Investors. A more detailed discussion of the factors that figured prominently in the Board’s decision to approve the Assignment is provided below.
Nature, Extent and Quality of Services to Be Provided by Madison Square Investors
In considering the approval of the Assignment, the Board examined the nature, extent and quality of the services that Madison Square Investors proposed to provide to the Fund. The Board acknowledged that both MacKay and Madison Square Investors were affiliates of New York Life Investments, and that there would be no change in portfolio management in connection with the Assignment. The Board did consider, however, a recent transition of portfolio management responsibilities at MacKay, and that the Fund’s new management team would transition from MacKay to Madison Square Investors. Based on information provided to the Board in connection with the Prior Contract Review Processes, the Board acknowledged MacKay’s historical service to the Fund, and took note of the experience of Madison Square Investor’s portfolio managers, the number of accounts managed by the portfolio managers and Madison Square Investor’s method for compensating portfolio managers. The Board also considered the experience of senior personnel at Madison Square Investors. Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreement, that the Fund likely would benefit from the nature, extent and quality of these services as a result of Madison Square Investor’s experience, personnel, operations and resources.
Investment Performance
In evaluating investment performance, the Board took note of the Fund’s historical investment performance results, as presented to the Board in connection with the Prior Contract Review Processes, in light of the Fund’s investment objectives, strategies and risks, as disclosed in the Fund’s prospectus. The Board considered information about the Fund’s investment performance that is provided to the Board in connection with its regularly scheduled meetings, and also took note of information provided in connection with the Prior Contract Review Processes showing the investment performance of the Fund as compared to similar peer funds. The Board also considered that the Fund was managed by a relatively new portfolio management team, and that the Board would have the opportunity to evaluate the investment performance of this team after it has established a meaningful performance track record. The Board also considered the strength of Madison Square Investors’ resources (including research capabilities). Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreement, that the Assignment is likely to benefit the Fund’s long-term investment performance.
Costs of the Services Provided, and Profits to Be Realized, by New York Life Investments and Madison Square Investors
The Board considered the costs of the services to be provided by New York Life Investments and Madison Square Investors under the existing management agreement and the Agreement, and the profits to be realized by New York Life Investments and its affiliates due to their relationships with the Fund, taking into account information provided to the Board in connection with the Prior Contract Review Processes. Because Madison Square 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
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Board Consideration and Approval of Subadvisory Agreement (continued)
New York Life Investments and Madison Square Investors in the aggregate.
In evaluating any costs and profits of New York Life Investments and its affiliates, including Madison Square Investors, due to their relationships with the Fund in connection with the Prior Contract Review Processes, the Board considered, among other things, 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 Madison Square Investors must be in a position to pay and retain experienced professional personnel to provide services to the Fund, and that New York Life Investment and Madison Square Investors’ ability to maintain a strong financial position is important in order for New York Life Investment and Madison Square Investors to provide high-quality ongoing services to the Fund and its investors.
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 Madison Square Investors from legally permitted “soft-dollar” arrangements by which brokers may provide research and other services to Madison Square Investors in exchange for commissions paid by the Fund with respect to trades on the Fund’s portfolio securities.
After evaluating the information presented to the Board, the Board concluded, within the context of its overall determinations regarding the Agreement, that any profits realized by New York Life Investments and its affiliates (including Madison Square Investors) due to their relationships with the Fund supported the Board’s determination to approve the Assignment.
Extent to Which Economies of Scale May Be Realized as the Fund Grow
The Board also considered whether the Fund’s expense structure permitted economies of scale to be shared with the Fund’s investors, taking into account information provided to the Board in connection with the Prior Contract Review Processes.
Based on this information, the Board concluded, within the context of its overall determinations regarding the Agreement, that the Fund’s expense structure appropriately reflects economies of scale for the benefit of Fund investors. The Board noted, however, that it would continue to evaluate the reasonableness of the Fund’s expense structure as the Fund continues to grow over time.
Management and Subadvisory Fees and Total Ordinary Operating Expenses
The Board evaluated the reasonableness of the fees to be paid under the existing management agreement with New York Life Investments and the Agreement, and the Fund’s expected total ordinary operating expenses. The Board considered that the fees to be paid to Madison Square Investors under the Agreement are paid by New York Life Investments, not the Fund, and will result in no increase in the Fund’s expenses. In assessing the reasonableness of the Fund’s fees and expenses the Board primarily considered comparative data on the fees and expenses charged by similar mutual funds managed by other advisers, based on information provided to the Board in connection with the Prior Contract Review Processes. In addition, the Board considered information provided by New York Life Investments and Madison Square Investors on fees charged to other investment advisory clients, including institutional separate accounts and other funds with similar investment objectives as the Fund. In this regard, the Board took into account explanations from New York Life Investments and Madison Square Investors about the different scope of services provided to retail mutual funds as compared with other investment advisory clients.
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 Agreement, support a conclusion that these fees and expenses are reasonable.
Conclusion
On the basis of the information provided to it and its evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the Assignment.
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Federal Income Tax Information (Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders within 60 days of the Fund’s fiscal year end (October 31, 2011) as to the federal tax status of dividends paid by the Fund during such fiscal years.
For the fiscal year ended October 31, 2011, the Fund designated approximately $15,779,537 under the Internal Revenue Code as qualified dividend income eligible for reduced tax rates.
The dividends paid by the Fund during the fiscal year ended October 31, 2011, should be multiplied by 0.5% to arrive at the amount eligible for the corporate dividends received deduction.
In accordance with federal tax law, the Fund elects to provide each shareholder with their portion of the Fund’s foreign taxes paid and the income sourced from foreign countries. Accordingly, the Fund made the following designations regarding its fiscal year ended October 31, 2011:
— | the total amount of taxes paid to foreign countries was $1,476,345 |
— | the total amount of income sourced from foreign countries was $17,130,462 |
In February 2012, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2011. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2011.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
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Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, Eclipse Funds, Eclipse Funds Inc., MainStay Funds Trust, and MainStay VP Funds Trust) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s). Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation upon reaching age 72. A Board Member reaching the age of 72 may continue for additional one-year periods with the approval of the Board’s Nominating and Governance Committee.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Interested Board Member* | ||||||||
John Y. Kim 9/24/60 | Indefinite; Eclipse Funds: Trustee since 2008 (2 funds); Eclipse Funds Inc.: Director since 2008 (1 fund); The MainStay Funds: Trustee since 2008 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc. since 2008 (21 portfolios). | Member of the Board of Managers (since 2011) of New York Life Enterprises LLC; Chairman (since 2011), Member of the Board of Managers, Chief Executive Officer and President (since 2008) of New York Life Investment Management LLC and New York Life Investment Management Holdings LLC; Executive Vice President (since 2011) of New York Life Foundation; Member of the Board of Managers and Chairman of the Board of Private Advisors, L.L.C. (since 2010); Executive Vice President, New York Life Insurance Company (since 2008); Chairman of the Board (2008-2010) and Member of the Boards of Managers (since 2008) of MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, Madison Square Investors LLC, NYLCAP Manager LLC and McMorgan & Company LLC; Chairman of the Board and Chief Executive Officer, NYLIFE Distributors LLC (2008-2010); Executive Vice President of NYLIFE Insurance Company of Arizona and New York Life Insurance and Annuity Corporation (since 2008); President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 66 | None | ||||
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Susan B. Kerley 8/12/51 | Indefinite; Eclipse Funds: Chairman since 2005, and Trustee since 2000 (2 funds); Eclipse Funds Inc.: Chairman since 2005 and Director since 1990 (1 fund); The MainStay Funds: Chairman and Board Member since 2007 (14 funds); MainStay Funds Trust: Chairman and Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Chairman and Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | President, Strategic Management Advisors LLC (since 1990) | 66 | Trustee, Legg Mason Partners Funds, since 1991 (58 portfolios) | ||||
Alan R. Latshaw 3/27/51 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2006 (14 funds); MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 66 | Trustee, State Farm Associates Funds Trusts since 2005 (4 portfolios); Trustee, State Farm Mutual Fund Trust since 2005 (15 portfolios); Trustee, State Farm Variable Product Trust since 2005 (9 portfolios) | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Peter Meenan 12/5/41 | Indefinite; Eclipse Funds: Trustee since 2002 (2 funds); Eclipse Funds Inc.: Director since 2002 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Independent Consultant; President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 66 | None | ||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2006 (21 portfolios). | Managing Director, ICC Capital Management; President—Shields/Alliance, Alliance Capital Management (1994 to 2004) | 66 | None | ||||
Richard S. Trutanic 2/13/52 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 1994 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 66 | None | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Roman L. Weil 5/22/40 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1994 and Audit Committee Financial Expert since 2003 (21 portfolios). | Visiting Professor, NYU Stem School of Business, New York University (since 2011); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School of Business, University of Chicago (1965-2008) | 66 | None | ||||
John A. Weisser 10/22/41 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1997 (21 portfolios). | Retired. Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 66 | Trustee, Direxion Funds since 2007 (27 portfolios); Direxion Insurance Trust since 2007 (1 portfolio); Trustee, Direxion Shares ETF Trust, since 2008 (50 portfolios) | ||||
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The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.
Positions(s) Held | ||||
Name and | with the Funds | Principal Occupation(s) | ||
Date of Birth | and Length of Service | During Past Five Years | ||
Officers | ||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007); Vice President, Prudential Investments (2000 to 2007); Assistant Treasurer, JennisonDryden Family of Funds, Target Portfolio Trust, The Prudential Series Fund and American Skandia Trust (2006 to 2007); Treasurer and Principal Financial Officer, The Greater China Fund (2007) | ||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance (since 2009), Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Assistant Secretary NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2009); Assistant Secretary, The MainStay Funds and ICAP Funds, Inc. (2006 to 2008); Assistant Secretary, Eclipse Funds, Eclipse Funds, Inc. and MainStay VP Series Fund, Inc. (2005 to 2008) | ||
Stephen P. Fisher 2/22/59 | President, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Director, Senior Vice President, New York Life Insurance and Annuity Corporation (since 2011); Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2007); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007) | ||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2010); Director and Counsel of Credit Suisse, Chief Legal Officer and Secretary of Credit Suisse Asset Management, LLC and Credit Suisse Funds (2003 to 2010) | ||
Scott T. Harrington 2/8/59 | Vice President — Administration, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Director (since 2009), New York Life Trust Company FSB; Vice President—Administration, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2005) | ||
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one-year term. |
44 MainStay International Equity Fund
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay offerings is listed here, with information about the manager, subadvisors, legal counsel, and independent registered public accounting firm.
Equity Funds
MainStay 130/30 Core Fund
MainStay Common Stock Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Fund
MainStay Equity Index Fund1
MainStay Growth Equity Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Small Cap Fund
Income Funds
MainStay Flexible Bond Opportunities Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Municipal Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Money Market Fund
MainStay Principal Preservation Fund
MainStay Short Term Bond Fund
MainStay Tax Free Bond Fund
Blended Funds
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
International Funds
MainStay 130/30 International Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay Global High Income Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
Asset Allocation Funds
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
Retirement Funds
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC2
Chicago, Illinois
MacKay Shields LLC2
New York, New York
Madison Square Investors LLC2
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management, Inc.
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firm
KPMG LLP
1. | Closed to new investors and new purchases as of January 1, 2002. |
2. | An affiliate of New York Life Investment Management LLC. |
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mainstayinvestments.com
The MainStay Funds are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC,
169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
MainStay Investments is a registered service mark and name under which New York Life Investment Management LLC does business.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment
advisory products and services.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment
advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
© 2012 by NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency | ||||||||
NYLIM-24846 MS284-11 | MSIE11-12/11 |
N10
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MainStay Large Cap Growth Fund
Message from the President and Annual Report
October 31, 2011
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Message from the President
Volatility was the keynote of the 12 months ended October 31, 2011. U.S. stocks generally advanced, but a variety of domestic and international forces influenced the market.
Early in November 2010, the Federal Open Market Committee (FOMC) announced its intention to extend quantitative easing by purchasing additional longer-term Treasury securities. The stock market reacted positively to this news—and to the midterm elections—and stocks generally advanced through mid-February.
Beginning in December 2010, a wave of protests and civil unrest across North Africa and the Middle East led to a substantial rise in the price of oil. By mid-February, stock prices started to decline. In March, a major earthquake and tsunami in Japan caused manufacturing supply-line interruptions and further setbacks for equity investors. After a sharp decline and a rapid recovery, stocks reached their high point for the 12-month period at the end of April 2011.
Pressed by a weak economy, lackluster employment and widespread concerns about European sovereign debt, the stock market faced wide fluctuations in the coming months. The volatility included a precipitous decline at the end of July into early August. Shortly thereafter, the FOMC expressed its expectation that economic conditions were “likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
After several unsuccessful attempts to recover from their dramatic drop, U.S. stocks reached their low point for the reporting period in early October. Then, buoyed by positive economic data and progress in the European debt situation, the U.S. stock market advanced rapidly in October, to close the reporting period with its best monthly performance in nearly a decade.
International stocks suffered from the turmoil in the Middle East and North Africa, the natural disasters in Japan, the sovereign debt concerns in Europe and the added threat of an economic slowdown in China. For the 12-month period, international stocks declined overall, with particular weakness in Europe.
The bond markets felt the impact of the European debt crisis, and several European nations suffered downgrades. In July, the United States faced a congressional deadlock on raising the debt ceiling and reducing deficit spending. In early August, Standard & Poor’s downgraded the debt of the United States of America to AA+.
Slow progress in resolving the European debt situation led to a flight to quality (or a movement toward securities perceived to carry lower risk). Amid strong demand, U.S. Treasury securities saw prices rise and yields decline, despite the downgrade by Standard & Poor’s. High-grade corporate
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
Throughout the 12-month reporting period, our portfolio managers took note of shifting market forces. But their primary focus was on the investment objectives of their respective Funds and the long-term strategies they were pursuing to achieve them. Some may have sought to capitalize on day-to-day market inefficiencies, but all remained focused on the long-term interests of our shareholders. They sought to apply time-tested investment principles consistently throughout the reporting period.
The information that follows provides specifics about the securities, decisions and market forces that affected your MainStay Fund(s) during the 12 months ended October 31, 2011. Behind the details, we hope you’ll recognize the professionalism and discipline that guided our portfolio managers during this volatile period.
We thank you for investing with MainStay and look forward to serving you for many years to come.
Sincerely,
Stephen P. Fisher
President
President
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Annual Report | ||
Investment and Performance Comparison | 5 | |
Portfolio Management Discussion and Analysis | 9 | |
Portfolio of Investments | 11 | |
Financial Statements | 14 | |
Notes to Financial Statements | 21 | |
Report of Independent Registered Public Accounting Firm | 29 | |
Federal Income Tax Information | 30 | |
Proxy Voting Policies and Procedures and Proxy Voting Record | 30 | |
Shareholder Reports and Quarterly Portfolio Disclosure | 30 | |
Board Members and Officers | 31 | |
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
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Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class A shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2011
Gross | ||||||||||||||||||||
Expense | ||||||||||||||||||||
Class | Sales Charge | One Year | Five Years | Ten Years | Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 5.5% Initial Sales Charge | With sales charges | 4 | .02% | 3 | .13% | 4 | .86% | 1 | .28% | ||||||||||
Excluding sales charges | 10 | .08 | 4 | .30 | 5 | .46 | 1 | .28 | ||||||||||||
Class A Shares4 | Maximum 5.5% Initial Sales Charge | With sales charges | 3 | .98 | 3 | .22 | 4 | .91 | 1 | .18 | ||||||||||
Excluding sales charges | 10 | .03 | 4 | .39 | 5 | .50 | 1 | .18 | ||||||||||||
Class B Shares5 | Maximum 5% CDSC | With sales charges | 4 | .06 | 3 | .17 | 4 | .67 | 2 | .03 | ||||||||||
if Redeemed Within the First Six Years of Purchase | Excluding sales charges | 9 | .06 | 3 | .52 | 4 | .67 | 2 | .03 | |||||||||||
Class C Shares5 | Maximum 1% CDSC | With sales charges | 8 | .08 | 3 | .49 | 4 | .65 | 2 | .03 | ||||||||||
if Redeemed Within One Year of Purchase | Excluding sales charges | 9 | .08 | 3 | .49 | 4 | .65 | 2 | .03 | |||||||||||
Class I Shares5 | No Sales Charge | 10 | .21 | 4 | .81 | 5 | .89 | 0 | .94 | |||||||||||
Class R1 Shares5 | No Sales Charge | 10 | .15 | 4 | .68 | 5 | .76 | 1 | .04 | |||||||||||
Class R2 Shares5 | No Sales Charge | 9 | .83 | 4 | .45 | 5 | .49 | 1 | .29 | |||||||||||
Class R3 Shares6 | No Sales Charge | 9 | .65 | 4 | .20 | 5 | .22 | 1 | .54 | |||||||||||
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, change in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Investor Class shares might have been lower. |
4. | Performance figures for Class A shares include the historical performance of the FMI Winslow Growth Fund (a predecessor to the Fund) through March 31, 2005, adjusted to reflect the current maximum sales charge applicable to Class A shares. Unadjusted, the performance shown for Class A shares might have been lower. |
5. | Performance figures for Class B, Class C, Class I, Class R1 and Class R2 shares, each of which was first offered on April 1, 2005, include the historical performance of Class A shares through March 31, 2005, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class B, C, I, R1 and R2 shares might have been lower. |
6. | Performance figures for Class R3 shares, first offered on April 28, 2006, include the historical performance of Class A shares through April 27, 2006, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class R3 shares might have been lower. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com 5
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One | Five | Ten | ||||||||||
Benchmark Performance | Year | Years | Years | |||||||||
Russell 1000® Growth Index7 | 9 | .92% | 3 | .04% | 3 | .56% | ||||||
S&P 500® Index8 | 8 | .09 | 0 | .25 | 3 | .69 | ||||||
Average Lipper Large-Cap Growth Fund9 | 6 | .92 | 1 | .99 | 3 | .13 | ||||||
7. | 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® companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000® Growth Index is the Fund’s broad-based securities market index for comparison purposes. Total returns assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
8. | “S&P 500®” is a trademark of The McGraw-Hill Companies, Inc. The S&P 500® Index is widely regarded as the standard for measuring large-cap U.S. stock-market performance. The S&P 500® Index is the Fund’s secondary benchmark. Results assume reinvestment of all income and capital gains. An investment cannot be made directly in an index. |
9. | 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 an above-average price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share growth value, 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
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Cost in Dollars of a $1,000 Investment in MainStay Large Cap Growth Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2011, to October 31, 2011, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2011, to October 31, 2011.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2011. 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.
Ending Account | ||||||||||||||||||||||
Ending Account | Value (Based | |||||||||||||||||||||
Value (Based | on Hypothetical | |||||||||||||||||||||
Beginning | on Actual | Expenses | 5% Annualized | Expenses | ||||||||||||||||||
Account | Returns and | Paid | Return and | Paid | ||||||||||||||||||
Value | Expenses) | During | Actual Expenses) | During | ||||||||||||||||||
Share Class | 5/1/11 | 10/31/11 | Period1 | 10/31/11 | Period1 | |||||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 929.10 | $ | 5.49 | $ | 1,019.50 | $ | 5.75 | ||||||||||||
Class A Shares | $ | 1,000.00 | $ | 929.40 | $ | 5.11 | $ | 1,019.90 | $ | 5.35 | ||||||||||||
Class B Shares | $ | 1,000.00 | $ | 924.50 | $ | 9.07 | $ | 1,015.80 | $ | 9.50 | ||||||||||||
Class C Shares | $ | 1,000.00 | $ | 924.40 | $ | 9.07 | $ | 1,015.80 | $ | 9.50 | ||||||||||||
Class I Shares | $ | 1,000.00 | $ | 928.90 | $ | 3.94 | $ | 1,021.10 | $ | 4.13 | ||||||||||||
Class R1 Shares | $ | 1,000.00 | $ | 929.50 | $ | 4.38 | $ | 1,020.70 | $ | 4.58 | ||||||||||||
Class R2 Shares | $ | 1,000.00 | $ | 928.40 | $ | 5.59 | $ | 1,019.40 | $ | 5.85 | ||||||||||||
Class R3 Shares | $ | 1,000.00 | $ | 927.50 | $ | 6.80 | $ | 1,018.10 | $ | 7.12 | ||||||||||||
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.13% for Investor Class, 1.05% for Class A, 1.87% for Class B and Class C, 0.81% for Class I, 0.90% for Class R1, 1.15% for Class R2 and 1.40% for Class R3) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the one-half year period). The table above represents the actual expenses incurred during the one-half year period. |
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Industry Composition as of October 31, 2011 (Unaudited)
Computers & Peripherals | 7.6 | % | ||
Software | 7.0 | |||
Internet Software & Services | 6.2 | |||
IT Services | 5.8 | |||
Oil, Gas & Consumable Fuels | 5.3 | |||
Hotels, Restaurants & Leisure | 5.1 | |||
Energy Equipment & Services | 4.8 | |||
Internet & Catalog Retail | 4.6 | |||
Health Care Providers & Services | 3.9 | |||
Chemicals | 3.4 | |||
Health Care Equipment & Supplies | 3.4 | |||
Road & Rail | 3.3 | |||
Communications Equipment | 3.1 | |||
Diversified Financial Services | 3.1 | |||
Industrial Conglomerates | 3.0 | |||
Machinery | 2.6 | |||
Capital Markets | 2.3 | |||
Biotechnology | 2.2 | |||
Pharmaceuticals | 2.2 | |||
Specialty Retail | 2.2 | |||
Aerospace & Defense | 1.8 | |||
Wireless Telecommunication Services | 1.8 | |||
Construction & Engineering | 1.5 | |||
Textiles, Apparel & Luxury Goods | 1.5 | |||
Auto Components | 1.3 | |||
Food Products | 1.2 | |||
Food & Staples Retailing | 1.1 | |||
Air Freight & Logistics | 1.0 | |||
Personal Products | 1.0 | |||
Metals & Mining | 0.9 | |||
Health Care Technology | 0.8 | |||
Semiconductors & Semiconductor Equipment | 0.6 | |||
Short-Term Investment | 3.1 | |||
Other Assets, Less Liabilities | 1.3 | |||
100.0 | % | |||
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
Top Ten Holdings as of October 31, 2011 (excluding short-term investment)
1. | Apple, Inc. | |
2. | Union Pacific Corp. | |
3. | Google, Inc. Class A | |
4. | QUALCOMM, Inc. | |
5. | Visa, Inc. Class A | |
6. | Danaher Corp. | |
7. | Cognizant Technology Solutions Corp. Class A | |
8. | UnitedHealth Group, Inc. | |
9. | Schlumberger, Ltd. | |
10. | Oracle Corp. |
8 MainStay Large Cap Growth Fund
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Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Clark J. Winslow, Justin H. Kelly, CFA, and R. Bart Wear, CFA, of Winslow Capital Management, Inc., the Fund’s Subadvisor.
How did MainStay Large Cap Growth Fund perform relative to its peers and its benchmark during the 12 months ended October 31, 2011?
Excluding all sales charges, MainStay Large Cap Growth Fund returned 10.08% for Investor Class shares, 10.03% for Class A shares, 9.06% for Class B shares and 9.08% for Class C shares for the 12 months ended October 31, 2011. Over the same period, the Fund returned 10.21% for Class I shares, 10.15% for Class R1 shares, 9.83% for Class R2 shares and 9.65% for Class R3 shares. All share classes outperformed the 6.92% return of the average Lipper1 large-cap growth fund for the 12 months ended October 31, 2011. Investor Class, Class A, Class I and Class R1 shares outperformed—and Class B, Class C, Class R2 and Class R3 shares underperformed—the 9.92% return of the Russell 1000® Growth Index2 for the 12 months ended October 31, 2011. The Russell 1000® Growth Index is the Fund’s broad-based securities-market index. See page 5 for Fund returns with sales charges.
What factors affected the Fund’s relative performance during the reporting period?
Stock selection tends to be the largest contributor to the Fund’s performance over time, and that held true for the reporting period. We positioned the Fund for slow but positive growth with a modest bias toward cyclical stocks. Earlier in the year, the markets were anticipating a recession and the Fund under-performed, which in our view was not surprising. Over the course of the reporting period, however, the Fund benefited because of its less defensive positioning and consistent stock selection among what we viewed to be good businesses.
During the reporting period, which sectors were the strongest positive contributors to the Fund’s relative performance and which sectors were particularly weak?
Strong stock selection in the slightly overweight industrials sector made the strongest contribution to the Fund’s performance relative to the Russell 1000® Growth Index. (Contri-butions take weightings and total returns into account.) An underweight position in consumer staples also benefited
from strong stock selection, making it the Fund’s second-
best-contributing sector relative to the benchmark.
from strong stock selection, making it the Fund’s second-
best-contributing sector relative to the benchmark.
The financials sector was the Fund’s only sector with a negative total return during the reporting period. Underperforming stock selections and an overweight position in the sector detracted from the Fund’s relative performance. The consumer discretionary sector also underperformed the Russell 1000® Growth Index because of stock selection.
During the reporting period, which individual stocks made the strongest contributions to the Fund’s absolute performance and which stocks detracted the most?
Computers & peripherals company Apple was the top contrib-utor to the Fund’s absolute performance during the period. Online travel company Priceline.com was also a strong contributor to the Fund’s absolute performance, as was food products company Green Mountain Coffee Roasters. Green Mountain Coffee Roasters showed consistently strong performance throughout the reporting period.
Media company The Walt Disney Co. detracted the most from the Fund’s absolute performance during the reporting period, followed by communications equipment company Cisco Systems. Both positions were sold during the reporting period. Chinese travel service company Ctrip.com International also detracted from the Fund’s absolute performance.
Did the Fund make any significant purchases or sales during the reporting period?
The Fund established a position in clothing and accessories company Polo Ralph Lauren, seeking to take advantage of what we saw as growth potential in international revenues and higher margins in Asia and Europe. The stock was a strong contributor to performance during the portion of the reporting period it was held in the Fund. The Fund established a position in surgical systems manufacturer Intuitive Surgical because of earnings potential from the company’s rapid procedure growth.
The Fund sold its position in subscription entertainment business Netflix when a price increase and a split in company services led to reports of subscriber dissatisfaction. The stock continued to decline during the reporting period. The Fund sold its holdings in communications equipment company Cisco Systems shortly after the company released a disappointing growth outlook. The stock continued to decline through the remainder of the reporting period.
How did the Fund’s sector weightings change during the reporting period?
Sector differences from the beginning to the end of the reporting period were not substantial. The Fund added to its energy holdings, moving from underweight to only slightly underweight in the sector. The Fund decreased its overweight position in financials to just slightly overweight. The Fund reduced its already underweight consumer staples position, moving to a position that was more substantially underweight relative to the benchmark.
1. See footnote on page 6 for more information on Lipper Inc.
2. See footnote on page 6 for more information on the Russell 1000® Growth Index.
2. See footnote on page 6 for more information on the Russell 1000® Growth Index.
mainstayinvestments.com 9
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How was the Fund positioned at the end of October 2011?
As of October 31, 2011, the Fund was more “balanced.” In an environment that was more precarious and exhibited slower growth, the Fund had modestly increased its focus on stocks with consistent and stable growth and had reduced its emphasis on quality cyclicals. Sector differences remained but were less pronounced. We have trimmed or sold companies that, in our opinion, are more exposed to potential negatives from near-term economic and policy uncertainty.
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 Large Cap Growth Fund
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Portfolio of Investments October 31, 2011
Shares | Value | |||||||
Common Stocks 95.6%† | ||||||||
Aerospace & Defense 1.8% | ||||||||
United Technologies Corp. | 2,997,100 | $ | 233,713,858 | |||||
Air Freight & Logistics 1.0% | ||||||||
C.H. Robinson Worldwide, Inc. | 1,907,300 | 132,423,839 | ||||||
Auto Components 1.3% | ||||||||
BorgWarner, Inc. (a) | 2,288,800 | 175,070,312 | ||||||
Biotechnology 2.2% | ||||||||
Biogen Idec, Inc. (a) | 912,500 | 106,178,500 | ||||||
Celgene Corp. (a) | 2,682,900 | 173,932,407 | ||||||
280,110,907 | ||||||||
Capital Markets 2.3% | ||||||||
Franklin Resources, Inc. | 1,780,200 | 189,822,726 | ||||||
TD Ameritrade Holding Corp. | 6,066,900 | 101,802,582 | ||||||
291,625,308 | ||||||||
Chemicals 3.4% | ||||||||
Ecolab, Inc. | 3,124,300 | 168,212,312 | ||||||
Monsanto Co. | 3,678,300 | 267,596,325 | ||||||
435,808,637 | ||||||||
Communications Equipment 3.1% | ||||||||
X�� QUALCOMM, Inc. | 7,729,000 | 398,816,400 | ||||||
Computers & Peripherals 7.6% | ||||||||
X Apple, Inc. (a) | 1,392,815 | 563,783,656 | ||||||
EMC Corp. (a) | 13,269,300 | 325,230,543 | ||||||
NetApp, Inc. (a) | 2,242,000 | 91,832,320 | ||||||
980,846,519 | ||||||||
Construction & Engineering 1.5% | ||||||||
Fluor Corp. | 3,324,200 | 188,980,770 | ||||||
Diversified Financial Services 3.1% | ||||||||
CME Group, Inc. | 435,900 | 120,116,604 | ||||||
IntercontinentalExchange, Inc. (a) | 1,280,500 | 166,311,340 | ||||||
JPMorgan Chase & Co. | 3,251,400 | 113,018,664 | ||||||
399,446,608 | ||||||||
Energy Equipment & Services 4.8% | ||||||||
FMC Technologies, Inc. (a) | 6,157,800 | 275,992,596 | ||||||
X Schlumberger, Ltd. | 4,701,100 | 345,389,817 | ||||||
621,382,413 | ||||||||
Food & Staples Retailing 1.1% | ||||||||
Costco Wholesale Corp. | 1,761,900 | 146,678,175 | ||||||
Food Products 1.2% | ||||||||
General Mills, Inc. | 2,997,100 | 115,478,263 | ||||||
Green Mountain Coffee Roasters, Inc. (a) | 705,700 | 45,884,614 | ||||||
161,362,877 | ||||||||
Health Care Equipment & Supplies 3.4% | ||||||||
Edwards Lifesciences Corp. (a) | 2,297,900 | 173,307,618 | ||||||
Intuitive Surgical, Inc. (a) | 308,900 | 134,019,354 | ||||||
Varian Medical Systems, Inc. (a) | 2,152,500 | 126,394,800 | ||||||
433,721,772 | ||||||||
Health Care Providers & Services 3.9% | ||||||||
Express Scripts, Inc. (a) | 3,183,000 | 145,558,590 | ||||||
X UnitedHealth Group, Inc. | 7,520,100 | 360,889,599 | ||||||
506,448,189 | ||||||||
Health Care Technology 0.8% | ||||||||
Cerner Corp. (a) | 1,642,300 | 104,171,089 | ||||||
Hotels, Restaurants & Leisure 5.1% | ||||||||
Ctrip.com International, Ltd., Sponsored ADR (a)(b) | 3,242,300 | 113,026,578 | ||||||
Las Vegas Sands Corp. (a) | 5,371,500 | 252,191,925 | ||||||
Starbucks Corp. | 4,087,100 | 173,047,814 | ||||||
Yum! Brands, Inc. | 2,352,300 | 126,012,711 | ||||||
664,279,028 | ||||||||
Industrial Conglomerates 3.0% | ||||||||
X Danaher Corp. | 7,965,200 | 385,117,420 | ||||||
Internet & Catalog Retail 4.6% | ||||||||
Amazon.com, Inc. (a) | 1,439,800 | 307,411,698 | ||||||
Priceline.com, Inc. (a) | 554,630 | 281,596,743 | ||||||
589,008,441 | ||||||||
Internet Software & Services 6.2% | ||||||||
Baidu, Inc., Sponsored ADR (a)(b) | 1,875,000 | 262,837,500 | ||||||
X Google, Inc. Class A (a) | 679,325 | 402,595,168 | ||||||
VeriSign, Inc. | 4,196,000 | 134,649,640 | ||||||
800,082,308 | ||||||||
IT Services 5.8% | ||||||||
X Cognizant Technology Solutions Corp. Class A (a) | 4,986,200 | 362,746,050 | ||||||
X Visa, Inc. Class A | 4,186,900 | 390,470,294 | ||||||
753,216,344 | ||||||||
Machinery 2.6% | ||||||||
Deere & Co. | 2,652,000 | 201,286,800 | ||||||
Illinois Tool Works, Inc. | 2,749,500 | 133,708,185 | ||||||
334,994,985 | ||||||||
† | Percentages indicated are based on Fund net assets. |
X | Among the Fund’s 10 largest holdings, as of October 31, 2011, excluding short-term investment. May be subject to change daily. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 11 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Metals & Mining 0.9% | ||||||||
Cliffs Natural Resources, Inc. | 1,707,600 | $ | 116,492,472 | |||||
Oil, Gas & Consumable Fuels 5.3% | ||||||||
Concho Resources, Inc. (a) | 2,480,400 | 234,943,488 | ||||||
Occidental Petroleum Corp. | 2,761,000 | 256,607,340 | ||||||
Peabody Energy Corp. | 2,729,700 | 118,387,089 | ||||||
Range Resources Corp. | 1,010,000 | 69,528,400 | ||||||
679,466,317 | ||||||||
Personal Products 1.0% | ||||||||
Estee Lauder Cos., Inc. (The) Class A | 1,316,900 | 129,648,805 | ||||||
Pharmaceuticals 2.2% | ||||||||
Perrigo Co. | 1,244,300 | 112,335,404 | ||||||
Shire PLC, Sponsored ADR (b) | 1,789,300 | 168,730,990 | ||||||
281,066,394 | ||||||||
Road & Rail 3.3% | ||||||||
X Union Pacific Corp. | 4,332,300 | 431,367,111 | ||||||
Semiconductors & Semiconductor Equipment 0.6% | ||||||||
Altera Corp. | 2,157,800 | 81,823,776 | ||||||
Software 7.0% | ||||||||
Citrix Systems, Inc. (a) | 2,733,800 | 199,102,654 | ||||||
Intuit, Inc. | 2,706,500 | 145,257,855 | ||||||
X Oracle Corp. | 10,090,400 | 330,662,408 | ||||||
Salesforce.com, Inc. (a) | 1,712,200 | 228,013,674 | ||||||
903,036,591 | ||||||||
Specialty Retail 2.2% | ||||||||
Abercrombie & Fitch Co. Class A | 2,072,300 | 154,179,120 | ||||||
O’Reilly Automotive, Inc. (a) | 1,645,300 | 125,125,065 | ||||||
279,304,185 | ||||||||
Textiles, Apparel & Luxury Goods 1.5% | ||||||||
Ralph Lauren Corp. | 1,216,900 | 193,231,551 | ||||||
Wireless Telecommunication Services 1.8% | ||||||||
American Tower Corp. Class A (a) | 4,323,100 | 238,202,810 | ||||||
Total Common Stocks (Cost $11,230,894,129) | 12,350,946,211 | |||||||
Short-Term Investment 3.1% | ||||||||
Repurchase Agreement 3.1% | ||||||||
State Street Bank and Trust Co. 0.01%, dated 10/31/11 due 11/1/11 Proceeds at Maturity $397,789,221 (Collateralized by a United States Treasury Note with a rate of 3.125% and maturity date of 4/30/17, with a Principal Amount of $405,000,000 and a Market Value of $446,196,195) | $ | 397,789,111 | 397,789,111 | |||||
Total Short-Term Investment (Cost $397,789,111) | 397,789,111 | |||||||
Total Investments (Cost $11,628,683,240) (c) | 98.7 | % | 12,748,735,322 | |||||
Other Assets, Less Liabilities | 1.3 | 167,395,761 | ||||||
Net Assets | 100.0 | % | $ | 12,916,131,083 | ||||
(a) | Non-income producing security. | |
(b) | ADR—American Depositary Receipt. | |
(c) | At October 31, 2011, cost is $11,650,738,477 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 1,294,435,131 | ||
Gross unrealized depreciation | (196,438,286 | ) | ||
Net unrealized appreciation | $ | 1,097,996,845 | ||
The notes to the financial statements are an integral part of,
12 MainStay Large Cap Growth Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
The following is a summary of the fair valuations according to the inputs used as of October 31, 2011, for valuing the Fund’s assets.
Asset Valuation Inputs
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Common Stocks | $ | 12,350,946,211 | $ | — | $ | — | $ | 12,350,946,211 | ||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 397,789,111 | — | 397,789,111 | ||||||||||||
Total Investments in Securities | $ | 12,350,946,211 | $ | 397,789,111 | $ | — | $ | 12,748,735,322 | ||||||||
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended October 31, 2011, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
At October 31, 2011, the Fund did not hold any investments with significant unobservable inputs (Level 3). (See Note 2)
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 13 |
Table of Contents
Statement of Assets and Liabilities as of October 31, 2011
Assets | ||||
Investment in securities, at value (identified cost $11,628,683,240) | $ | 12,748,735,322 | ||
Receivables: | ||||
Fund shares sold | 136,173,512 | |||
Investment securities sold | 103,592,132 | |||
Dividends and interest | 3,587,024 | |||
Other assets | 154,789 | |||
Total assets | 12,992,242,779 | |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 51,524,419 | |||
Fund shares redeemed | 13,902,895 | |||
Manager (See Note 3) | 6,483,031 | |||
Transfer agent (See Note 3) | 2,622,021 | |||
NYLIFE Distributors (See Note 3) | 956,309 | |||
Shareholder communication | 325,256 | |||
Professional fees | 218,887 | |||
Trustees | 40,323 | |||
Custodian | 5,508 | |||
Accrued expenses | 33,047 | |||
Total liabilities | 76,111,696 | |||
Net assets | $ | 12,916,131,083 | ||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 17,509,819 | ||
Additional paid-in capital | 11,517,851,006 | |||
11,535,360,825 | ||||
Accumulated net realized gain (loss) on investments | 260,718,176 | |||
Net unrealized appreciation (depreciation) on investments | 1,120,052,082 | |||
Net assets | $ | 12,916,131,083 | ||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 130,139,914 | ||
Shares of beneficial interest outstanding | 18,056,461 | |||
Net asset value per share outstanding | $ | 7.21 | ||
Maximum sales charge (5.50% of offering price) | 0.42 | |||
Maximum offering price per share outstanding | $ | 7.63 | ||
Class A | ||||
Net assets applicable to outstanding shares | $ | 1,887,326,365 | ||
Shares of beneficial interest outstanding | 260,707,445 | |||
Net asset value per share outstanding | $ | 7.24 | ||
Maximum sales charge (5.50% of offering price) | 0.42 | |||
Maximum offering price per share outstanding | $ | 7.66 | ||
Class B | ||||
Net assets applicable to outstanding shares | $ | 72,590,619 | ||
Shares of beneficial interest outstanding | 10,580,905 | |||
Net asset value and offering price per share outstanding | $ | 6.86 | ||
Class C | ||||
Net assets applicable to outstanding shares | $ | 380,186,215 | ||
Shares of beneficial interest outstanding | 55,464,764 | |||
Net asset value and offering price per share outstanding | $ | 6.85 | ||
Class I | ||||
Net assets applicable to outstanding shares | $ | 8,465,657,939 | ||
Shares of beneficial interest outstanding | 1,135,758,725 | |||
Net asset value and offering price per share outstanding | $ | 7.45 | ||
Class R1 | ||||
Net assets applicable to outstanding shares | $ | 1,140,163,730 | ||
Shares of beneficial interest outstanding | 154,486,570 | |||
Net asset value and offering price per share outstanding | $ | 7.38 | ||
Class R2 | ||||
Net assets applicable to outstanding shares | $ | 701,183,395 | ||
Shares of beneficial interest outstanding | 96,534,201 | |||
Net asset value and offering price per share outstanding | $ | 7.26 | ||
Class R3 | ||||
Net assets applicable to outstanding shares | $ | 138,882,906 | ||
Shares of beneficial interest outstanding | 19,392,826 | |||
Net asset value and offering price per share outstanding | $ | 7.16 | ||
The notes to the financial statements are an integral part of,
14 MainStay Large Cap Growth Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statement of Operations for the year ended October 31, 2011
Investment Income (Loss) | ||||
Income | ||||
Dividends (a) | $ | 62,398,469 | ||
Interest | 26,882 | |||
Total income | 62,425,351 | |||
Expenses | ||||
Manager (See Note 3) | 55,624,998 | |||
Transfer agent (See Note 3) | 13,278,351 | |||
Distribution/Service—Investor Class (See Note 3) | 256,661 | |||
Distribution/Service—Class A (See Note 3) | 3,687,325 | |||
Distribution/Service—Class B (See Note 3) | 817,166 | |||
Distribution/Service—Class C (See Note 3) | 3,297,437 | |||
Distribution/Service—Class R2 (See Note 3) | 842,176 | |||
Distribution/Service—Class R3 (See Note 3) | 414,350 | |||
Shareholder service (See Note 3) | 1,093,635 | |||
Shareholder communication | 888,753 | |||
Professional fees | 676,271 | |||
Registration | 495,518 | |||
Trustees | 261,721 | |||
Custodian | 114,559 | |||
Miscellaneous | 216,438 | |||
Total expenses before waiver/reimbursement | 81,965,359 | |||
Expense waiver/reimbursement from Manager (See Note 3) | (336,549 | ) | ||
Net expenses | 81,628,810 | |||
Net investment income (loss) | (19,203,459 | ) | ||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments (b) | 454,053,678 | |||
Net change in unrealized appreciation (depreciation) on investments | 123,965,023 | |||
Net realized and unrealized gain (loss) on investments | 578,018,701 | |||
Net increase (decrease) in net assets resulting from operations | $ | 558,815,242 | ||
(a) | Dividends recorded net of foreign withholding taxes in the amount of $109,679. |
(b) | Includes realized gain of $20,175,242 due to an in-kind redemption. (See Note 10) |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 15 |
Table of Contents
Statements of Changes in Net Assets
for the years ended October 31, 2011 and October 31, 2010
2011 | 2010 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | (19,203,459 | ) | $ | (20,377,017 | ) | ||
Net realized gain (loss) on investments and foreign currency transactions (a) | 454,053,678 | 233,512,783 | ||||||
Net change in unrealized appreciation (depreciation) on investments | 123,965,023 | 598,938,004 | ||||||
Net increase (decrease) in net assets resulting from operations | 558,815,242 | 812,073,770 | ||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 9,347,727,533 | 3,419,712,225 | ||||||
Net asset value of shares issued in connection with the acquisition of MainStay Mid Cap Growth Fund (See Note 9) | — | 159,791,755 | ||||||
Cost of shares redeemed (b) | (2,744,011,243 | ) | (2,229,116,588 | ) | ||||
Increase (decrease) in net assets derived from capital share transactions | 6,603,716,290 | 1,350,387,392 | ||||||
Net increase (decrease) in net assets | 7,162,531,532 | 2,162,461,162 | ||||||
Net Assets | ||||||||
Beginning of year | 5,753,599,551 | 3,591,138,389 | ||||||
End of year | $ | 12,916,131,083 | $ | 5,753,599,551 | ||||
(a) | Includes realized gain of $20,175,242 due to an in-kind redemption during the year ended October 31, 2011. (See Note 10) |
(b) | Includes an in-kind redemption in the amount of $90,171,285 during the year ended October 31, 2011. (See Note 10) |
The notes to the financial statements are an integral part of,
16 MainStay Large Cap Growth Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Investor Class | ||||||||||||||||||
February 28, | ||||||||||||||||||
2008** | ||||||||||||||||||
through | ||||||||||||||||||
Year ended October 31, | October 31, | |||||||||||||||||
2011 | 2010 | 2009 | 2008 | |||||||||||||||
Net asset value at beginning of period | $ | 6.55 | $ | 5.53 | $ | 4.70 | $ | 6.63 | ||||||||||
Net investment income (loss) (a) | (0.03 | ) | (0.04 | ) | (0.03 | ) | (0.03 | ) | ||||||||||
Net realized and unrealized gain (loss) on investments | 0.69 | 1.06 | 0.86 | (1.90 | ) | |||||||||||||
Total from investment operations | 0.66 | 1.02 | 0.83 | (1.93 | ) | |||||||||||||
Net asset value at end of period | $ | 7.21 | $ | 6.55 | $ | 5.53 | $ | 4.70 | ||||||||||
Total investment return (b) | 10.08 | % | 18.44 | % | 17.66 | % | (29.11 | %)(c) | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||
Net investment income (loss) | (0.43 | %) | (0.64 | %) | (0.62 | %) | (0.73 | %)†† | ||||||||||
Net expenses | 1.15 | % | 1.27 | % | 1.45 | % | 1.38 | % †† | ||||||||||
Expenses (before waiver/reimbursement) | 1.15 | % | 1.28 | % | 1.45 | % | 1.39 | % †† | ||||||||||
Portfolio turnover rate | 52 | % | 91 | % | 62 | % | 115 | % | ||||||||||
Net assets at end of period (in 000’s) | $ | 130,140 | $ | 93,733 | $ | 59,499 | $ | 46,762 |
** | 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. | |
(c) | Total investment return is not annualized. |
Class A | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 6.58 | $ | 5.54 | $ | 4.70 | $ | 7.37 | $ | 5.84 | ||||||||||||
Net investment income (loss) (a) | (0.02 | ) | (0.03 | ) | (0.02 | ) | (0.03 | ) | (0.04 | ) | ||||||||||||
Net realized and unrealized gain (loss) on investments | 0.68 | 1.07 | 0.86 | (2.64 | ) | 1.57 | ||||||||||||||||
Total from investment operations | 0.66 | 1.04 | 0.84 | (2.67 | ) | 1.53 | ||||||||||||||||
Net asset value at end of year | $ | 7.24 | $ | 6.58 | $ | 5.54 | $ | 4.70 | $ | 7.37 | ||||||||||||
Total investment return (b) | 10.03 | % | 18.77 | % | 17.87 | % (c) | (36.36 | %) | 26.20 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | (0.35 | %) | (0.52 | %) | (0.43 | %) | (0.52 | %) | (0.61 | %) | ||||||||||||
Net expenses | 1.06 | % | 1.17 | % | 1.21 | % | 1.23 | % | 1.36 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.07 | % | 1.18 | % | 1.24 | % | 1.26 | % | 1.43 | % | ||||||||||||
Portfolio turnover rate | 52 | % | 91 | % | 62 | % | 115 | % | 74 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 1,887,326 | $ | 1,131,968 | $ | 1,662,622 | $ | 495,184 | $ | 374,978 |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. | |
(c) | Total investment returns may reflect adjustments to conform to generally accepted accounting principles. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 17 |
Table of Contents
Financial Highlights selected per share data and ratios
Class B | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 6.28 | $ | 5.34 | $ | 4.57 | $ | 7.24 | $ | 5.77 | ||||||||||||
Net investment income (loss) (a) | (0.08 | ) | (0.08 | ) | (0.06 | ) | (0.09 | ) | (0.08 | ) | ||||||||||||
Net realized and unrealized gain (loss) on investments | 0.66 | 1.02 | 0.83 | (2.58 | ) | 1.55 | ||||||||||||||||
Total from investment operations | 0.58 | 0.94 | 0.77 | (2.67 | ) | 1.47 | ||||||||||||||||
Net asset value at end of year | $ | 6.86 | $ | 6.28 | $ | 5.34 | $ | 4.57 | $ | 7.24 | ||||||||||||
Total investment return (b) | 9.24 | % (c) | 17.60 | % (c) | 16.85 | % | (36.88 | %) | 25.48 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | (1.18 | %) | (1.38 | %) | (1.35 | %) | (1.34 | %) | (1.34 | %) | ||||||||||||
Net expenses | 1.90 | % | 2.02 | % | 2.20 | % | 2.10 | % | 2.11 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.90 | % | 2.03 | % | 2.21 | % | 2.12 | % | 2.18 | % | ||||||||||||
Portfolio turnover rate | 52 | % | 91 | % | 62 | % | 115 | % | 74 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 72,591 | $ | 82,590 | $ | 63,327 | $ | 65,996 | $ | 132,402 |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. | |
(c) | Total investment returns may reflect adjustments to conform to generally accepted accounting principles. |
Class C | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 6.28 | $ | 5.33 | $ | 4.57 | $ | 7.23 | $ | 5.77 | ||||||||||||
Net investment income (loss) (a) | (0.08 | ) | (0.08 | ) | (0.07 | ) | (0.09 | ) | (0.09 | ) | ||||||||||||
Net realized and unrealized gain (loss) on investments | 0.65 | 1.03 | 0.83 | (2.57 | ) | 1.55 | ||||||||||||||||
Total from investment operations | 0.57 | 0.95 | 0.76 | (2.66 | ) | 1.46 | ||||||||||||||||
Net asset value at end of year | $ | 6.85 | $ | 6.28 | $ | 5.33 | $ | 4.57 | $ | 7.23 | ||||||||||||
Total investment return (b) | 9.08 | % | 17.82 | % (c) | 16.63 | % (c) | (36.79 | %) | 25.30 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | (1.18 | %) | (1.39 | %) | (1.38 | %) | (1.41 | %) | (1.37 | %) | ||||||||||||
Net expenses | 1.89 | % | 2.02 | % | 2.19 | % | 2.11 | % | 2.11 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.90 | % | 2.03 | % | 2.20 | % | 2.12 | % | 2.18 | % | ||||||||||||
Portfolio turnover rate | 52 | % | 91 | % | 62 | % | 115 | % | 74 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 380,186 | $ | 262,799 | $ | 174,955 | $ | 93,249 | $ | 58,119 |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. | |
(c) | Total investment returns may reflect adjustments to conform to generally accepted accounting principles. |
The notes to the financial statements are an integral part of,
18 MainStay Large Cap Growth Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class I | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 6.75 | $ | 5.67 | $ | 4.79 | $ | 7.49 | $ | 5.89 | ||||||||||||
Net investment income (loss) (a) | (0.01 | ) | (0.01 | ) | 0.00 | ‡ | (0.01 | ) | (0.00 | )‡ | ||||||||||||
Net realized and unrealized gain (loss) on investments | 0.71 | 1.09 | 0.88 | (2.69 | ) | 1.60 | ||||||||||||||||
Total from investment operations | 0.70 | 1.08 | 0.88 | (2.70 | ) | 1.60 | ||||||||||||||||
Net asset value at end of year | $ | 7.45 | $ | 6.75 | $ | 5.67 | $ | 4.79 | $ | 7.49 | ||||||||||||
Total investment return (b) | 10.37 | % (c) | 19.05 | % (c) | 18.37 | % | (36.05 | %) | 27.16 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | (0.09 | %) | (0.23 | %) | 0.00 | % (d) | (0.08 | %) | (0.01 | %) | ||||||||||||
Net expenses | 0.81 | % | 0.85 | % | 0.82 | % | 0.79 | % | 0.76 | % | ||||||||||||
Expenses (before reimbursement/waiver) | 0.82 | % | 0.94 | % | 0.99 | % | 0.94 | % | 0.91 | % | ||||||||||||
Portfolio turnover rate | 52 | % | 91 | % | 62 | % | 115 | % | 74 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 8,465,658 | $ | 3,497,859 | $ | 1,341,715 | $ | 761,458 | $ | 524,485 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. | |
(c) | Total investment returns may reflect adjustments to conform to generally accepted accounting principles. | |
(d) | Less than one-hundredth of a percent. |
Class R1 | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 6.70 | $ | 5.63 | $ | 4.76 | $ | 7.45 | $ | 5.87 | ||||||||||||
Net investment income (loss) (a) | (0.02 | ) | (0.02 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | ||||||||||||
Net realized and unrealized gain (loss) on investments | 0.70 | 1.09 | 0.88 | (2.68 | ) | 1.59 | ||||||||||||||||
Total from investment operations | 0.68 | 1.07 | 0.87 | (2.69 | ) | 1.58 | ||||||||||||||||
Net asset value at end of year | $ | 7.38 | $ | 6.70 | $ | 5.63 | $ | 4.76 | $ | 7.45 | ||||||||||||
Total investment return (b) | 10.15 | % | 19.01 | % | 18.28 | % | (36.11 | %) | 26.92 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | (0.21 | %) | (0.35 | %) | (0.19 | %) | (0.16 | %) | (0.19 | %) | ||||||||||||
Net expenses | 0.91 | % | 0.97 | % | 0.98 | % | 0.88 | % | 0.85 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 0.92 | % | 1.04 | % | 1.09 | % | 1.03 | % | 1.01 | % | ||||||||||||
Portfolio turnover rate | 52 | % | 91 | % | 62 | % | 115 | % | 74 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 1,140,164 | $ | 418,253 | $ | 161,642 | $ | 62,344 | $ | 57,460 |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R1 shares are not subject to sales charges. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 19 |
Table of Contents
Financial Highlights selected per share data and ratios
Class R2 | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 6.61 | $ | 5.57 | $ | 4.72 | $ | 7.40 | $ | 5.84 | ||||||||||||
Net investment income (loss) (a) | (0.03 | ) | (0.04 | ) | (0.02 | ) | (0.03 | ) | (0.02 | ) | ||||||||||||
Net realized and unrealized gain (loss) on investments | 0.68 | 1.08 | 0.87 | (2.65 | ) | 1.58 | ||||||||||||||||
Total from investment operations | 0.65 | 1.04 | 0.85 | (2.68 | ) | 1.56 | ||||||||||||||||
Net asset value at end of year | $ | 7.26 | $ | 6.61 | $ | 5.57 | $ | 4.72 | $ | 7.40 | ||||||||||||
Total investment return (b) | 9.83 | % | 18.67 | % | 18.01 | % | (36.22 | %) | 26.71 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | (0.46 | %) | (0.66 | %) | (0.45 | %) | (0.46 | %) | (0.37 | %) | ||||||||||||
Net expenses | 1.16 | % | 1.28 | % | 1.24 | % | 1.14 | % | 1.11 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.17 | % | 1.29 | % | 1.35 | % | 1.29 | % | 1.27 | % | ||||||||||||
Portfolio turnover rate | 52 | % | 91 | % | 62 | % | 115 | % | 74 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 701,183 | $ | 217,002 | $ | 113,942 | $ | 35,410 | $ | 4,154 |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R2 shares are not subject to sales charges. |
Class R3 | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 6.53 | $ | 5.52 | $ | 4.69 | $ | 7.37 | $ | 5.83 | ||||||||||||
Net investment income (loss) (a) | (0.05 | ) | (0.06 | ) | (0.03 | ) | (0.05 | ) | (0.04 | ) | ||||||||||||
Net realized and unrealized gain (loss) on investments | 0.68 | 1.07 | 0.86 | (2.63 | ) | 1.58 | ||||||||||||||||
Total from investment operations | 0.63 | 1.01 | 0.83 | (2.68 | ) | 1.54 | ||||||||||||||||
Net asset value at end of year | $ | 7.16 | $ | 6.53 | $ | 5.52 | $ | 4.69 | $ | 7.37 | ||||||||||||
Total investment return (b) | 9.65 | % | 18.30 | % | 17.70 | % | (36.36 | %) | 26.42 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | (0.70 | %) | (0.92 | %) | (0.70 | %) | (0.77 | %) | (0.66 | %) | ||||||||||||
Net expenses | 1.41 | % | 1.53 | % | 1.49 | % | 1.40 | % | 1.35 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.42 | % | 1.54 | % | 1.59 | % | 1.56 | % | 1.51 | % | ||||||||||||
Portfolio turnover rate | 52 | % | 91 | % | 62 | % | 115 | % | 74 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 138,883 | $ | 49,395 | $ | 13,436 | $ | 4,689 | $ | 117 |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R3 shares are not subject to sales charges. |
The notes to the financial statements are an integral part of,
20 MainStay Large Cap Growth Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Notes to Financial Statements
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of fourteen funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay Large Cap Growth Fund (the “Fund”), a diversified fund.
The Fund currently offers eight 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. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies on investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I, Class R1, Class R2 and Class R3 shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The eight classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class, Class A, Class R2 and Class R3 shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I and Class R1 shares are not subject to a distribution and/or service fee. Class R1, Class R2 and Class R3 shares are subject to a shareholder service fee. This is in addition to any fees paid under a distribution plan, where applicable.
The Fund’s investment objective is to seek long-term growth of capital.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (usually 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are determined within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish 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 developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in determining the fair value of investments) |
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may utilize some of the following fair value techniques: multi-dimensional relational pricing models, option adjusted spread pricing and estimating the price that would have prevailed in a liquid market for an international equity security given information available at the time of evaluation, when there are significant events after the close of local foreign markets.
The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2011, there have been no changes to the fair value methodologies.
The aggregate value by input level, as of October 31, 2011, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
Equity securities and Exchange Traded Funds are valued at the latest quoted sales prices as of the close of regular trading on the Exchange on each valuation date. Securities that are not traded on the valuation
mainstayinvestments.com 21
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Notes to Financial Statements (continued)
date are valued at the mean of the latest quoted bid and asked prices. Prices normally are 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 over 60 days prior to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of the difference between such cost and the value on maturity date. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not obtained from a quoted price in an active market. These securities are all generally categorized as Level 2 in the hierarchy.
Securities for which market quotations are not readily available are valued by methods deemed in good faith by the Fund’s Board to represent fair value. Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security the trading for which 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 the market price of which is not available from an independent pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor (as defined in Note 3(A)) reflect the security’s market value; and (vi) a security where the trading on that security’s principal market is temporarily closed at a time when, under normal conditions, it would be open. These securities are generally categorized as Level 3 in the hierarchy. At October 31, 2011, the Fund did not hold any securities that were fair valued in such a manner.
Certain events may occur between the time that foreign markets close, on which securities held by the Fund principally trade, and the time at which the Fund’s NAV is calculated. These events may include, but are not limited to, situations relating to a single issuer in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. Should the Manager or Subadvisor conclude that such events may have affected the accuracy of the last price reported on the local foreign market, the Manager or Subadvisor may, pursuant to procedures adopted by the Fund’s Board, adjust the value of the local price to reflect the 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, 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 the Fund’s policies and procedures and are generally categorized as Level 2 in the hierarchy. As of October 31, 2011, the Fund did not hold any foreign equity securities.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provision is required. Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provision for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income and distributions of net realized capital and currency gains, if any, annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(D) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Dividend income is recognized on the ex-dividend date and interest income is accrued as earned using the effective interest rate method. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
(E) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(F) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(G) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into
22 MainStay Large Cap Growth Fund
Table of Contents
repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisor to be creditworthy, pursuant to guidelines established by the Fund’s Board. Repurchase agreements are considered under the 1940 Act to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in such repurchase agreements. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default of 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, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(H) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act, and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund’s cash collateral in accordance with the Lending Agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue to receive interest and dividends on the securities loaned and any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the account of the Fund.
Although the Fund and New York Life Investments (as defined in Note 3(A)) have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund had no portfolio securities on loan as of October 31, 2011.
(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 Investment Management LLC (“New York Life Investments” or the “Manager”), 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 a 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, including a portion of the total compensation of the Chief Compliance Officer (“CCO”) of the Fund which is the responsibility of all investment companies for which the CCO serves, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. Winslow Capital Management, Inc. (“Winslow” or the “Subadvisor”), a registered investment adviser, is responsible for the day-to-day portfolio management of the Fund. Pursuant to the terms of an Amended and Restated Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and Winslow, New York Life Investments pays for the services of the Subadvisor.
The management fee is an annual percentage of the Fund’s average daily net assets, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. The Manager has contractually agreed to waive a portion of its management fee based on the Fund’s average daily net assets, so that the management fee does not exceed 0.75% up to $500 million; 0.725% from $500 million to $750 million; 0.70% from $750 million to $2 billion; 0.65% from $2 billion to $3 billion; 0.60% from $3 billion to $7 billion; and 0.575% in excess of $7 billion. Without this fee waiver, the actual fee would be 0.80% up to $250 million; 0.75% from $250 million to $500 million; 0.725% from $500 million to $750 million; 0.70% from $750 million to $2 billion; 0.65% from $2 billion to $3 billion; 0.60% from $3 billion to $7 billion; and 0.575% in excess of $7 billion. This agreement may only be amended or terminated by action of the Board.
The Manager has contractually agreed to waive fees and/or reimburse expenses of Class I shares so that Total Annual Fund Operating Expenses do not exceed 0.88% of its average daily net assets. This agreement expires on February 28, 2012, and may only be amended or terminated prior to that date by action of the Board.
For the period February 26, 2010 through February 28, 2011, the Manager had agreed to waive fees and/or reimburse expenses of Class I shares so that Total Annual Fund Operating Expenses did not exceed 0.85% of its average daily net assets.
The Manager has voluntarily agreed to waive a portion of its management fee so that it does not exceed the following percentages of the Fund’s average daily net assets: 0.72% up to $500 million;
mainstayinvestments.com 23
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Notes to Financial Statements (continued)
0.70% from $500 million to $2 billion; 0.65% from $2 billion to $3 billion; 0.60% from $3 billion to $7 billion; and 0.575% in excess of $7 billion. This voluntary waiver may be discontinued at any time.
Additionally, the Manager 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 the Fund’s average daily net assets. This voluntary waiver may be discontinued at any time. Total Annual Fund Operating Expenses excludes taxes, interest, litigation, extraordinary expenses, brokerage and other transaction expenses relating to the purchase or sale of portfolio investments, and acquired (underlying) fund fees and expenses.
The effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.64% for the year ended October 31, 2011, inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets.
For the year ended October 31, 2011, New York Life Investments earned fees from the Fund in the amount of $55,624,998 and waived its fees and/or reimbursed expenses in the amount of $336,549.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution, Service and Shareholder Service Fees. The Trust, on behalf of the Fund, has entered into a Distribution Agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class, Class A and Class R2 Plans, the Distributor receives a monthly distribution fee from the Investor Class, Class A and Class R2 shares, at an annual rate of 0.25% of the average daily net assets of the Investor Class, Class A and Class R2 shares for distribution 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 service fee from the Class R3 shares at an annual rate of 0.50% of the average daily net assets of the Class R3 shares. Class I and Class R1 shares are not subject to a distribution 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 is entitled to a Shareholder Service Fee accrued daily and paid monthly at an annual rate of 0.10% of the average daily net assets of the Class R1, Class R2 and Class R3 shares. This is in addition to any fees paid under a distribution plan, where applicable.
Shareholder Service Fees incurred by the Fund for the year ended October 31, 2011, were as follows:
Class R1 | $ | 673,894 | ||
Class R2 | 336,871 | |||
Class R3 | 82,870 | |||
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $34,355 and $229,814, respectively, for the year ended October 31, 2011.
The Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Class B and Class C shares of $2,526, $125,508 and $61,337, respectively, for the year ended October 31, 2011.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2011, were as follows:
Investor Class | $ | 232,437 | ||
Class A | 2,187,193 | |||
Class B | 185,379 | |||
Class C | 743,929 | |||
Class I | 8,311,813 | |||
Class R1 | 996,498 | |||
Class R2 | 498,549 | |||
Class R3 | 122,553 | |||
(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.
24 MainStay Large Cap Growth Fund
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(F) Capital. At October 31, 2011, New York Life and its affiliates beneficially held shares of the Fund with the following values and percentages of net assets as follows:
Class A | $ | 533 | 0.0 | %‡ | ||||
Class B | 2,842 | 0.0 | ‡ | |||||
Class C | 3,100 | 0.0 | ‡ | |||||
Class I | 5,650 | 0.0 | ‡ | |||||
Class R1 | 3,057 | 0.0 | ‡ | |||||
Class R2 | 26,408 | 0.0 | ‡ | |||||
Class R3 | 22,220 | 0.0 | ‡ | |||||
‡ | Less than one-tenth of a percent. |
(G) Other. Pursuant to a Legal Services Agreement, a portion of the cost of legal services provided to the Fund by the Office of the General Counsel of New York Life Investments was payable directly by the Fund through March 17, 2011. For the year ended October 31, 2011, these fees, which are included in professional fees shown on the Statement of Operations, were $118,994. Effective March 18, 2011, the Legal Services Agreement expired and was not renewed. Therefore, the Fund is no longer directly responsible for any portion of the cost of legal services.
Note 4–Federal Income Tax
As of October 31, 2011, the components of accumulated gain (loss) on a tax basis were as follows:
Accumulated | ||||||||||||||||||
Capital | Other | Unrealized | Total | |||||||||||||||
Ordinary | and Other | Temporary | Appreciation | Accumulated | ||||||||||||||
Income | Gain (Loss) | Differences | (Depreciation) | Gain (Loss) | ||||||||||||||
$ | — | $ | 282,773,413 | $ | — | $ | 1,097,996,845 | $ | 1,380,770,258 | |||||||||
The difference between book-basis and tax basis unrealized depreciation is primarily due to wash sale deferrals.
The following table discloses the current year reclassifications between undistributed net investment income, accumulated net realized income (loss) on investments, and additional paid-in capital arising from permanent differences; net assets at October 31, 2011 were not affected.
Accumulated | ||||||||||
Undistributed | Net Realized | |||||||||
Net Investment | Gain (Loss) | Additional | ||||||||
Income (Loss) | on Investments | Paid-In Capital | ||||||||
$ | 19,203,459 | $ | (19,945,051 | ) | $ | 741,592 | ||||
The reclassifications for the Fund are primarily due to redemption in-kind, net operating loss and reversal of wash sale deferrals due to redemption in-kind.
Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
At October 31, 2011, for federal income tax purposes, a capital loss carryforward of $16,533,093 was available as shown in the table below, to the extent provided by the regulations to offset future realized gains of the Fund through the year indicated. The Fund acquired $30,146,396 of capital losses in its reorganization with MainStay Mid Cap Growth Fund (see Note 9) of which $16,533,093 is remaining as shown below. Use of these losses may be limited due to the provisions of Internal Revenue Code section 382 and there is potential for the Fund to distribute capital gains while retaining a capital loss carryforward.
Capital Loss | Capital Loss | |||||
Available Through | Amounts (000’s) | |||||
2016 | $ | 16,533 | ||||
The Fund utilized $138,111,999 of capital loss carryforwards during the year ended October 31, 2011.
Note 5–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 6–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 31, 2011, under an amended credit agreement, the aggregate commitment amount is $125,000,000 with an optional maximum amount of $175,000,000. The commitment rate is an annual rate of 0.08% of the average commitment amount, payable quarterly, regardless of usage, to The Bank of New York Mellon, which serves as the agent to the syndicate. The commitment fee is allocated among certain MainStay Funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The amended credit agreement expires on August 29, 2012, although the MainStay Funds and the syndicate of banks may renew the amended credit agreement for an additional year on the same or different terms. Prior to August 31, 2011, the commitment rate was an annual rate of 0.10% of the average commitment amount, plus a 0.02% up-front payment. There were no borrowings made or outstanding with respect to the Fund on the amended credit agreement during the year ended October 31, 2011.
Note 7–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2011, purchases and sales of securities, other than short-term securities, were $10,889,397 and $4,491,995, respectively.
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Notes to Financial Statements (continued)
Note 8–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 5,702,548 | $ | 38,655,882 | |||||
Shares redeemed | (2,740,989 | ) | (19,713,173 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 2,961,559 | 18,942,709 | ||||||
Shares converted into Investor Class (See Note 1) | 1,460,380 | 10,264,041 | ||||||
Shares converted from Investor Class (See Note 1) | (669,598 | ) | (4,747,092 | ) | ||||
Net increase (decrease) | 3,752,341 | $ | 24,459,658 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 1,932,367 | $ | 11,572,868 | |||||
Shares issued in connection with the acquisition of MainStay Mid Cap Growth Fund (See Note 9) | 3,386,751 | 19,791,497 | ||||||
Shares redeemed | (2,483,675 | ) | (14,964,700 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 2,835,443 | 16,399,665 | ||||||
Shares converted into Investor Class (See Note 1) | 1,492,520 | 9,001,568 | ||||||
Shares converted from Investor Class (See Note 1) | (791,645 | ) | (4,854,135 | ) | ||||
Net increase (decrease) | 3,536,318 | $ | 20,547,098 | |||||
Class A | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 181,470,698 | $ | 1,311,688,729 | |||||
Shares redeemed | (93,840,875 | ) | (659,903,255 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 87,629,823 | 651,785,474 | ||||||
Shares converted into Class A (See Note 1) | 1,256,201 | 8,956,912 | ||||||
Shares converted from Class A (See Note 1) | (304,197 | ) | (2,072,144 | ) | ||||
Net increase (decrease) | 88,581,827 | $ | 658,670,242 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 128,527,725 | $ | 779,814,687 | |||||
Shares issued in connection with the acquisition of MainStay Mid Cap Growth Fund (See Note 9) | 8,038,446 | 47,121,371 | ||||||
Shares redeemed | (138,173,317 | ) | (829,703,361 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (1,607,146 | ) | (2,767,303 | ) | ||||
Shares converted into Class A (See Note 1) | 1,496,793 | 9,168,843 | ||||||
Shares converted from Class A (See Note 1) | (135,024 | ) | (858,202 | ) | ||||
Shares converted from Class A (a) | (127,598,219 | ) | (763,037,350 | ) | ||||
Net increase (decrease) | (127,843,596 | ) | $ | (757,494,012 | ) | |||
Class B | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 1,359,085 | $ | 9,347,566 | |||||
Shares redeemed | (2,095,004 | ) | (14,349,392 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (735,919 | ) | (5,001,826 | ) | ||||
Shares converted from Class B (See Note 1) | (1,827,164 | ) | (12,401,717 | ) | ||||
Net increase (decrease) | (2,563,083 | ) | $ | (17,403,543 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 1,444,554 | $ | 8,380,865 | |||||
Shares issued in connection with the acquisition of MainStay Mid Cap Growth Fund (See Note 9) | 4,574,534 | 25,819,585 | ||||||
Shares redeemed | (2,589,950 | ) | (14,962,818 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 3,429,138 | 19,237,632 | ||||||
Shares converted from Class B (See Note 1) | (2,148,217 | ) | (12,458,074 | ) | ||||
Net increase (decrease) | 1,280,921 | $ | 6,779,558 | |||||
Class C | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 22,562,736 | $ | 155,503,002 | |||||
Shares redeemed | (8,952,657 | ) | (60,971,444 | ) | ||||
Net increase (decrease) | 13,610,079 | $ | 94,531,558 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 13,481,864 | $ | 78,628,907 | |||||
Shares issued in connection with the acquisition of MainStay Mid Cap Growth Fund (See Note 9) | 3,234,360 | 18,242,438 | ||||||
Shares redeemed | (7,658,734 | ) | (44,126,088 | ) | ||||
Net increase (decrease) | 9,057,490 | $ | 52,745,257 | |||||
Class I | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 861,822,014 | $ | 6,398,461,657 | |||||
Shares redeemed (b) | (243,882,757 | ) | (1,761,683,149 | ) | ||||
Net increase (decrease) | 617,939,257 | $ | 4,636,778,508 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 337,077,971 | $ | 2,090,206,271 | |||||
Shares issued in connection with the acquisition of MainStay Mid Cap Growth Fund (See Note 9) | 7,929,625 | 47,583,301 | ||||||
Shares redeemed | (188,366,547 | ) | (1,191,234,384 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 156,641,049 | 946,555,188 | ||||||
Shares converted into Class I (a) | 124,679,262 | 763,037,350 | ||||||
Net increase (decrease) | 281,320,311 | $ | 1,709,592,538 | |||||
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Class R1 | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 108,232,421 | $ | 792,700,960 | |||||
Shares redeemed | (16,214,633 | ) | (118,246,931 | ) | ||||
Net increase (decrease) | 92,017,788 | $ | 674,454,029 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 42,545,314 | $ | 266,876,856 | |||||
Shares redeemed | (8,788,622 | ) | (54,406,256 | ) | ||||
Net increase (decrease) | 33,756,692 | $ | 212,470,600 | |||||
Class R2 | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 75,569,737 | $ | 533,861,744 | |||||
Shares redeemed | (11,888,901 | ) | (85,483,044 | ) | ||||
Net increase (decrease) | 63,680,836 | $ | 448,378,700 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 23,530,284 | $ | 142,391,393 | |||||
Shares issued in connection with the acquisition of MainStay Mid Cap Growth Fund (Note 9) | 16,271 | 95,806 | ||||||
Shares redeemed | (11,158,233 | ) | (67,466,373 | ) | ||||
Net increase (decrease) | 12,388,322 | $ | 75,020,826 | |||||
Class R3 | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 15,129,955 | $ | 107,507,993 | |||||
Shares redeemed | (3,303,505 | ) | (23,660,855 | ) | ||||
Net increase (decrease) | 11,826,450 | $ | 83,847,138 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 6,977,919 | $ | 41,840,378 | |||||
Shares issued in connection with the acquisition of MainStay Mid Cap Growth Fund (See Note 9) | 194,952 | 1,137,757 | ||||||
Shares redeemed | (2,041,081 | ) | (12,252,608 | ) | ||||
Net increase (decrease) | 5,131,790 | $ | 30,725,527 | |||||
(a) | In addition to any automatic conversion features described above in Note 1 with respect to Investor Class, Class A and Class B shares, investors generally may also elect to convert their shares on a voluntary basis into another share class of the same MainStay Fund subject to satisfying the eligibility requirements of the new share class, if any. However, the following limitations apply: |
• | Investor Class, Class A and Class C shares that remain subject to a CDSC are ineligible for a voluntary conversion; and | |
• | All Class B shares are ineligible for a voluntary conversion. |
These limitations do not impact any automatic conversion features described elsewhere in Note 1 with respect to Investor Class, Class A and Class B shares. | |
An investor or an investor’s financial intermediary may contact the MainStay Funds to request a voluntary conversion between share classes of the same MainStay Fund. Investors may be required to provide sufficient information to establish eligibility to convert to the new share class. All permissible conversions will be made on the basis of the relevant NAVs of the two classes without the imposition of any sales load, fee or other charge. If an investor fails to remain eligible for the new share class, they may be converted automatically back to their original share class, or into another share class, if appropriate. Although the MainStay Funds expect that a conversion between share classes of the same MainStay Fund should not result in the recognition of a gain or loss for tax purposes, shareholders should consult with their own tax adviser with respect to the tax treatment of their investment in a MainStay Fund. The MainStay Funds may change, suspend or terminate this conversion feature at any time. | |
(b) | Includes the redemption of 13,112,802 shares through an in-kind transfer of securities in the amount of $90,171,285. (See Note 10) |
Note 9–Fund Acquisition
At a meeting held on June 23, 2009, the Board approved a plan of reorganization whereby the Fund would acquire the assets, including the investments, and assume the liabilities of MainStay Mid Cap Growth Fund, a series of The MainStay Funds. Shareholders of the MainStay Mid Cap Growth Fund approved this reorganization on November 5, 2009, which was then completed on November 12, 2009. The aggregate net assets of the Fund immediately before the acquisition were $3,824,302,830 and the combined net assets after the acquisition were $3,984,094,585.
The acquisition was accomplished by a tax-free exchange of the following:
MainStay Mid Cap Growth Fund | Shares | Value | ||||||
Investor Class | 2,057,499 | $ | 19,791,497 | |||||
Class A | 4,876,777 | 47,121,371 | ||||||
Class B | 2,883,066 | 25,819,585 | ||||||
Class C | 2,037,533 | 18,242,438 | ||||||
Class I | 4,841,458 | 47,583,301 | ||||||
Class R2 | 9,945 | 95,806 | ||||||
Class R3 | 118,906 | 1,137,757 | ||||||
In exchange for the MainStay Mid Cap Growth Fund shares and net assets, the Fund issued 3,386,751 Investor Class Shares; 8,038,446 Class A shares; 4,574,534 Class B shares; 3,234,360 Class C shares; 7,929,625 Class I shares; 16,271 Class R2 shares; and 194,952 Class R3 shares.
MainStay Mid Cap Growth Fund’s net assets at the acquisition date were as follows, which include the following amounts of capital stock, unrealized appreciation, and accumulated net realized loss and undistributed net investment loss:
Accumulated | Undistributed | |||||||||||||||||||
Total Net | Unrealized | Net Realized | Net Investment | |||||||||||||||||
Assets | Capital Stock | Appreciation | Loss | Loss | ||||||||||||||||
MainStay Mid Cap Growth Fund | $ | 159,791,755 | $ | 184,410,583 | $ | 5,535,410 | $ | (30,146,396 | ) | $ | (7,842 | ) | ||||||||
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 Mid Cap Growth Fund 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.
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Notes to Financial Statements (continued)
Note 10–In-Kind Transfer of Securities
During the year ended October 31, 2011, the Fund redeemed shares of beneficial interest in exchange for securities. The securities were transferred at their current value on the date of the transaction.
Transaction Date | Shares | Redeemed Value | Gain (Loss) | |||||||||
9/14/11 | 13,112,802 | $ | 90,171,285 | $ | 20,175,242 | |||||||
Note 11–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2011, events and transactions subsequent to October 31, 2011 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:
At a meeting held on December 14, 2011, the Board of Trustees approved a proposal to close the Fund to new investors effective as of the close of business on January 13, 2012. Existing shareholders as of that date may continue to purchase shares, including through dividend reinvestments. For more information, please see the Prospectus supplement filed with the SEC on December 16, 2011.
28 MainStay Large Cap Growth Fund
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Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Large Cap Growth Fund (the “Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Large Cap Growth Fund of The MainStay Funds as of October 31, 2011, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
-s- KPMG LLP
Philadelphia, Pennsylvania
December 22, 2011
December 22, 2011
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Federal Income Tax Information (Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders within 60 days of the Fund’s fiscal year end (October 31, 2011) as to the federal tax status of dividends paid by the Fund during such fiscal years.
In February 2012, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2011. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
30 MainStay Large Cap Growth Fund
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Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, Eclipse Funds, Eclipse Funds Inc., MainStay Funds Trust, and MainStay VP Funds Trust) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s). Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation upon reaching age 72. A Board Member reaching the age of 72 may continue for additional one-year periods with the approval of the Board’s Nominating and Governance Committee.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Interested Board Member* | ||||||||
John Y. Kim 9/24/60 | Indefinite; Eclipse Funds: Trustee since 2008 (2 funds); Eclipse Funds Inc.: Director since 2008 (1 fund); The MainStay Funds: Trustee since 2008 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc. since 2008 (21 portfolios). | Member of the Board of Managers (since 2011) of New York Life Enterprises LLC; Chairman (since 2011), Member of the Board of Managers, Chief Executive Officer and President (since 2008) of New York Life Investment Management LLC and New York Life Investment Management Holdings LLC; Executive Vice President (since 2011) of New York Life Foundation; Member of the Board of Managers and Chairman of the Board of Private Advisors, L.L.C. (since 2010); Executive Vice President, New York Life Insurance Company (since 2008); Chairman of the Board (2008-2010) and Member of the Boards of Managers (since 2008) of MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, Madison Square Investors LLC, NYLCAP Manager LLC and McMorgan & Company LLC; Chairman of the Board and Chief Executive Officer, NYLIFE Distributors LLC (2008-2010); Executive Vice President of NYLIFE Insurance Company of Arizona and New York Life Insurance and Annuity Corporation (since 2008); President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 66 | None | ||||
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Susan B. Kerley 8/12/51 | Indefinite; Eclipse Funds: Chairman since 2005, and Trustee since 2000 (2 funds); Eclipse Funds Inc.: Chairman since 2005 and Director since 1990 (1 fund); The MainStay Funds: Chairman and Board Member since 2007 (14 funds); MainStay Funds Trust: Chairman and Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Chairman and Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | President, Strategic Management Advisors LLC (since 1990) | 66 | Trustee, Legg Mason Partners Funds, since 1991 (58 portfolios) | ||||
Alan R. Latshaw 3/27/51 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2006 (14 funds); MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 66 | Trustee, State Farm Associates Funds Trusts since 2005 (4 portfolios); Trustee, State Farm Mutual Fund Trust since 2005 (15 portfolios); Trustee, State Farm Variable Product Trust since 2005 (9 portfolios) | ||||
32 MainStay Large Cap Growth Fund
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Peter Meenan 12/5/41 | Indefinite; Eclipse Funds: Trustee since 2002 (2 funds); Eclipse Funds Inc.: Director since 2002 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Independent Consultant; President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 66 | None | ||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2006 (21 portfolios). | Managing Director, ICC Capital Management; President—Shields/Alliance, Alliance Capital Management (1994 to 2004) | 66 | None | ||||
Richard S. Trutanic 2/13/52 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 1994 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 66 | None | ||||
mainstayinvestments.com 33
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Roman L. Weil 5/22/40 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1994 and Audit Committee Financial Expert since 2003 (21 portfolios). | Visiting Professor, NYU Stem School of Business, New York University (since 2011); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School of Business, University of Chicago (1965-2008) | 66 | None | ||||
John A. Weisser 10/22/41 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1997 (21 portfolios). | Retired. Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 66 | Trustee, Direxion Funds since 2007 (27 portfolios); Direxion Insurance Trust since 2007 (1 portfolio); Trustee, Direxion Shares ETF Trust, since 2008 (50 portfolios) | ||||
34 MainStay Large Cap Growth Fund
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The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.
Positions(s) Held | ||||
Name and | with the Funds | Principal Occupation(s) | ||
Date of Birth | and Length of Service | During Past Five Years | ||
Officers | ||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007); Vice President, Prudential Investments (2000 to 2007); Assistant Treasurer, JennisonDryden Family of Funds, Target Portfolio Trust, The Prudential Series Fund and American Skandia Trust (2006 to 2007); Treasurer and Principal Financial Officer, The Greater China Fund (2007) | ||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance (since 2009), Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Assistant Secretary NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2009); Assistant Secretary, The MainStay Funds and ICAP Funds, Inc. (2006 to 2008); Assistant Secretary, Eclipse Funds, Eclipse Funds, Inc. and MainStay VP Series Fund, Inc. (2005 to 2008) | ||
Stephen P. Fisher 2/22/59 | President, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Director, Senior Vice President, New York Life Insurance and Annuity Corporation (since 2011); Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2007); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007) | ||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2010); Director and Counsel of Credit Suisse, Chief Legal Officer and Secretary of Credit Suisse Asset Management, LLC and Credit Suisse Funds (2003 to 2010) | ||
Scott T. Harrington 2/8/59 | Vice President — Administration, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Director (since 2009), New York Life Trust Company FSB; Vice President—Administration, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2005) | ||
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one-year term. |
mainstayinvestments.com 35
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay offerings is listed here, with information about the manager, subadvisors, legal counsel, and independent registered public accounting firm.
Equity Funds
MainStay 130/30 Core Fund
MainStay Common Stock Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Fund
MainStay Equity Index Fund1
MainStay Growth Equity Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Small Cap Fund
Income Funds
MainStay Flexible Bond Opportunities Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Municipal Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Money Market Fund
MainStay Principal Preservation Fund
MainStay Short Term Bond Fund
MainStay Tax Free Bond Fund
Blended Funds
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
International Funds
MainStay 130/30 International Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay Global High Income Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
Asset Allocation Funds
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
Retirement Funds
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC2
Chicago, Illinois
MacKay Shields LLC2
New York, New York
Madison Square Investors LLC2
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management, Inc.
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firm
KPMG LLP
1. | Closed to new investors and new purchases as of January 1, 2002. |
2. | An affiliate of New York Life Investment Management LLC. |
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mainstayinvestments.com
The MainStay Funds are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors
LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
MainStay Investments is a registered service mark and name under which New York Life Investment Management LLC does business.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment
advisory products and services.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment
advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
© 2012 by NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency | ||||||||
NYLIM-24863 MS284-11 | MSLG11-12/11 |
N31
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MainStay MAP Fund
Message from the President and Annual Report
October 31, 2011
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Message from the President
Volatility was the keynote of the 12 months ended October 31, 2011. U.S. stocks generally advanced, but a variety of domestic and international forces influenced the market.
Early in November 2010, the Federal Open Market Committee (FOMC) announced its intention to extend quantitative easing by purchasing additional longer-term Treasury securities. The stock market reacted positively to this news—and to the midterm elections—and stocks generally advanced through mid-February.
Beginning in December 2010, a wave of protests and civil unrest across North Africa and the Middle East led to a substantial rise in the price of oil. By mid-February, stock prices started to decline. In March, a major earthquake and tsunami in Japan caused manufacturing supply-line interruptions and further setbacks for equity investors. After a sharp decline and a rapid recovery, stocks reached their high point for the 12-month period at the end of April 2011.
Pressed by a weak economy, lackluster employment and widespread concerns about European sovereign debt, the stock market faced wide fluctuations in the coming months. The volatility included a precipitous decline at the end of July into early August. Shortly thereafter, the FOMC expressed its expectation that economic conditions were “likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
After several unsuccessful attempts to recover from their dramatic drop, U.S. stocks reached their low point for the reporting period in early October. Then, buoyed by positive economic data and progress in the European debt situation, the U.S. stock market advanced rapidly in October, to close the reporting period with its best monthly performance in nearly a decade.
International stocks suffered from the turmoil in the Middle East and North Africa, the natural disasters in Japan, the sovereign debt concerns in Europe and the added threat of an economic slowdown in China. For the 12-month period, international stocks declined overall, with particular weakness in Europe.
The bond markets felt the impact of the European debt crisis, and several European nations suffered downgrades. In July, the United States faced a congressional deadlock on raising the debt ceiling and reducing deficit spending. In early August, Standard & Poor’s downgraded the debt of the United States of America to AA+.
Slow progress in resolving the European debt situation led to a flight to quality (or a movement toward securities perceived to carry lower risk). Amid strong demand, U.S. Treasury securities saw prices rise and yields decline, despite the downgrade by Standard & Poor’s. High-grade corporate
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recov-
ered as the stock market rose.
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recov-
ered as the stock market rose.
Throughout the 12-month reporting period, our portfolio managers took note of shifting market forces. But their primary focus was on the investment objectives of their respective Funds and the long-term strategies they were pursuing to achieve them. Some may have sought to capitalize on day-to-day market inefficiencies, but all remained focused on the long-term interests of our shareholders. They sought to apply time-tested investment principles consistently throughout the reporting period.
The information that follows provides specifics about the securities, decisions and market forces that affected your MainStay Fund(s) during the 12 months ended October 31, 2011. Behind the details, we hope you’ll recognize the professionalism and discipline that guided our portfolio managers during this volatile period.
We thank you for investing with MainStay and look forward to serving you for many years to come.
Sincerely,
Stephen P. Fisher
President
President
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Annual Report | ||
Investment and Performance Comparison | 5 | |
Portfolio Management Discussion and Analysis | 9 | |
Portfolio of Investments | 12 | |
Financial Statements | 17 | |
Notes to Financial Statements | 24 | |
Report of Independent Registered Public Accounting Firm | 33 | |
Board Consideration and Approval of New Subadvisory Agreement | 34 | |
Federal Income Tax Information | 36 | |
Proxy Voting Policies and Procedures and Proxy Voting Record | 36 | |
Shareholder Reports and Quarterly Portfolio Disclosure | 36 | |
Board Members and Officers | 37 | |
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
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Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class I shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
Average Annual Total Returns for the Year Ended October 31, 2011
Gross | ||||||||||||||||||||
Expense | ||||||||||||||||||||
Class | Sales Charge | One Year | Five Years | Ten Years | Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 5.5% Initial Sales Charge | With sales charges | –2 | .71% | –1 | .13% | 4 | .92% | 1 | .41% | ||||||||||
Excluding sales charges | 2 | .96 | –0 | .01 | 5 | .52 | 1 | .41 | ||||||||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges | –2 | .52 | –1 | .00 | 4 | .99 | 1 | .21 | ||||||||||
Excluding sales charges | 3 | .16 | 0 | .13 | 5 | .59 | 1 | .21 | ||||||||||||
Class B Shares | Maximum 5% CDSC | With sales charges | –2 | .82 | –1 | .09 | 4 | .72 | 2 | .16 | ||||||||||
if Redeemed Within the First Six Years of Purchase | Excluding sales charges | 2 | .18 | –0 | .77 | 4 | .72 | 2 | .16 | |||||||||||
Class C Shares | Maximum 1% CDSC | With sales charges | 1 | .18 | –0 | .77 | 4 | .72 | 2 | .16 | ||||||||||
if Redeemed Within One Year of Purchase | Excluding sales charges | 2 | .18 | –0 | .77 | 4 | .72 | 2 | .16 | |||||||||||
Class I Shares | No Sales Charge | 3 | .43 | 0 | .40 | 5 | .90 | 0 | .95 | |||||||||||
Class R1 Shares4 | No Sales Charge | 3 | .35 | 0 | .29 | 5 | .78 | 1 | .06 | |||||||||||
Class R2 Shares4 | No Sales Charge | 3 | .05 | 0 | .06 | 5 | .53 | 1 | .31 | |||||||||||
Class R3 Shares5 | No Sales Charge | �� | 2 | .79 | –0 | .19 | 5 | .23 | 1 | .56 | ||||||||||
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, change in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Investor Class shares might have been lower. |
4. | Performance figures for Class R1 and R2 shares, each of which was first offered on January 2, 2004, include the historical performance of Class A shares through January 1, 2004, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class R1 and R2 shares might have been lower. |
5. | Performance figures for Class R3 shares, which were first offered on April 28, 2006, include the historical performance of Class A shares through April 27, 2006, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class R3 shares might have been lower. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com 5
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One | Five | Ten | ||||||||||
Benchmark Performance | Year | Years | Years | |||||||||
Russell 3000® Index6 | 7 | .90% | 0 | .55% | 4 | .37% | ||||||
S&P 500® Index7 | 8 | .09 | 0 | .25 | 3 | .69 | ||||||
Average Lipper Large-Cap Core Fund8 | 5 | .37 | –0 | .28 | 3 | .26 | ||||||
6. | The Russell 3000® Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell 3000® Index is the Fund’s broad-based securities market index for comparison purposes. Total returns assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
7. | “S&P 500®” is a trademark of The McGraw-Hill Companies, Inc. The S&P 500® Index is widely regarded as the standard index for measuring large-cap U.S. stock market performance. The S&P 500® Index is the Fund’s secondary benchmark. Results assume reinvestment of all income and capital gains. An investment cannot be made directly in an index. |
8. | The average Lipper large-cap core fund is representative of funds that, by portfolio practice, invest at least 75% of their equity assets in companies with market capitalizations (on a three-year weighted basis) above Lipper’s U.S. Diversified Equity large-cap floor. Large-cap core funds have more latitude in the companies in which they invest. These funds typically have an average price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share growth value, compared to the S&P 500® Index. This benchmark is a product of Lipper Inc. Lipper Inc. is an independent monitor of fund performance. Results are based on average total returns of similar funds with all dividend and capital gain distributions reinvested. |
The footnotes on the preceding page are an integral part of the table and graph and should be carefully read in conjunction with them.
6 MainStay MAP Fund
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Cost in Dollars of a $1,000 Investment in MainStay MAP Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2011, to October 31, 2011, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2011, to October 31, 2011.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2011. 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.
Ending Account | ||||||||||||||||||||||
Ending Account | Value (Based | |||||||||||||||||||||
Value (Based | on Hypothetical | |||||||||||||||||||||
Beginning | on Actual | Expenses | 5% Annualized | Expenses | ||||||||||||||||||
Account | Returns and | Paid | Return and | Paid | ||||||||||||||||||
Value | Expenses) | During | Actual Expenses) | During | ||||||||||||||||||
Share Class | 5/1/11 | 10/31/11 | Period1 | 10/31/11 | Period1 | |||||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 890.30 | $ | 6.34 | $ | 1,018.50 | $ | 6.77 | ||||||||||||
Class A Shares | $ | 1,000.00 | $ | 890.90 | $ | 5.43 | $ | 1,019.50 | $ | 5.80 | ||||||||||||
Class B Shares | $ | 1,000.00 | $ | 887.10 | $ | 9.89 | $ | 1,014.70 | $ | 10.56 | ||||||||||||
Class C Shares | $ | 1,000.00 | $ | 886.80 | $ | 9.89 | $ | 1,014.70 | $ | 10.56 | ||||||||||||
Class I Shares | $ | 1,000.00 | $ | 892.40 | $ | 4.20 | $ | 1,020.80 | $ | 4.48 | ||||||||||||
Class R1 Shares | $ | 1,000.00 | $ | 892.00 | $ | 4.67 | $ | 1,020.30 | $ | 4.99 | ||||||||||||
Class R2 Shares | $ | 1,000.00 | $ | 890.90 | $ | 5.91 | $ | 1,019.00 | $ | 6.31 | ||||||||||||
Class R3 Shares | $ | 1,000.00 | $ | 889.60 | $ | 7.10 | $ | 1,017.70 | $ | 7.58 | ||||||||||||
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.33% for Investor Class, 1.14% for Class A, 2.08% for Class B and Class C, 0.88% for Class I, 0.98% for Class R1, 1.24% for Class R2 and 1.49% for Class R3) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the one-half year period). The table above represents the actual expenses incurred during the one-half year period. |
mainstayinvestments.com 7
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Industry Composition as of October 31, 2011 (Unaudited)
Oil, Gas & Consumable Fuels | 11.6 | % | ||
Pharmaceuticals | 8.9 | |||
Media | 6.2 | |||
Insurance | 4.6 | |||
Commercial Banks | 4.5 | |||
Software | 3.9 | |||
Beverages | 3.5 | |||
Diversified Financial Services | 3.4 | |||
Chemicals | 3.2 | |||
Semiconductors & Semiconductor Equipment | 3.1 | |||
Aerospace & Defense | 3.0 | |||
Capital Markets | 2.6 | |||
Household Products | 2.4 | |||
Internet Software & Services | 2.3 | |||
Diversified Telecommunication Services | 2.1 | |||
Health Care Equipment & Supplies | 2.1 | |||
Auto Components | 2.0 | |||
Wireless Telecommunication Services | 2.0 | |||
Computers & Peripherals | 1.9 | |||
Food Products | 1.8 | |||
Hotels, Restaurants & Leisure | 1.7 | |||
Industrial Conglomerates | 1.7 | |||
Specialty Retail | 1.6 | |||
Communications Equipment | 1.5 | |||
Consumer Finance | 1.5 | |||
Food & Staples Retailing | 1.5 | |||
Electric Utilities | 1.2 | |||
Health Care Providers & Services | 1.0 | |||
Real Estate Investment Trusts | 1.0 | |||
Electrical Equipment | 0.8 | |||
Energy Equipment & Services | 0.7 | |||
Machinery | 0.7 | |||
Electronic Equipment & Instruments | 0.6 | |||
IT Services | 0.6 | |||
Automobiles | 0.5 | |||
Construction & Engineering | 0.5 | |||
Diversified Consumer Services | 0.5 | |||
Internet & Catalog Retail | 0.5 | |||
Metals & Mining | 0.5 | |||
Road & Rail | 0.5 | |||
Biotechnology | 0.4 | |||
Construction Materials | 0.4 | |||
Gas Utilities | 0.4 | |||
Multiline Retail | 0.4 | |||
Trading Companies & Distributors | 0.4 | |||
Commercial Services & Supplies | 0.3 | |||
Independent Power Producers & Energy Traders | 0.3 | |||
Air Freight & Logistics | 0.2 | |||
Airlines | 0.2 | |||
Multi-Utilities | 0.2 | |||
Paper & Forest Products | 0.1 | |||
Real Estate Management & Development | 0.1 | |||
Office Electronics | 0.0 | ‡ | ||
Thrifts & Mortgage Finance | 0.0 | ‡ | ||
Short-Term Investment | 2.1 | |||
Other Assets, Less Liabilities | 0.3 | |||
100.0 | % | |||
See Portfolio of Investments beginning on page 12 for specific holdings within these categories.
‡ | Less than one-tenth of a percent. |
Top Ten Holdings as of October 31, 2011 (excluding short-term investment)
1. | Microsoft Corp. | |
2. | Pfizer, Inc. | |
3. | JPMorgan Chase & Co. | |
4. | Procter & Gamble Co. (The) | |
5. | Time Warner, Inc. | |
6. | ExxonMobil Corp. | |
7. | Vodafone Group PLC, Sponsored ADR | |
8. | Wells Fargo & Co. | |
9. | Coca-Cola Co. (The) | |
10. | Honeywell International, Inc. |
8 MainStay MAP Fund
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Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Roger Lob and Christopher Mullarkey of the Fund’s Subadvisor Markston International LLC and by portfolio managers Thomas R. Wenzel, CFA, and Jerrold K. Senser, CFA, of the Fund’s Subadvisor Institutional Capital LLC (ICAP).
How did MainStay MAP Fund perform relative to its peers and its benchmark during the 12 months ended October 31, 2011?
Excluding all sales charges, MainStay MAP Fund returned 2.96% for Investor Class shares, 3.16% for Class A shares and 2.18% for both Class B and Class C shares for the 12 months ended October 31, 2011. Over the same period, Class I shares returned 3.43%, Class R1 shares returned 3.35%, Class R2 shares re-turned 3.05% and Class R3 shares returned 2.79%. All share classes underperformed the 5.37% return of the average Lipper1 large-cap core fund during the reporting period. All share classes also underperformed the 7.90% return of the Russell 3000® Index2 and the 8.09% return of the S&P 500® Index3 for the 12 months ended October 31, 2011. The Russell 3000® Index is the Fund’s broad-based securities-market index. The S&P 500® Index is the Fund’s secondary benchmark. See page 5 for Fund returns with sales charges.
Were there any changes in the Fund’s day-to-day management during the reporting period?
Effective September 30, 2011, Michael Mullarkey of Markston International was no longer involved in the day-to-day management of the Fund as a portfolio manager. For more information on this adjustment, please refer to the Prospectus Supplement dated September 15, 2011.
What factors affected the Fund’s performance during the reporting period?
Markston International
During the reporting period, the performance of our portion of the Fund relative to the Russell 3000® Index resulted primarily from stock selection. Favorable stock selection in the financials, information technology and materials sectors added to relative performance. Unfavorable stock selection in the consumer discretionary, health care and energy sectors detracted from relative performance.
ICAP
In the portion of the Fund that invests in domestic equities, a number of key drivers affected performance relative to the S&P 500® Index. Favorable stock selection in the energy and industrials sectors added to relative performance. Unfavorable stock selection in the financials and consumer staples sectors detracted from relative performance. The Fund benefited from an overweight position in the consumer discretionary sector, but an overweight position in financials detracted from relative performance.
In the portion of the Fund that invests in global equities, energy, consumer discretionary and information technology were the best-performing sectors on an absolute basis. The weakest-performing sectors on an absolute basis were utilities, financials and industrials.
Which sectors made the strongest contributions to the Fund’s performance and which sectors were particularly weak?
Markston International
In our portion of the Fund, the strongest sector contributions to performance relative to the Russell 3000® Index came from the financials, information technology and materials sectors. (Contributions take weightings and total returns into account.) We attribute this performance to favorable stock selection and overweight positions in the financials and materials sectors. Despite being underweight in the information technology sector, favorable stock selection contributed positively to the Fund’s performance relative to the benchmark. The weakest sector contributions to the Fund’s relative performance came from the health care, energy and consumer discretionary sectors. In each case, our stock selection contributed to the underperformance.
ICAP
In the portion of the Fund that invests in domestic equities, the sectors that contributed most positively to performance relative to the S&P 500® Index were energy and industrials. Favorable stock selection was the primary driver in both cases. The sectors that detracted the most from performance relative to the S&P 500® Index were financials, consumer staples and consumer discretionary. Stock selection was the primary driver in each case. While each of these sectors detracted from relative performance, only the financials sector had a negative absolute return during the reporting period.
In the portion of the Fund that invests in global equities, energy, consumer discretionary and information technology made the strongest sector contributions on an absolute basis. The weakest sector contributions on an absolute basis came from financials, utilities and industrials.
During the reporting period, which individual stocks made the strongest contributions to the Fund’s absolute performance and which stocks detracted the most?
Markston International
Strong contributions to absolute performance in our portion of the Fund came from computers & peripherals company Apple, diversified media company Liberty Media, and health care providers & services company Aetna. Apple was a strong performer as its two latest innovative products, the iPhone and the iPad, continued to show robust growth and take market share from existing cell phone and personal computer manu-facturers. Liberty Media performed well as its 40% ownership stake in Sirius XM Radio appreciated. The company also
1. | See footnote on page 6 for more information on Lipper Inc. |
2. | See footnote on page 6 for more information on the Russell 3000® Index. |
3. | See footnote on page 6 for more information on the S&P 500® Index. |
mainstayinvestments.com 9
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announced an opportunistic investment in Barnes & Noble. Aetna advanced as it continued to grow through strategic acquisitions. Late in the reporting period, Aetna raised its earnings-per-share guidance for fiscal year 2011.
Stocks that detracted from absolute performance included specialty pharmaceutical and drug delivery company Hospira, cable company Cablevision Systems and capital markets company Jefferies Group. Hospira exhibited weak performance because of quality-control issues and, as a result, lower sales expectations. Cablevision Systems declined amid stiffer competition for customers. Jefferies Group suffered as the firm had yet to show operating leverage after significantly adding to its staff during the 2009 economic downturn.
ICAP
During the reporting period, the strongest contributions to absolute performance in the domestic equity portion of the Fund came from integrated oil companies Occidental Petroleum, ConocoPhillips and Marathon Oil. Each of these companies benefited from the rise in oil prices during the reporting period. Marathon Oil also benefited when plans to spin off its refining business met with investor approval. ConocoPhillips benefited as the company made substantial progress in its ongoing efforts to restructure and refocus its business to generate higher re-turns. Occidental Petroleum remained in the Fund at the end of the reporting period, but we sold the other two positions in favor of stocks that in our opinion offered more attractive upside potential.
In the domestic equity portion of the Fund, stocks that detracted from absolute performance included global investment bank Goldman Sachs Group, diversified financial services firm JPMorgan Chase and insurance company MetLife. Goldman Sachs lagged as a difficult trading and investment banking environment—along with ongoing regulatory challenges—cut into the firm’s results and outlook. We sold the Fund’s position in Goldman Sachs during the reporting period because the firm faced the potential risk of financial distress. JPMorgan Chase and MetLife underperformed because of the increased prospect of an extended, low-interest-rate environment. The stocks of JPMorgan Chase and MetLife remained in the Fund at the end of the reporting period, as we believed that the companies were well positioned in their respective industries, were attractively valued and had catalysts for potential price appreciation.
In the portion of the Fund that invests in global equities, the stocks that made the greatest contributions to absolute performance were integrated oil companies Occidental Petroleum, ConocoPhillips and Marathon Oil.
In the portion of the Fund that invests in global equities, the largest individual detractors from absolute performance were Italian bank Intesa Sanpaolo, Swiss bank UBS and global investment bank Goldman Sachs Group. Intesa Sanpaolo lagged on continuing concerns about the European sovereign debt crisis. UBS underperformed when a loss from unauthorized trading undermined confidence in the company’s risk controls. Goldman Sachs lagged because the firm faced the potential risk of financial distress. Each of these stocks generated negative returns during the reporting period, and the Fund sold all three positions.
Did the Fund make any significant purchases or sales during the reporting period?
Markston International
During the reporting period, we added to our position in insurance company The Travelers because the stock was trading below book value, there was a large share buyback, and we felt that pricing was about to harden in the insurance industry. We added to our position in agricultural products com-pany Monsanto because we felt that high corn prices would help the firm’s profitability. We also felt that new products would help Monsanto regain lost market share.
During the 12-month period, our largest individual stock sales were in biotechnology company Genzyme, Apple and Monsanto. We sold Genzyme when French pharmaceutical group Sanofi-Aventis offered cash to shareholders as part of the acquisition of Genzyme. We slightly lightened up on Apple on health concerns about the com pany’s CEO. We also locked in some profits on our Monsanto posi tion when corn prices started to fall from their elevated levels.
ICAP
During a reporting period characterized by ongoing volatility and an uncertain economic environment, we continued to look for stocks with attractive valuations and specific catalysts that could trigger appreciation over a 12- to 18-month time frame.
In both the domestic and global equity portions of the Fund, we added media company Time Warner. The investment reflected our belief that the company’s advertising growth and ability to increase cable network affiliate fees could provide consistent revenue and earnings upside. In our view, increasing market penetration—along with strong programming and ratings—should give Time Warner leverage on affiliate fees. We also added diversified health care company Johnson & Johnson. We believed that the company could boost sales with a strong drug pipeline and a recovery in its consumer business (which appeared to be improving, after a challenging span of product recalls). In the global equity portion of the Fund, we added Dutch paint and coatings manufacturer AkzoNobel. We believed that the company could improve its margins through price increases that would offset the rise in raw material costs.
In addition to the sales already mentioned in both our domestic and global equity portions of the Fund, we sold insurance broker Aon and wireless communications technology company Qualcomm. Both positions were sold because we believed that other stocks had greater upside potential and were more attractive on a relative-valuation basis. In the global equity portion of the Fund, we sold Hong Kong conglomerate Hutchison Whampoa when the stock neared our target price.
10 MainStay MAP Fund
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How did the Fund’s sector weightings change during the reporting period?
Markston International
In our portion of the Fund, we slightly increased our overweight position in the energy sector and moved from an underweight to a slightly overweight position relative to the Russell 3000® Index in the consumer discretionary sector. During the reporting period, we trimmed our exposure to information technology and health care, becoming more underweight in these sectors.
ICAP
In the portion of the Fund that invests in domestic equities, we increased sector weightings relative to the S&P 500® Index in the consumer discretionary and consumer staples sectors during the reporting period. In both cases, the domestic equity portion of the Fund moved from a modestly underweight posi-tion relative to the S&P 500® Index to an overweight position.
Over the same period, the domestic equity portion of the Fund decreased its exposure to the energy sector, moving from an overweight to an underweight position relative to the S&P 500® Index, as we trimmed several energy positions. The domestic equity portion of the Fund also decreased the size of its position in the materials sector, shifting from a neutral position relative to the S&P 500® Index to an underweight position.
In the portion of the Fund that invests in global equities, we increased sector weightings in telecommunication services and consumer staples during the reporting period. Over the same period, we decreased the Fund’s global equity exposure to financials and industrials.
How was the Fund positioned at the end of October 2011?
Markston International
As of October 31, 2011, our portion of the Fund maintained overweight positions relative to the Russell 3000® Index in the energy and financials sectors. As of the same date, our portion of the Fund held underweight positions relative to the Russell 3000® Index in health care and information technology.
ICAP
As of October 31, 2011, the most significantly overweight sectors relative to the S&P 500® Index in our domestic equity portion of the Fund were health care and consumer discretionary. The most significantly underweight sectors were industrials and utilities.
As of the same date, the largest sector weightings in the global equity portion of the Fund were in financials and consumer discretionary. The smallest sector weightings were in utilities and materials.
This positioning in our domestic and global equity portions of the Fund reflected our view on the prospects for economic growth and the relative attractiveness of individual holdings in these sectors.
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
mainstayinvestments.com 11
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Portfolio of Investments October 31, 2011
Shares | Value | |||||||
Common Stocks 97.4%† | ||||||||
Aerospace & Defense 3.0% | ||||||||
Boeing Co. (The) | 196,438 | $ | 12,923,656 | |||||
GenCorp, Inc. (a) | 153,300 | 745,038 | ||||||
X Honeywell International, Inc. | 641,102 | 33,593,745 | ||||||
Huntington Ingalls Industries, Inc. (a) | 6,554 | 193,343 | ||||||
Northrop Grumman Corp. | 58,528 | 3,379,992 | ||||||
Orbital Sciences Corp. (a) | 156,800 | 2,424,128 | ||||||
Raytheon Co. | 64,000 | 2,828,160 | ||||||
56,088,062 | ||||||||
Air Freight & Logistics 0.2% | ||||||||
TNT Express N.V. | 383,949 | 3,243,151 | ||||||
Airlines 0.2% | ||||||||
Southwest Airlines Co. | 372,800 | 3,187,440 | ||||||
Auto Components 2.0% | ||||||||
Bridgestone Corp. | 533,200 | 12,473,677 | ||||||
Goodyear Tire & Rubber Co. (The) (a) | 103,250 | 1,482,670 | ||||||
Johnson Controls, Inc. | 752,050 | 24,765,007 | ||||||
38,721,354 | ||||||||
Automobiles 0.5% | ||||||||
Nissan Motor Co., Ltd. | 1,041,800 | 9,597,963 | ||||||
Beverages 3.5% | ||||||||
X Coca-Cola Co. (The) | 491,895 | 33,606,267 | ||||||
PepsiCo., Inc. | 412,497 | 25,966,686 | ||||||
Pernod Ricard S.A. | 75,700 | 7,054,177 | ||||||
66,627,130 | ||||||||
Biotechnology 0.4% | ||||||||
Alkermes PLC (a) | 79,580 | 1,391,854 | ||||||
Celgene Corp. (a) | 90,900 | 5,893,047 | ||||||
Gilead Sciences, Inc. (a) | 21,000 | 874,860 | ||||||
8,159,761 | ||||||||
Capital Markets 2.6% | ||||||||
Ameriprise Financial, Inc. | 96,850 | 4,520,958 | ||||||
Bank of New York Mellon Corp. (The) | 110,125 | 2,343,460 | ||||||
BlackRock, Inc. | 101,200 | 15,968,348 | ||||||
Goldman Sachs Group, Inc. (The) | 49,969 | 5,474,104 | ||||||
ICG Group, Inc. (a) | 44,344 | 478,472 | ||||||
Jefferies Group, Inc. | 316,451 | 4,196,140 | ||||||
Knight Capital Group, Inc. Class A (a) | 46,864 | 585,331 | ||||||
Legg Mason, Inc. | 28,210 | 775,775 | ||||||
State Street Corp. | 333,484 | 13,469,419 | ||||||
Virtus Investment Partners, Inc. (a) | 7,726 | 482,102 | ||||||
48,294,109 | ||||||||
Chemicals 3.2% | ||||||||
Akzo Nobel N.V. | 233,100 | 12,257,561 | ||||||
E.I. du Pont de Nemours & Co. | 367,000 | 17,641,690 | ||||||
Monsanto Co. | 393,309 | 28,613,230 | ||||||
Mosaic Co. (The) | 36,430 | 2,133,341 | ||||||
60,645,822 | ||||||||
Commercial Banks 4.5% | ||||||||
Banco Bilbao Vizcaya Argentaria S.A. | 611,200 | 5,498,447 | ||||||
BB&T Corp. | 696,350 | 16,252,809 | ||||||
DnB NOR ASA | 755,100 | 8,732,404 | ||||||
Popular, Inc. (a) | 467,671 | 869,868 | ||||||
Standard Chartered PLC | 474,906 | 11,063,518 | ||||||
U.S. Bancorp | 349,550 | 8,944,984 | ||||||
X Wells Fargo & Co. | 1,303,424 | 33,771,716 | ||||||
85,133,746 | ||||||||
Commercial Services & Supplies 0.3% | ||||||||
Covanta Holding Corp. | 257,153 | 3,769,863 | ||||||
Waste Management, Inc. | 58,400 | 1,923,112 | ||||||
5,692,975 | ||||||||
Communications Equipment 1.5% | ||||||||
Cisco Systems, Inc. | 1,470,750 | 27,252,997 | ||||||
Infinera Corp. (a) | 129,251 | 944,825 | ||||||
Motorola Mobility Holdings, Inc. (a) | 1,262 | 49,067 | ||||||
Motorola Solutions, Inc. | 1,442 | 67,644 | ||||||
28,314,533 | ||||||||
Computers & Peripherals 1.9% | ||||||||
Apple, Inc. (a) | 55,285 | 22,378,262 | ||||||
Dell, Inc. (a) | 332,620 | 5,258,722 | ||||||
SanDisk Corp. (a) | 99,591 | 5,046,276 | ||||||
STEC, Inc. (a) | 224,200 | 2,537,944 | ||||||
35,221,204 | ||||||||
Construction & Engineering 0.5% | ||||||||
China Communications Construction Co., Ltd. Class H | 3,672,750 | 2,736,051 | ||||||
Jacobs Engineering Group, Inc. (a) | 149,786 | 5,811,697 | ||||||
8,547,748 | ||||||||
Construction Materials 0.4% | ||||||||
Holcim, Ltd. (a) | 106,100 | 6,723,755 | ||||||
Consumer Finance 1.5% | ||||||||
American Express Co. | 397,550 | 20,123,981 | ||||||
Discover Financial Services | 323,530 | 7,622,367 | ||||||
27,746,348 | ||||||||
† | Percentages indicated are based on Fund net assets. |
X | Among the Fund’s 10 largest holdings, as of October 31, 2011, excluding short-term investment. May be subject to change daily. |
The notes to the financial statements are an integral part of,
12 MainStay MAP Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Diversified Consumer Services 0.4% | ||||||||
Ascent Media Corp. Class A (a) | 1,362 | $ | 61,957 | |||||
Coinstar, Inc. (a) | 157,770 | 7,531,940 | ||||||
7,593,897 | ||||||||
Diversified Financial Services 3.4% | ||||||||
Bank of America Corp. | 384,054 | 2,623,089 | ||||||
Citigroup, Inc. | 38,080 | 1,202,947 | ||||||
CME Group, Inc. | 46,285 | 12,754,295 | ||||||
Deutsche Boerse A.G. (a) | 45,650 | 2,518,741 | ||||||
X JPMorgan Chase & Co. | 1,254,082 | 43,591,890 | ||||||
Leucadia National Corp. | 74,446 | 1,997,386 | ||||||
64,688,348 | ||||||||
Diversified Telecommunication Services 2.1% | ||||||||
AT&T, Inc. | 333,600 | 9,777,816 | ||||||
BCE, Inc. | 200,800 | 7,953,688 | ||||||
Koninklijke KPN N.V. | 691,550 | 9,035,761 | ||||||
Nippon Telegraph & Telephone Corp. | 228,600 | 11,686,696 | ||||||
Verizon Communications, Inc. | 49,100 | 1,815,718 | ||||||
40,269,679 | ||||||||
Electric Utilities 1.2% | ||||||||
American Electric Power Co., Inc. | 52,765 | 2,072,609 | ||||||
Duke Energy Corp. | 1,041,400 | 21,265,388 | ||||||
23,337,997 | ||||||||
Electrical Equipment 0.8% | ||||||||
ABB, Ltd. (a) | 387,650 | 7,308,273 | ||||||
Rockwell Automation, Inc. | 111,728 | 7,558,399 | ||||||
14,866,672 | ||||||||
Electronic Equipment & Instruments 0.6% | ||||||||
Corning, Inc. | 186,250 | 2,661,512 | ||||||
TE Connectivity, Ltd. | 256,541 | 9,120,033 | ||||||
11,781,545 | ||||||||
Energy Equipment & Services 0.7% | ||||||||
Baker Hughes, Inc. | 47,122 | 2,732,605 | ||||||
Exterran Holdings, Inc. (a) | 71,643 | 680,609 | ||||||
Key Energy Services, Inc. (a) | 197,005 | 2,547,275 | ||||||
Parker Drilling Co. (a) | 63,000 | 348,390 | ||||||
Schlumberger, Ltd. | 86,794 | 6,376,755 | ||||||
Weatherford International, Ltd. (a) | 93,451 | 1,448,490 | ||||||
14,134,124 | ||||||||
Food & Staples Retailing 1.5% | ||||||||
CVS Caremark Corp. | 238,126 | 8,643,974 | ||||||
Wal-Mart Stores, Inc. | 180,620 | 10,244,766 | ||||||
Walgreen Co. | 260,011 | 8,632,365 | ||||||
27,521,105 | ||||||||
Food Products 1.8% | ||||||||
Archer-Daniels-Midland Co. | 629,513 | 18,218,106 | ||||||
Bunge, Ltd. | 57,690 | 3,563,511 | ||||||
Danone S.A. | 144,150 | 9,964,452 | ||||||
Kraft Foods, Inc. Class A | 62,200 | 2,188,196 | ||||||
33,934,265 | ||||||||
Gas Utilities 0.4% | ||||||||
National Fuel Gas Co. | 76,906 | 4,713,569 | ||||||
Nicor, Inc. | 34,250 | 1,926,562 | ||||||
6,640,131 | ||||||||
Health Care Equipment & Supplies 2.1% | ||||||||
Baxter International, Inc. | 86,368 | 4,748,513 | ||||||
Boston Scientific Corp. (a) | 30,200 | 177,878 | ||||||
CareFusion Corp. (a) | 44,612 | 1,142,067 | ||||||
Covidien PLC | 496,019 | 23,332,734 | ||||||
Gen-Probe, Inc. (a) | 10,500 | 631,050 | ||||||
Medtronic, Inc. | 286,768 | 9,962,320 | ||||||
39,994,562 | ||||||||
Health Care Providers & Services 1.0% | ||||||||
Aetna, Inc. | 372,220 | 14,799,467 | ||||||
Cardinal Health, Inc. | 61,370 | 2,716,850 | ||||||
Express Scripts, Inc. (a) | 38,400 | 1,756,032 | ||||||
SunLink Health Systems, Inc. (a) | 51,368 | 94,774 | ||||||
Universal Health Services, Inc. Class B | 5,800 | 231,826 | ||||||
19,598,949 | ||||||||
Hotels, Restaurants & Leisure 1.7% | ||||||||
Genting Berhad | 1,416,150 | 4,935,245 | ||||||
Genting Singapore PLC (a) | 3,353,250 | 4,578,851 | ||||||
Marriott International, Inc. Class A | 28,660 | 902,790 | ||||||
McDonald’s Corp. | 120,430 | 11,181,925 | ||||||
Sands China, Ltd. (a) | 1,004,400 | 2,955,220 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 163,716 | 8,203,809 | ||||||
32,757,840 | ||||||||
Household Products 2.4% | ||||||||
Colgate-Palmolive Co. | 28,612 | 2,585,666 | ||||||
X Procter & Gamble Co. (The) | 656,950 | 42,038,231 | ||||||
44,623,897 | ||||||||
Independent Power Producers & Energy Traders 0.3% | ||||||||
AES Corp. (The) (a) | 429,000 | 4,813,380 | ||||||
Industrial Conglomerates 1.7% | ||||||||
3M Co. | 69,650 | 5,503,743 | ||||||
General Electric Co. | 776,533 | 12,975,866 | ||||||
Siemens A.G. | 59,850 | 6,272,837 | ||||||
Tyco International, Ltd. | 174,189 | 7,934,309 | ||||||
32,686,755 | ||||||||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 13 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Insurance 4.6% | ||||||||
Aflac, Inc. | 28,448 | $ | 1,282,720 | |||||
Allstate Corp. (The) | 198,909 | 5,239,263 | ||||||
AON Corp. | 99,640 | 4,645,217 | ||||||
Chubb Corp. (The) | 33,950 | 2,276,347 | ||||||
HCC Insurance Holdings, Inc. | 65,800 | 1,750,938 | ||||||
Marsh & McLennan Cos., Inc. | 118,596 | 3,631,410 | ||||||
MetLife, Inc. | 855,461 | 30,078,009 | ||||||
Phoenix Cos., Inc. (The) (a) | 123,850 | 184,536 | ||||||
Reinsurance Group of America, Inc. | 32,292 | 1,686,611 | ||||||
Tokio Marine Holdings, Inc. | 301,000 | 7,164,112 | ||||||
Travelers Cos., Inc. (The) | 345,280 | 20,147,088 | ||||||
W.R. Berkley Corp. | 278,116 | 9,681,218 | ||||||
87,767,469 | ||||||||
Internet & Catalog Retail 0.5% | ||||||||
Liberty Interactive Corp. (a) | 550,690 | 9,047,837 | ||||||
Internet Software & Services 2.3% | ||||||||
AOL, Inc. (a) | 6,651 | 93,912 | ||||||
eBay, Inc. (a) | 465,075 | 14,803,337 | ||||||
Google, Inc. Class A (a) | 22,416 | 13,284,618 | ||||||
Valueclick, Inc. (a) | 137,658 | 2,422,781 | ||||||
VeriSign, Inc. | 411,948 | 13,219,412 | ||||||
43,824,060 | ||||||||
IT Services 0.6% | ||||||||
Computer Sciences Corp. | 86,500 | 2,721,290 | ||||||
International Business Machines Corp. | 51,799 | 9,563,649 | ||||||
12,284,939 | ||||||||
Machinery 0.7% | ||||||||
Accuride Corp. (a) | 45,899 | 290,082 | ||||||
Caterpillar, Inc. | 101,900 | 9,625,474 | ||||||
KOMATSU, Ltd. | 156,600 | 3,855,793 | ||||||
13,771,349 | ||||||||
Media 6.2% | ||||||||
AMC Networks, Inc. Class A (a) | 108,831 | 3,550,067 | ||||||
Cablevision Systems Corp. Class A | 386,553 | 5,593,422 | ||||||
Comcast Corp. Class A | 190,960 | 4,478,012 | ||||||
DIRECTV Class A (a) | 20,700 | 941,022 | ||||||
Liberty Media Corp.—Liberty Capital Class A (a) | 276,814 | 21,264,852 | ||||||
Liberty Media Corp.—Liberty Starz Class A (a) | 56,787 | 3,878,552 | ||||||
Madison Square Garden, Inc. Class A (a) | 224,662 | 5,937,817 | ||||||
Sirius XM Radio, Inc. (a) | 556,700 | 996,493 | ||||||
Time Warner Cable, Inc. | 15,445 | 983,692 | ||||||
X Time Warner, Inc. | 1,186,566 | 41,517,944 | ||||||
Viacom, Inc. Class B | 596,100 | 26,138,985 | ||||||
Walt Disney Co. (The) | 35,843 | 1,250,204 | ||||||
116,531,062 | ||||||||
Metals & Mining 0.5% | ||||||||
JFE Holdings, Inc. | 257,400 | 4,850,274 | ||||||
Rio Tinto PLC | 25,850 | 1,397,799 | ||||||
United States Steel Corp. | 109,350 | 2,773,116 | ||||||
9,021,189 | ||||||||
Multi-Utilities 0.2% | ||||||||
Dominion Resources, Inc. | 38,600 | 1,991,374 | ||||||
GDF Suez S.A. | 57,396 | 1,616,240 | ||||||
3,607,614 | ||||||||
Multiline Retail 0.4% | ||||||||
Kohl’s Corp. | 67,700 | 3,588,777 | ||||||
Target Corp. | 58,590 | 3,207,803 | ||||||
6,796,580 | ||||||||
Office Electronics 0.0%‡ | ||||||||
Xerox Corp. | 65,600 | 536,608 | ||||||
Oil, Gas & Consumable Fuels 11.6% | ||||||||
Anadarko Petroleum Corp. | 139,714 | 10,967,549 | ||||||
Apache Corp. | 112,249 | 11,183,368 | ||||||
Chesapeake Energy Corp. | 193,674 | 5,446,113 | ||||||
Chevron Corp. | 76,429 | 8,028,866 | ||||||
ConocoPhillips | 153,876 | 10,717,463 | ||||||
Devon Energy Corp. | 205,221 | 13,329,104 | ||||||
ENI S.p.A. | 402,450 | 8,862,199 | ||||||
EOG Resources, Inc. | 95,400 | 8,531,622 | ||||||
X ExxonMobil Corp. | 512,900 | 40,052,361 | ||||||
Hess Corp. | 117,761 | 7,367,128 | ||||||
InterOil Corp. (a) | 2,500 | 118,775 | ||||||
Marathon Oil Corp. | 186,349 | 4,850,664 | ||||||
Marathon Petroleum Corp. | 334,625 | 12,013,038 | ||||||
Occidental Petroleum Corp. | 350,370 | 32,563,388 | ||||||
Petroleo Brasileiro S.A., ADR (b) | 429,650 | 11,604,847 | ||||||
Southwestern Energy Co. (a) | 191,200 | 8,038,048 | ||||||
Spectra Energy Corp. | 530,400 | 15,185,352 | ||||||
Sunoco, Inc. | 25,000 | 930,750 | ||||||
Total S.A. | 93,850 | 4,907,743 | ||||||
Williams Cos., Inc. | 127,681 | 3,844,475 | ||||||
218,542,853 | ||||||||
Paper & Forest Products 0.1% | ||||||||
MeadWestvaco Corp. | 80,405 | 2,244,104 | ||||||
Pharmaceuticals 8.9% | ||||||||
Abbott Laboratories | 136,477 | 7,352,016 | ||||||
Hospira, Inc. (a) | 160,273 | 5,040,586 |
The notes to the financial statements are an integral part of,
14 MainStay MAP Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Pharmaceuticals (continued) | ||||||||
Johnson & Johnson | 484,400 | $ | 31,190,516 | |||||
Merck & Co., Inc. | 809,405 | 27,924,472 | ||||||
Mylan, Inc. (a) | 29,000 | 567,530 | ||||||
Novartis A.G. | 270,550 | 15,284,076 | ||||||
X Pfizer, Inc. | 2,660,150 | 51,234,489 | ||||||
Sanofi S.A. | 193,000 | 13,815,576 | ||||||
Sanofi, Sponsored ADR (b) | 281,300 | 10,056,475 | ||||||
Teva Pharmaceutical Industries, Ltd., Sponsored ADR (b) | 117,898 | 4,816,133 | ||||||
167,281,869 | ||||||||
Real Estate Investment Trusts 1.0% | ||||||||
HCP, Inc. | 224,010 | 8,926,799 | ||||||
UDR, Inc. | 353,340 | 8,808,766 | ||||||
Weyerhaeuser Co. | 61,705 | 1,109,456 | ||||||
18,845,021 | ||||||||
Real Estate Management & Development 0.1% | ||||||||
St. Joe Co. (The) (a) | 132,500 | 1,901,375 | ||||||
Road & Rail 0.5% | ||||||||
Celadon Group, Inc. | 119,674 | 1,317,611 | ||||||
CSX Corp. | 159,226 | 3,536,409 | ||||||
Union Pacific Corp. | 41,900 | 4,171,983 | ||||||
9,026,003 | ||||||||
Semiconductors & Semiconductor Equipment 3.1% | ||||||||
Applied Materials, Inc. | 1,405,619 | 17,317,226 | ||||||
Intel Corp. | 283,195 | 6,949,605 | ||||||
Samsung Electronics Co., Ltd., GDR (c) | 19,150 | 8,206,987 | ||||||
Texas Instruments, Inc. | 830,750 | 25,528,948 | ||||||
58,002,766 | ||||||||
Software 3.9% | ||||||||
Adobe Systems, Inc. (a) | 34,950 | 1,027,880 | ||||||
Electronic Arts, Inc. (a) | 31,733 | 740,966 | ||||||
JDA Software Group, Inc. (a) | 35,379 | 1,127,529 | ||||||
X Microsoft Corp. | 2,335,483 | 62,193,912 | ||||||
Oracle Corp. | 105,568 | 3,459,463 | ||||||
S1 Corp. (a) | 53,270 | 518,317 | ||||||
SAP A.G. | 86,100 | 5,188,357 | ||||||
74,256,424 | ||||||||
Specialty Retail 1.5% | ||||||||
Home Depot, Inc. (The) | 165,753 | 5,933,957 | ||||||
Lowe’s Cos., Inc. | 975,262 | 20,500,007 | ||||||
PEP Boys-Manny, Moe & Jack | 234,255 | 2,693,933 | ||||||
29,127,897 | ||||||||
Thrifts & Mortgage Finance 0.0%‡ | ||||||||
New York Community Bancorp, Inc. | 59,200 | 787,952 | ||||||
Trading Companies & Distributors 0.4% | ||||||||
Mitsubishi Corp. | 391,950 | 8,068,019 | ||||||
Wireless Telecommunication Services 2.0% | ||||||||
X Vodafone Group PLC, Sponsored ADR (b) | 1,380,800 | 38,441,472 | ||||||
Total Common Stocks (Cost $1,759,691,504) | 1,840,902,709 | |||||||
Number of | ||||||||
Rights | ||||||||
Rights 0.0%‡ | ||||||||
Pharmaceuticals 0.0%‡ | ||||||||
Sanofi S.A. Expires 12/31/20 (a) | 86,571 | 77,048 | ||||||
Total Rights (Cost $203,788) | 77,048 | |||||||
Principal | ||||||||
Amount | ||||||||
Long-Term Bonds 0.2% Convertible Bonds 0.1% | ||||||||
Diversified Consumer Services 0.1% | ||||||||
Coinstar, Inc. 4.00%, due 9/1/14 | $ | 900,000 | 1,248,750 | |||||
Oil, Gas & Consumable Fuels 0.0%‡ | ||||||||
Bill Barrett Corp. 5.00%, due 3/15/28 | 989,300 | 1,000,430 | ||||||
Total Convertible Bonds (Cost $1,621,334) | 2,249,180 | |||||||
Corporate Bond 0.1% | ||||||||
Specialty Retail 0.1% | ||||||||
PEP Boys-Manny Moe & Jack 7.50%, due 12/15/14 | 2,050,000 | 2,065,375 | ||||||
Total Corporate Bond (Cost $1,674,329) | 2,065,375 | |||||||
Total Long-Term Bonds (Cost $3,295,663) | 4,314,555 | |||||||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 15 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Short-Term Investment 2.1% | ||||||||
Repurchase Agreement 2.1% | ||||||||
State Street Bank and Trust Co. 0.01%, dated 10/31/11 due 11/1/11 Proceeds at Maturity $39,643,626 (Collateralized by a Federal Home Loan Mortgage Corp. security with rates from 0.78%-0.90% and maturities dates from 9/8/14-9/12/14, with a Principal Amount of $40,375,000 and a Market Value of $40,439,245) | $ | 39,643,615 | $ | 39,643,615 | ||||
Total Short-Term Investment (Cost $39,643,615) | 39,643,615 | |||||||
Total Investments (Cost $1,802,834,570) (d) | 99.7 | % | 1,884,937,927 | |||||
Other Assets, Less Liabilities | 0.3 | 5,003,619 | ||||||
Net Assets | 100.0 | % | $ | 1,889,941,546 | ||||
‡ | Less than one-tenth of a percent. | |
(a) | Non-income producing security. | |
(b) | ADR—American Depositary Receipt. | |
(c) | GDR—Global Depositary Receipt. | |
(d) | At October 31, 2011, cost is $1,814,201,458 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 192,615,679 | ||
Gross unrealized depreciation | (121,879,210 | ) | ||
Net unrealized appreciation | $ | 70,736,469 | ||
The following is a summary of the fair valuations according to the inputs used as of October 31, 2011, for valuing the Fund’s assets.
Asset Valuation Inputs
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Common Stocks (b) | $ | 1,619,048,754 | $ | 221,853,955 | $ | — | $ | 1,840,902,709 | ||||||||
Rights | 77,048 | — | — | 77,048 | ||||||||||||
Long-Term Bonds | ||||||||||||||||
Convertible Bonds | — | 2,249,180 | — | 2,249,180 | ||||||||||||
Corporate Bond | — | 2,065,375 | — | 2,065,375 | ||||||||||||
Total Long-Term Bonds | — | 4,314,555 | — | 4,314,555 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 39,643,615 | — | 39,643,615 | ||||||||||||
Total Investments in Securities | $ | 1,619,125,802 | $ | 265,812,125 | $ | — | $ | 1,884,937,927 | ||||||||
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | Level 2 assets represent the following international equities: TNT Express N.V., Bridgestone Corp., Nissan Motor Co., Ltd., Pernod-Ricard S.A., Akzo Nobel N.V., Banco Bilbao Vizcaya Argentaria S.A., DnB NOR ASA, Standard Chartered PLC, China Communications Construction Co., Ltd. Class H, Holcim, Ltd., Deutsche Boerse A.G., Koninklijke KPN N.V., Nippon Telegraph & Telephone Corp., ABB, Ltd., Danone S.A., Genting Berhad, Genting Singapore PLC, Sands China, Ltd., Siemens A.G., Tokio Marine Holdings, Inc., KOMATSU, Ltd., JFE Holdings, Inc., Rio Tinto PLC, GDF Suez S.A., ENI S.p.A., Total S.A., Novartis A.G., Sanofi, Samsung Electronics Co., Ltd., SAP A.G. and Mitsubishi Corp. |
The Fund recognizes transfers between the levels as of the beginning of the period.
During the year ended October 31, 2011, certain foreign equity securities with a market value of $91,124,654 held by the Fund at October 31, 2010, transferred from Level 1 to Level 2 due to these securities being fair valued at period end by applying factors provided by a third party vendor in accordance with the Fund’s policies and procedures. (See Note 2)
At October 31, 2011, 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,
16 MainStay MAP Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statement of Assets and Liabilities as of October 31, 2011
Assets | ||||
Investment in securities, at value (identified cost $1,802,834,570) | $ | 1,884,937,927 | ||
Cash denominated in foreign currencies (identified cost $11,885) | 12,119 | |||
Receivables: | ||||
Investment securities sold | 13,619,178 | |||
Dividends and interest | 2,394,378 | |||
Fund shares sold | 960,090 | |||
Other assets | 47,265 | |||
Total assets | 1,901,970,957 | |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 8,068,701 | |||
Fund shares redeemed | 1,883,336 | |||
Manager (See Note 3) | 1,149,218 | |||
Transfer agent (See Note 3) | 502,682 | |||
NYLIFE Distributors (See Note 3) | 292,918 | |||
Shareholder communication | 71,875 | |||
Professional fees | 44,910 | |||
Trustees | 7,712 | |||
Custodian | 7,292 | |||
Accrued expenses | 767 | |||
Total liabilities | 12,029,411 | |||
Net assets | $ | 1,889,941,546 | ||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 618,823 | ||
Additional paid-in capital | 1,949,373,739 | |||
1,949,992,562 | ||||
Undistributed net investment income | 18,170,051 | |||
Accumulated net realized gain (loss) on investments and foreign currency transactions | (160,286,679 | ) | ||
Net unrealized appreciation (depreciation) on investments | 82,103,357 | |||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies | (37,745 | ) | ||
Net assets | $ | 1,889,941,546 | ||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 114,785,891 | ||
Shares of beneficial interest outstanding | 3,770,771 | |||
Net asset value per share outstanding | $ | 30.44 | ||
Maximum sales charge (5.50% of offering price) | 1.77 | |||
Maximum offering price per share outstanding | $ | 32.21 | ||
Class A | ||||
Net assets applicable to outstanding shares | $ | 296,452,681 | ||
Shares of beneficial interest outstanding | 9,727,852 | |||
Net asset value per share outstanding | $ | 30.47 | ||
Maximum sales charge (5.50% of offering price) | 1.77 | |||
Maximum offering price per share outstanding | $ | 32.24 | ||
Class B | ||||
Net assets applicable to outstanding shares | $ | 110,793,716 | ||
Shares of beneficial interest outstanding | 3,927,672 | |||
Net asset value and offering price per share outstanding | $ | 28.21 | ||
Class C | ||||
Net assets applicable to outstanding shares | $ | 136,273,813 | ||
Shares of beneficial interest outstanding | 4,830,036 | |||
Net asset value and offering price per share outstanding | $ | 28.21 | ||
Class I | ||||
Net assets applicable to outstanding shares | $ | 1,188,910,887 | ||
Shares of beneficial interest outstanding | 38,227,995 | |||
Net asset value and offering price per share outstanding | $ | 31.10 | ||
Class R1 | ||||
Net assets applicable to outstanding shares | $ | 17,611,219 | ||
Shares of beneficial interest outstanding | 575,029 | |||
Net asset value and offering price per share outstanding | $ | 30.63 | ||
Class R2 | ||||
Net assets applicable to outstanding shares | $ | 22,733,492 | ||
Shares of beneficial interest outstanding | 744,666 | |||
Net asset value and offering price per share outstanding | $ | 30.53 | ||
Class R3 | ||||
Net assets applicable to outstanding shares | $ | 2,379,847 | ||
Shares of beneficial interest outstanding | 78,327 | |||
Net asset value and offering price per share outstanding | $ | 30.38 | ||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 17 |
Table of Contents
Statement of Operations for the year ended October 31, 2011
Investment Income (Loss) | ||||
Income | ||||
Dividends (a) | $ | 40,745,274 | ||
Interest | 395,168 | |||
Total income | 41,140,442 | |||
Expenses | ||||
Manager (See Note 3) | 13,142,976 | |||
Distribution/Service—Investor Class (See Note 3) | 291,222 | |||
Distribution/Service—Class A (See Note 3) | 869,859 | |||
Distribution/Service—Class B (See Note 3) | 1,325,620 | |||
Distribution/Service—Class C (See Note 3) | 1,570,595 | |||
Distribution/Service—Class R2 (See Note 3) | 62,579 | |||
Distribution/Service—Class R3 (See Note 3) | 9,342 | |||
Transfer agent (See Note 3) | 2,757,981 | |||
Professional fees | 201,261 | |||
Shareholder communication | 199,366 | |||
Registration | 128,998 | |||
Custodian | 91,260 | |||
Trustees | 50,505 | |||
Shareholder service (See Note 3) | 32,641 | |||
Miscellaneous | 78,442 | |||
Total expenses | 20,812,647 | |||
Net investment income (loss) | 20,327,795 | |||
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Security transactions | 53,810,087 | |||
Foreign currency transactions | (213,525 | ) | ||
Net realized gain (loss) on investments and foreign currency transactions | 53,596,562 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (50,766,016 | ) | ||
Translation of other assets and liabilities in foreign currencies | (58,177 | ) | ||
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions | (50,824,193 | ) | ||
Net realized and unrealized gain (loss) on investments and foreign currency transactions | 2,772,369 | |||
Net increase (decrease) in net assets resulting from operations | $ | 23,100,164 | ||
(a) | Dividends recorded net of foreign withholding taxes in the amount of $1,045,405. |
The notes to the financial statements are an integral part of,
18 MainStay MAP Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statements of Changes in Net Assets
for the years ended October 31, 2011 and October 31, 2010
2011 | 2010 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 20,327,795 | $ | 11,085,237 | ||||
Net realized gain (loss) on investments and foreign currency transactions | 53,596,562 | 78,813,986 | ||||||
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions | (50,824,193 | ) | 131,758,477 | |||||
Net increase (decrease) in net assets resulting from operations | 23,100,164 | 221,657,700 | ||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (779,156 | ) | — | |||||
Class A | (3,020,741 | ) | — | |||||
Class B | (115,398 | ) | — | |||||
Class C | (134,256 | ) | — | |||||
Class I | (8,102,183 | ) | (238,519 | ) | ||||
Class R1 | (3,452 | ) | (1,435 | ) | ||||
Class R2 | (190,054 | ) | — | |||||
Class R3 | (9,419 | ) | — | |||||
Total dividends to shareholders | (12,354,659 | ) | (239,954 | ) | ||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 721,283,538 | 401,048,658 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 11,512,928 | 231,400 | ||||||
Cost of shares redeemed | (401,222,803 | ) | (420,255,102 | ) | ||||
Increase (decrease) in net assets derived from capital share transactions | 331,573,663 | (18,975,044 | ) | |||||
Net increase (decrease) in net assets | 342,319,168 | 202,442,702 | ||||||
Net Assets | ||||||||
Beginning of year | 1,547,622,378 | 1,345,179,676 | ||||||
End of year | $ | 1,889,941,546 | $ | 1,547,622,378 | ||||
Undistributed net investment income at end of year | $ | 18,170,051 | $ | 10,512,556 | ||||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 19 |
Table of Contents
Financial Highlights selected per share data and ratios
Investor Class | ||||||||||||||||||
February 28, | ||||||||||||||||||
2008** | ||||||||||||||||||
through | ||||||||||||||||||
Year ended October 31, | October 31, | |||||||||||||||||
2011 | 2010 | 2009 | 2008 | |||||||||||||||
Net asset value at beginning of period | $ | 29.76 | $ | 25.71 | $ | 23.04 | $ | 32.90 | ||||||||||
Net investment income (loss) (a) | 0.31 | 0.19 | 0.22 | 0.17 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.63 | 3.86 | 2.90 | (10.02 | ) | |||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.06 | ) | (0.00 | )‡ | 0.00 | ‡ | (0.01 | ) | ||||||||||
Total from investment operations | 0.88 | 4.05 | 3.12 | (9.86 | ) | |||||||||||||
Less dividends: | ||||||||||||||||||
From net investment income | (0.20 | ) | — | (0.45 | ) | — | ||||||||||||
Net asset value at end of period | $ | 30.44 | $ | 29.76 | $ | 25.71 | $ | 23.04 | ||||||||||
Total investment return (b) | 2.96 | % | 15.75 | % | 13.83 | % | (29.97 | %)(c) | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||
Net investment income (loss) | 0.98 | % | 0.69 | % | 0.98 | % | 0.81 | % †† | ||||||||||
Net expenses | 1.34 | % | 1.41 | % | 1.44 | % | 1.35 | % †† | ||||||||||
Expenses (before waiver/reimbursement) | 1.34 | % | 1.41 | % | 1.50 | % | 1.35 | % †† | ||||||||||
Portfolio turnover rate | 44 | % | 49 | % | 60 | % | 96 | % | ||||||||||
Net assets at end of period (in 000’s) | $ | 114,786 | $ | 113,557 | $ | 99,663 | $ | 72,709 |
** | Commencement of operations. | |
†† | Annualized. | |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the period. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. | |
(c) | Total investment return is not annualized. |
Class A | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 29.79 | $ | 25.68 | $ | 23.04 | $ | 41.39 | $ | 38.55 | ||||||||||||
Net investment income (loss) (a) | 0.37 | 0.25 | 0.28 | 0.31 | 0.31 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.63 | 3.86 | 2.90 | (13.88 | ) | 5.68 | ||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.06 | ) | (0.00 | )‡ | 0.00 | ‡ | (0.01 | ) | — | |||||||||||||
Total from investment operations | 0.94 | 4.11 | 3.18 | (13.58 | ) | 5.99 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.26 | ) | — | (0.54 | ) | (0.22 | ) | (0.09 | ) | |||||||||||||
From net realized gain on investments | — | — | — | (4.55 | ) | (3.06 | ) | |||||||||||||||
Total dividends and distributions | (0.26 | ) | — | (0.54 | ) | (4.77 | ) | (3.15 | ) | |||||||||||||
Net asset value at end of year | $ | 30.47 | $ | 29.79 | $ | 25.68 | $ | 23.04 | $ | 41.39 | ||||||||||||
Total investment return (b) | 3.16 | % | 16.00 | % | 14.12 | % | (36.80 | %) | 16.61 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 1.18 | % | 0.90 | % | 1.25 | % | 0.96 | % | 0.79 | % | ||||||||||||
Net expenses | 1.14 | % | 1.21 | % | 1.20 | % | 1.23 | % | 1.27 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.14 | % | 1.21 | % | 1.29 | % | 1.25 | % | 1.27 | % | ||||||||||||
Portfolio turnover rate | 44 | % | 49 | % | 60 | % | 96 | % | 76 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 296,453 | $ | 345,067 | $ | 324,421 | $ | 291,812 | $ | 647,374 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of,
20 MainStay MAP Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class B | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 27.63 | $ | 24.04 | $ | 21.36 | $ | 38.79 | $ | 36.49 | ||||||||||||
Net investment income (loss) (a) | 0.07 | (0.01 | ) | 0.06 | 0.04 | 0.02 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.58 | 3.60 | 2.70 | (12.91 | ) | 5.34 | ||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.05 | ) | (0.00 | )‡ | 0.00 | ‡ | (0.01 | ) | — | |||||||||||||
Total from investment operations | 0.60 | 3.59 | 2.76 | (12.88 | ) | 5.36 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.02 | ) | — | (0.08 | ) | — | — | |||||||||||||||
From net realized gain on investments | — | — | — | (4.55 | ) | (3.06 | ) | |||||||||||||||
Total dividends and distributions | (0.02 | ) | — | (0.08 | ) | (4.55 | ) | (3.06 | ) | |||||||||||||
Net asset value at end of year | $ | 28.21 | $ | 27.63 | $ | 24.04 | $ | 21.36 | $ | 38.79 | ||||||||||||
Total investment return (b) | 2.18 | % | 14.93 | % | 12.97 | % | (37.33 | %) | 15.73 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 0.24 | % | (0.04 | %) | 0.31 | % | 0.13 | % | 0.06 | % | ||||||||||||
Net expenses | 2.09 | % | 2.16 | % | 2.19 | % | 2.07 | % | 2.02 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 2.09 | % | 2.16 | % | 2.26 | % | 2.07 | % | 2.02 | % | ||||||||||||
Portfolio turnover rate | 44 | % | 49 | % | 60 | % | 96 | % | 76 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 110,794 | $ | 140,674 | $ | 169,606 | $ | 189,015 | $ | 378,342 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
Class C | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 27.63 | $ | 24.05 | $ | 21.37 | $ | 38.79 | $ | 36.49 | ||||||||||||
Net investment income (loss) (a) | 0.07 | (0.01 | ) | 0.06 | 0.04 | 0.01 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.58 | 3.59 | 2.70 | (12.90 | ) | 5.35 | ||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.05 | ) | (0.00 | )‡ | 0.00 | ‡ | (0.01 | ) | — | |||||||||||||
Total from investment operations | 0.60 | 3.58 | 2.76 | (12.87 | ) | 5.36 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.02 | ) | — | (0.08 | ) | — | — | |||||||||||||||
From net realized gain on investments | — | — | — | (4.55 | ) | (3.06 | ) | |||||||||||||||
Total dividends and distributions | (0.02 | ) | — | (0.08 | ) | (4.55 | ) | (3.06 | ) | |||||||||||||
Net asset value at end of year | $ | 28.21 | $ | 27.63 | $ | 24.05 | $ | 21.37 | $ | 38.79 | ||||||||||||
Total investment return (b) | 2.18 | % | 14.89 | % | 12.96 | % | (37.30 | %) | 15.73 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 0.23 | % | (0.05 | %) | 0.29 | % | 0.13 | % | 0.04 | % | ||||||||||||
Net expenses | 2.09 | % | 2.16 | % | 2.19 | % | 2.07 | % | 2.02 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 2.09 | % | 2.16 | % | 2.25 | % | 2.07 | % | 2.02 | % | ||||||||||||
Portfolio turnover rate | 44 | % | 49 | % | 60 | % | 96 | % | 76 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 136,274 | $ | 160,098 | $ | 167,652 | $ | 178,672 | $ | 331,430 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 21 |
Table of Contents
Financial Highlights selected per share data and ratios
Class I | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 30.39 | $ | 26.15 | $ | 23.51 | $ | 42.13 | $ | 39.15 | ||||||||||||
Net investment income (loss) (a) | 0.45 | 0.32 | 0.33 | 0.39 | 0.45 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.66 | 3.93 | 2.95 | (14.12 | ) | 5.78 | ||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.06 | ) | (0.00 | )‡ | 0.00 | ‡ | (0.00 | )‡ | — | |||||||||||||
Total from investment operations | 1.05 | 4.25 | 3.28 | (13.73 | ) | 6.23 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.34 | ) | (0.01 | ) | (0.64 | ) | (0.34 | ) | (0.19 | ) | ||||||||||||
From net realized gain on investments | — | — | — | (4.55 | ) | (3.06 | ) | |||||||||||||||
Total dividends and distributions | (0.34 | ) | (0.01 | ) | (0.64 | ) | (4.89 | ) | (3.25 | ) | ||||||||||||
Net asset value at end of year | $ | 31.10 | $ | 30.39 | $ | 26.15 | $ | 23.51 | $ | 42.13 | ||||||||||||
Total investment return (b) | 3.43 | % | 16.26 | % | 14.38 | % | (36.59 | %) | 16.99 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 1.42 | % | 1.12 | % | 1.45 | % | 1.22 | % | 1.15 | % | ||||||||||||
Net expenses | 0.89 | % | 0.95 | % | 0.98 | % | 0.96 | % | 0.92 | % | ||||||||||||
Expenses (before reimbursement/waiver) | 0.89 | % | 0.95 | % | 1.04 | % | 0.96 | % | 0.92 | % | ||||||||||||
Portfolio turnover rate | 44 | % | 49 | % | 60 | % | 96 | % | 76 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 1,188,911 | $ | 759,317 | $ | 567,720 | $ | 425,266 | $ | 438,054 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. |
Class R1 | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 29.93 | $ | 25.84 | $ | 23.23 | $ | 41.69 | $ | 38.78 | ||||||||||||
Net investment income (loss) (a) | 0.31 | 0.30 | 0.27 | 0.42 | 0.42 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.77 | 3.87 | 2.94 | (14.03 | ) | 5.71 | ||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.07 | ) | (0.00 | )‡ | 0.00 | ‡ | (0.00 | )‡ | — | |||||||||||||
Total from investment operations | 1.01 | 4.17 | 3.21 | (13.61 | ) | 6.13 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.31 | ) | (0.08 | ) | (0.60 | ) | (0.30 | ) | (0.16 | ) | ||||||||||||
From net realized gain on investments | — | — | — | (4.55 | ) | (3.06 | ) | |||||||||||||||
Total dividends and distributions | (0.31 | ) | (0.08 | ) | (0.60 | ) | (4.85 | ) | (3.22 | ) | ||||||||||||
Net asset value at end of year | $ | 30.63 | $ | 29.93 | $ | 25.84 | $ | 23.23 | $ | 41.69 | ||||||||||||
Total investment return (b) | 3.35 | % | 16.12 | % | 14.20 | % | (36.67 | %) | 16.89 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 1.02 | % | 1.07 | % | 1.21 | % | 1.24 | % | 1.08 | % | ||||||||||||
Net expenses | 0.99 | % | 1.06 | % | 1.08 | % | 1.01 | % | 1.02 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 0.99 | % | 1.06 | % | 1.14 | % | 1.01 | % | 1.02 | % | ||||||||||||
Portfolio turnover rate | 44 | % | 49 | % | 60 | % | 96 | % | 76 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 17,611 | $ | 325 | $ | 626 | $ | 232 | $ | 12,424 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R1 shares are not subject to sales charges. |
The notes to the financial statements are an integral part of,
22 MainStay MAP Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class R2 | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 29.85 | $ | 25.76 | $ | 23.06 | $ | 41.40 | $ | 38.54 | ||||||||||||
Net investment income (loss) (a) | 0.34 | 0.22 | 0.23 | 0.28 | 0.32 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.63 | 3.87 | 2.93 | (13.86 | ) | 5.68 | ||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.06 | ) | (0.00 | )‡ | 0.00 | ‡ | (0.00 | )‡ | — | |||||||||||||
Total from investment operations | 0.91 | 4.09 | 3.16 | (13.58 | ) | 6.00 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.23 | ) | — | (0.46 | ) | (0.21 | ) | (0.08 | ) | |||||||||||||
From net realized gain on investments | — | — | — | (4.55 | ) | (3.06 | ) | |||||||||||||||
Total dividends and distributions | (0.23 | ) | — | (0.46 | ) | (4.76 | ) | (3.14 | ) | |||||||||||||
Net asset value at end of year | $ | 30.53 | $ | 29.85 | $ | 25.76 | $ | 23.06 | $ | 41.40 | ||||||||||||
Total investment return (b) | 3.05 | % | 15.88 | % | 13.96 | % | (36.78 | %) | 16.61 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 1.08 | % | 0.80 | % | 1.01 | % | 0.89 | % | 0.81 | % | ||||||||||||
Net expenses | 1.24 | % | 1.31 | % | 1.33 | % | 1.30 | % | 1.27 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.24 | % | 1.31 | % | 1.38 | % | 1.30 | % | 1.27 | % | ||||||||||||
Portfolio turnover rate | 44 | % | 49 | % | 60 | % | 96 | % | 76 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 22,733 | $ | 26,735 | $ | 14,006 | $ | 6,427 | $ | 8,560 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R2 shares are not subject to sales charges. |
Class R3 | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 29.71 | $ | 25.70 | $ | 22.97 | $ | 41.31 | $ | 38.49 | ||||||||||||
Net investment income (loss) (a) | 0.25 | 0.15 | 0.16 | 0.19 | 0.17 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.64 | 3.86 | 2.93 | (13.82 | ) | 5.73 | ||||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.06 | ) | (0.00 | )‡ | 0.00 | ‡ | (0.00 | )‡ | — | |||||||||||||
Total from investment operations | 0.83 | 4.01 | 3.09 | (13.63 | ) | 5.90 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||
From net investment income | (0.16 | ) | — | (0.36 | ) | (0.16 | ) | (0.02 | ) | |||||||||||||
From net realized gain on investments | — | — | — | (4.55 | ) | (3.06 | ) | |||||||||||||||
Total dividends and distributions | (0.16 | ) | — | (0.36 | ) | (4.71 | ) | (3.08 | ) | |||||||||||||
Net asset value at end of year | $ | 30.38 | $ | 29.71 | $ | 25.70 | $ | 22.97 | $ | 41.31 | ||||||||||||
Total investment return (b) | 2.79 | % | 15.60 | % | 13.65 | % | (36.96 | %) | 16.37 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 0.80 | % | 0.54 | % | 0.72 | % | 0.61 | % | 0.42 | % | ||||||||||||
Net expenses | 1.49 | % | 1.56 | % | 1.58 | % | 1.56 | % | 1.52 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.49 | % | 1.56 | % | 1.63 | % | 1.56 | % | 1.52 | % | ||||||||||||
Portfolio turnover rate | 44 | % | 49 | % | 60 | % | 96 | % | 76 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 2,380 | $ | 1,850 | $ | 1,484 | $ | 310 | $ | 256 |
‡ | Less than one cent per share. | |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R3 shares are not subject to sales charges. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 23 |
Table of Contents
Notes to Financial Statements
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of fourteen funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay MAP Fund (the “Fund”), a diversified fund.
The Fund currently offers eight classes of shares. Class A, Class B and Class C shares commenced operations on June 9, 1999. Class I shares commenced operations in 1970 (under a former class designation of MAP-Equity Fund) and were redesignated as Class I shares on June 9, 1999. Class R1 and Class R2 shares commenced operations on January 2, 2004. Class R3 shares commenced operations on April 28, 2006. Investor Class shares commenced operations on February 28, 2008. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies on investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I, Class R1, Class R2 and Class R3 shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The eight classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class, Class A, Class R2 and Class R3 shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I and Class R1 shares are not subject to a distribution and/or service fee. Class R1, Class R2 and Class R3 shares are subject to a shareholder service fee. This is in addition to any fees paid under a distribution plan, where applicable.
The Fund’s investment objective is to seek long-term appreciation of capital. The Fund also seeks to earn income, but this is a secondary objective.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (usually 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are determined within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish 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 developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in determining the fair value of investments) |
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may utilize some of the following fair value techniques: multi-dimensional relational pricing models, option adjusted spread pricing and estimating the price that would have prevailed in a liquid market for an international equity security given information available at the time of evaluation, when there are significant events after the close of local foreign markets.
The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2011, there have been no changes to the fair value methodologies.
24 MainStay MAP Fund
Table of Contents
The aggregate value by input level, as of October 31, 2011, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
Equity securities and Exchange Traded Funds are valued at the latest quoted sales prices as of the close of regular trading on the Exchange on each valuation date. Securities that are not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Prices normally are taken from the principal market in which each security trades. Investments in other mutual funds are valued at their 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 are valued at the evaluated bid prices supplied by a pricing agent or brokers selected by the Fund’s Manager (as defined in Note 3(A)) in consultation with the Fund’s Subadvisor (as defined in Note 3(A)) whose prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Fund’s Manager, in consultation with the Fund’s Subadvisor, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities, including corporate bonds, U.S. government & federal agency bonds, municipal bonds, foreign bonds, Yankee bonds, convertible bonds, asset-backed securities, and mortgage-backed securities, are generally categorized as Level 2 in the hierarchy.
Temporary cash investments acquired over 60 days prior to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of the difference between such cost and the value on maturity date. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not obtained from a quoted price in an active market. These securities are all generally categorized as Level 2 in the hierarchy.
Foreign currency forward contracts are valued at their fair market values determined 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.
Securities for which market quotations are not readily available are valued by methods deemed in good faith by the Fund’s Board to represent fair value. Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security the trading for which 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 the market price of which is not available from an independent pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor reflect the security’s market value; and (vi) a security where the trading on that security’s principal market is temporarily closed at a time when, under normal conditions, it would be open. These securities are generally categorized as Level 3 in the hierarchy. At October 31, 2011, the Fund did not hold any securities that were fair valued in such a manner.
Certain events may occur between the time that foreign markets close, on which securities held by the Fund principally trade, and the time at which the Fund’s NAV is calculated. These events may include, but are not limited to, situations relating to a single issuer in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. Should the Manager or Subadvisor conclude that such events may have affected the accuracy of the last price reported on the local foreign market, the Manager or Subadvisor may, pursuant to procedures adopted by the Fund’s Board, adjust the value of the local price to reflect the 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, 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 the Fund’s policies and procedures and are generally categorized as Level 2 in the hierarchy. At October 31, 2011, certain foreign equity securities held by the Fund were fair valued in such a manner.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provision is required. Investment income received by the Fund from foreign sources may be subject to foreign income taxes. These foreign income taxes are generally withheld at the source.
Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provision for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income and distributions of net realized capital and currency gains, if any, 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.
mainstayinvestments.com 25
Table of Contents
Notes to Financial Statements (continued)
(D) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Dividend income is recognized on the ex-dividend date and interest income is accrued as earned using the effective interest rate method. Discounts and premiums on securities purchased, other than Short-Term Investments, for the Fund are accreted and amortized, respectively, on the effective interest rate method over the life of the respective securities or, in the case of a callable security, over the period to the first date of call. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method. Income from payment-in-kind securities is recorded daily based on the effective interest method of accrual.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
(E) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(F) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(G) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisor to be creditworthy, pursuant to guidelines established by the Fund’s Board. Repurchase agreements are considered under the 1940 Act to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in such repurchase agreements. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default of 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, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(H) Rights and Warrants. A right is a certificate that permits the holder to purchase a certain number of shares, or a fractional share, of a new stock from the issuer at a specific price. A warrant is an instrument that entitles the holder to buy an equity security at a specific price for a specific period of time. The Fund generally enters into rights and warrants when securities are acquired through a corporate action. With respect to warrants in international markets, the securities are only purchased when the underlying security cannot be purchased due to the many restrictions an industry and/or country might place on foreign investors. 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 the warrant is not exercised by the date of its expiration. The securities are sold as soon as the opportunity becomes available. The Fund is exposed to risk until each sale is completed. At October 31, 2011, the Fund did not hold any 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. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund’s cash collateral in accordance with the Lending Agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue to receive interest and dividends on the securities loaned and any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the account of the Fund.
Although the Fund and New York Life Investments (as defined in Note 3(A)) have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund had no portfolio securities on loan as of October 31, 2011.
(J) Concentration of Risk. The Fund invests in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic instruments. These risks include those resulting from currency fluctuations, future adverse political and economic developments and possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. These risks are likely to be greater in emerging markets than in developed markets. The ability of issuers of 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.
(K) Foreign Currency Forward Contracts. The Fund may enter into foreign currency forward contracts, which are agreements to buy or sell currencies of different countries on a specified future date at a specified rate. The Fund is subject to foreign currency exchange rate
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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 gains or losses by “marking-to-market” such contract on a daily basis to reflect the market value of the contract at the end of each day’s trading. 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 enters into foreign currency forward contracts to reduce currency risk versus the benchmark or for trade settlement.
The use of foreign currency forward contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract amount reflects the extent of the Fund’s involvement in these financial instruments. Risks arise from the possible movements in the foreign exchange rates underlying these instruments. While the Fund may enter into forward contracts to reduce currency exchange risks, changes in currency exchange rates may result in poorer overall performance for the Fund than if it had not engaged in such transactions. Exchange rate movements can be large, depending on the currency, and can last for extended periods of time, affecting the value of the Fund’s assets. Moreover, there may be an imperfect correlation between the Fund’s holdings of securities denominated in a particular currency and the forward contracts entered into by the Fund. Such imperfect correlation may prevent the Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. The unrealized appreciation (depreciation) on forward contracts reflects the Fund’s exposure at valuation date to credit loss in the event of a counterparty’s failure to perform its obligations.
(L) Foreign Currency Transactions. The books and records of the Fund are kept in U.S. dollars. Prices of securities denominated in foreign currency amounts are translated into U.S. dollars at the mean between the buying and selling exchange 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) 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.
(N) Quantitative Disclosure of Derivative Holdings. The following tables show additional disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial positions, performance and cash flows. These derivatives are not accounted for as hedging instruments.
Fair value of derivatives as of October 31, 2011:
Asset Derivatives
Statement of | ||||||||||
Assets and | Equity | |||||||||
Liabilities | Contracts | |||||||||
Location | Risk | Total | ||||||||
Rights | Investment in securities, at value | $ | 77,048 | $ | 77,048 | |||||
Total Fair Value | $ | 77,048 | $ | 77,048 | ||||||
The effect of derivative instruments on the Statement of Operations for the year ended October 31, 2011:
Change in Unrealized Appreciation (Depreciation)
Statement of | Equity | |||||||||
Operations | Contracts | |||||||||
Location | Risk | Total | ||||||||
Rights | Net change in unrealized appreciation (depreciation) on security transactions | $ | (213,278 | ) | $ | (213,278 | ) | |||
Total Change in Unrealized Appreciation (Depreciation) | $ | (213,278 | ) | $ | (213,278 | ) | ||||
Number of Contracts, Notional Amounts or Shares/Units (1)
Equity | ||||||||
Contracts | ||||||||
Risk | Total | |||||||
Rights (2) | 272,634 | 272,634 | ||||||
(1) | Amount disclosed represents the weighted average held during the year ended October 31, 2011. |
(2) | Amount represents number of contracts or number of shares/units. |
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Notes to Financial Statements (continued)
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), 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, including a portion of the total compensation of the Chief Compliance Officer (“CCO”) of the Fund which is the responsibility of all investment companies for which the CCO serves, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. Markston International LLC and Institutional Capital LLC (the “Subadvisors”), 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 Amended and Restated Subadvisory Agreements (“Subadvisory Agreements”) between New York Life Investments and each Subadvisor, New York Life Investments pays for the services of the Subadvisors.
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.75% up to $1 billion; and 0.70% in excess of $1 billion, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. The effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.74% for the year ended October 31, 2011, inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets.
The Manager had agreed to voluntarily waive or reimburse expenses so that Total Annual Fund Operating Expenses of a class did not exceed the following percentages: Class A, 1.27%; Class I, 1.02%; Class R1, 1.12%; Class R2, 1.37% and Class R3, 1.62%. This voluntary waiver was discontinued effective February 28, 2011. Total Annual Fund Operating Expenses excludes taxes, interest, litigation, extraordinary expenses, brokerage and other transaction expenses relating to the purchase or sale of portfolio investments, and acquired (underlying) fund fees and expenses.
For the year ended October 31, 2011, New York Life Investments earned fees from the Fund in the amount of $13,142,976.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution, Service and Shareholder Service Fees. The Trust, on behalf of the Fund, has entered into a Distribution Agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class, Class A and Class R2 Plans, the Distributor receives a monthly distribution fee from the Investor Class, Class A and Class R2 shares, at an annual rate of 0.25% of the average daily net assets of the Investor Class, Class A and Class R2 shares for distribution and/or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average daily net assets of the Class B and Class C shares, along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 1.00%. Pursuant to the Class R3 Plan, the Distributor receives a monthly distribution and/or service fee from the Class R3 shares at an annual rate of 0.50% of the average daily net assets of the Class R3 shares. Class I and Class R1 shares are not subject to a distribution and/or service fee.
The Plans provide that the distribution and/or 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 is entitled to a Shareholder Service Fee accrued daily and paid monthly at an annual rate of 0.10% of the average daily net assets attributable to the Class R1, Class R2 and Class R3 shares. This is in addition to any fees paid under a distribution plan, where applicable.
Shareholder Service Fees incurred by the Fund for the year ended October 31, 2011, were as follows:
Class R1 | $ | 5,741 | ||
Class R2 | 25,031 | |||
Class R3 | 1,869 | |||
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $44,903 and $43,887, respectively, for the year ended October 31, 2011. The Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Class B and Class C shares of $2,266, $142,095 and $6,056, respectively, for the year ended October 31, 2011.
(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
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Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2011, were as follows:
Investor Class | $ | 355,561 | ||
Class A | 386,246 | |||
Class B | 405,650 | |||
Class C | 480,162 | |||
Class I | 1,094,255 | |||
Class R1 | 6,253 | |||
Class R2 | 27,783 | |||
Class R3 | 2,071 | |||
(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. At October 31, 2011, New York Life and its affiliates beneficially held shares of the Fund with the following values and percentages of net assets as follows:
Class A | $ | 1,640 | 0.0 | %‡ | ||||
Class B | 1,229 | 0.0 | ‡ | |||||
Class C | 1,852 | 0.0 | ‡ | |||||
Class I | 85,325,925 | 7.2 | ||||||
Class R1 | 1,430 | 0.0 | ‡ | |||||
Class R2 | 1,404 | 0.0 | ‡ | |||||
Class R3 | 19,522 | 0.8 | ||||||
‡ | Less than one-tenth of a percent. |
(G) Other. Pursuant to a Legal Services Agreement, a portion of the cost of legal services provided to the Fund by the Office of the General Counsel of New York Life Investments was payable directly by the Fund through March 17, 2011. For the year ended October 31, 2011, these fees, which are included in professional fees shown on the Statement of Operations, were $27,326. Effective March 18, 2011, the Legal Services Agreement expired and was not renewed. Therefore, the Fund is no longer directly responsible for any portion of the cost of legal services.
Note 4–Federal Income Tax
As of October 31, 2011, the components of accumulated gain (loss) on a tax basis were as follows:
Accumulated | ||||||||||||||||||
Capital | Other | Unrealized | Total | |||||||||||||||
Ordinary | and Other | Temporary | Appreciation | Accumulated | ||||||||||||||
Income | Gain (Loss) | Differences | (Depreciation) | Gain (Loss) | ||||||||||||||
$ | 18,170,051 | $ | (149,033,901 | ) | $ | — | $ | 70,812,834 | $ | (60,051,016 | ) | |||||||
The difference between book-basis and tax basis unrealized depreciation is primarily due to wash sale deferrals, marking to market of foreign currency forward contracts, real estate investment trusts (“REITs”) basis adjustments and basis adjustments due to class action payments.
The following table discloses the current year reclassifications between undistributed net investment income, accumulated net realized income (loss) on investments, and additional paid-in capital arising from permanent differences; net assets at October 31, 2011 were not affected.
Accumulated | ||||||||||
Undistributed | Net Realized | |||||||||
Net Investment | Gain (Loss) on | Additional | ||||||||
Income (Loss) | Investments | Paid-In Capital | ||||||||
$ | (315,641 | ) | $ | 315,641 | $ | — | ||||
The reclassifications for the Fund are primarily due to foreign currency gain (loss), return of capital distributions from REITs and capital distributions from REITs.
Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
At October 31, 2011, for federal income tax purposes, capital loss carryforwards of $149,033,901 were available as shown in the table below, to the extent provided by the regulations to offset future realized gains of the Fund through the years indicated. To the extent that these capital loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to shareholders. No capital gain distributions shall be made until any capital loss carryforwards have been fully utilized or expired.
Capital Loss | Capital Loss | |||||
Available Through | Amounts (000’s) | |||||
2015 | $ | 10,640 | ||||
2017 | 138,394 | |||||
Total | $ | 149,034 | ||||
The Fund utilized $46,991,005 of capital loss carryforwards during the year ended October 31, 2011.
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Notes to Financial Statements (continued)
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 shown in the Statements of Changes in Net Assets, was as follows:
2011 | 2010 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 12,354,659 | $ | 239,954 | ||||
Note 5–Foreign Currency Transactions
As of October 31, 2011, the Fund held the following foreign currencies:
Currency | Cost | Value | ||||||||||
Japanese Yen | JPY | 8 | USD | 0 | (a) | USD | 0 | (a) | ||||
Malaysian Ringgit | MYR | 37,174 | 11,882 | 12,117 | ||||||||
Pound Sterling | GBP | 2 | 3 | 2 | ||||||||
Total | USD | 11,885 | USD | 12,119 | ||||||||
(a) | Less than one dollar. |
Note 6–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 7–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 31, 2011, under an amended credit agreement, the aggregate commitment amount is $125,000,000 with an optional maximum amount of $175,000,000. The commitment rate is an annual rate of 0.08% of the average commitment amount, payable quarterly, regardless of usage, to The Bank of New York Mellon, which serves as the agent to the syndicate. The commitment fee is allocated among certain MainStay Funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The amended credit agreement expires on August 29, 2012, although the MainStay Funds and the syndicate of banks may renew the amended credit agreement for an additional year on the same or different terms. Prior to August 31, 2011, the commitment rate was an annual rate of 0.10% of the average commitment amount, plus a 0.02% up-front payment. There were no borrowings made or outstanding with respect to the Fund on the amended credit agreement during the year ended October 31, 2011.
Note 8–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2011, purchases and sales of securities, other than short-term securities, were $1,091,888 and $756,166, respectively.
Note 9–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 298,100 | $ | 9,451,384 | |||||
Shares issued to shareholders in reinvestment of dividends | 25,049 | 775,600 | ||||||
Shares redeemed | (626,775 | ) | (19,718,663 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (303,626 | ) | (9,491,679 | ) | ||||
Shares converted into Investor Class (See Note 1) | 511,953 | 15,408,443 | ||||||
Shares converted from Investor Class (See Note 1) | (253,259 | ) | (8,025,300 | ) | ||||
Net increase (decrease) | (44,932 | ) | $ | (2,108,536 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 334,273 | $ | 9,342,716 | |||||
Shares redeemed | (611,144 | ) | (16,977,903 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (276,871 | ) | (7,635,187 | ) | ||||
Shares converted into Investor Class (See Note 1) | 478,912 | 13,245,592 | ||||||
Shares converted from Investor Class (See Note 1) | (262,644 | ) | (7,349,186 | ) | ||||
Net increase (decrease) | (60,603 | ) | $ | (1,738,781 | ) | |||
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Class A | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 1,213,692 | $ | 38,406,814 | |||||
Shares issued to shareholders in reinvestment of dividends | 84,794 | 2,622,979 | ||||||
Shares redeemed | (3,498,006 | ) | (111,138,669 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (2,199,520 | ) | (70,108,876 | ) | ||||
Shares converted into Class A (See Note 1) | 534,553 | 16,792,000 | ||||||
Shares converted from Class A (See Note 1) | (189,629 | ) | (5,372,923 | ) | ||||
Net increase (decrease) | (1,854,596 | ) | $ | (58,689,799 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 1,324,661 | $ | 36,823,346 | |||||
Shares redeemed | (2,930,686 | ) | (81,173,843 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (1,606,025 | ) | (44,350,497 | ) | ||||
Shares converted into Class A (See Note 1) | 932,834 | 26,034,065 | ||||||
Shares converted from Class A (See Note 1) | (34,316 | ) | (987,295 | ) | ||||
Shares converted from Class A (a) | (341,373 | ) | (9,353,625 | ) | ||||
Net increase (decrease) | (1,048,880 | ) | $ | (28,657,352 | ) | |||
Class B | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 282,720 | $ | 8,271,949 | |||||
Shares issued to shareholders in reinvestment of dividends | 3,636 | 106,064 | ||||||
Shares redeemed | (802,253 | ) | (23,456,286 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (515,897 | ) | (15,078,273 | ) | ||||
Shares converted from Class B (See Note 1) | (648,673 | ) | (18,802,220 | ) | ||||
Net increase (decrease) | (1,164,570 | ) | $ | (33,880,493 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 393,873 | $ | 10,223,095 | |||||
Shares redeemed | (1,159,562 | ) | (30,020,659 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (765,689 | ) | (19,797,564 | ) | ||||
Shares converted from Class B (See Note 1) | (1,195,830 | ) | (30,943,176 | ) | ||||
Net increase (decrease) | (1,961,519 | ) | $ | (50,740,740 | ) | |||
Class C | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 375,491 | $ | 10,995,499 | |||||
Shares issued to shareholders in reinvestment of dividends | 3,439 | 100,340 | ||||||
Shares redeemed | (1,342,987 | ) | (39,052,558 | ) | ||||
Net increase (decrease) | (964,057 | ) | $ | (27,956,719 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 427,492 | $ | 11,078,115 | |||||
Shares redeemed | (1,604,342 | ) | (41,521,971 | ) | ||||
Net increase (decrease) | (1,176,850 | ) | $ | (30,443,856 | ) | |||
Class I | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 19,140,565 | $ | 625,643,609 | |||||
Shares issued to shareholders in reinvestment of dividends | 245,293 | 7,723,650 | ||||||
Shares redeemed | (6,141,707 | ) | (194,014,353 | ) | ||||
Net increase (decrease) | 13,244,151 | $ | 439,352,906 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 11,410,879 | $ | 318,747,033 | |||||
Shares issued to shareholders in reinvestment of dividends | 8,251 | 229,965 | ||||||
Shares redeemed | (8,484,606 | ) | (245,068,050 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 2,934,524 | 73,908,948 | ||||||
Shares converted into Class I (a) | 335,135 | 9,353,625 | ||||||
Net increase (decrease) | 3,269,659 | $ | 83,262,573 | |||||
Class R1 | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 590,426 | $ | 19,640,232 | |||||
Shares issued to shareholders in reinvestment of dividends | 111 | 3,452 | ||||||
Shares redeemed | (26,368 | ) | (793,151 | ) | ||||
Net increase (decrease) | 564,169 | $ | 18,850,533 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 52 | $ | 257,735 | |||||
Shares issued to shareholders in reinvestment of dividends | 9,145 | 1,435 | ||||||
Shares redeemed | (22,572 | ) | (628,072 | ) | ||||
Net increase (decrease) | (13,375 | ) | $ | (368,902 | ) | |||
Class R2 | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 245,828 | $ | 7,774,234 | |||||
Shares issued to shareholders in reinvestment of dividends | 5,526 | 171,424 | ||||||
Shares redeemed | (402,460 | ) | (12,413,836 | ) | ||||
Net increase (decrease) | (151,106 | ) | $ | (4,468,178 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 492,272 | $ | 13,488,789 | |||||
Shares redeemed | (140,281 | ) | (3,897,645 | ) | ||||
Net increase (decrease) | 351,991 | $ | 9,591,144 | |||||
Class R3 | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 36,769 | $ | 1,099,817 | |||||
Shares issued to shareholders in reinvestment of dividends | 304 | 9,419 | ||||||
Shares redeemed | (21,016 | ) | (635,287 | ) | ||||
Net increase (decrease) | 16,057 | $ | 473,949 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 39,237 | $ | 1,087,829 | |||||
Shares redeemed | (34,723 | ) | (966,959 | ) | ||||
Net increase (decrease) | 4,514 | $ | 120,870 | |||||
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Notes to Financial Statements (continued)
(a) | In addition to any automatic conversion features described above in Note 1 with respect to Investor Class, Class A and Class B shares, investors generally may also elect to convert their shares on a voluntary basis into another share class of the same MainStay Fund subject to satisfying the eligibility requirements of the new share class, if any. However, the following limitations apply: |
• | Investor Class, Class A and Class C shares that remain subject to a CDSC are ineligible for a voluntary conversion; and | |
• | All Class B shares are ineligible for a voluntary conversion. |
These limitations do not impact any automatic conversion features described elsewhere in Note 1 with respect to Investor Class, Class A and Class B shares. | |
An investor or an investor’s financial intermediary may contact the MainStay Funds to request a voluntary conversion between share classes of the same MainStay Fund. Investors may be required to provide sufficient information to establish eligibility to convert to the new share class. All permissible conversions will be made on the basis of the relevant NAVs of the two classes without the imposition of any sales load, fee or other charge. If an investor fails to remain eligible for the new share class, they may be converted automatically back to their original share class, or into another share class, if appropriate. Although the MainStay Funds expect that a conversion between share classes of the same MainStay Fund should not result in the recognition of a gain or loss for tax purposes, shareholders should consult with their own tax adviser with respect to the tax treatment of their investment in a MainStay Fund. The MainStay Funds may change, suspend or terminate this conversion feature at any time. |
Note 10–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2011, events and transactions subsequent to October 31, 2011 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.
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Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay MAP Fund (“the Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay MAP Fund of The MainStay Funds as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
-s- KPMG LLP
Philadelphia, Pennsylvania
December 22, 2011
December 22, 2011
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Board Consideration and Approval of New Subadvisory Agreement (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”) requires that each mutual fund’s board of trustees, including a majority of the trustees who are “not interested persons” of the fund, as defined in the 1940 Act (the “Independent Trustees”), review and approve the fund’s investment advisory agreements. At its September 27-28, 2011 meeting, the Board of Trustees of The MainStay Funds (the “Board” of the “Trust”) unanimously approved a new Subadvisory Agreement (the “Agreement”) between New York Life Investment Management LLC (“New York Life Investments”), the manager of the Trust, and Markston International LLC (“Markston”) on behalf of the MainStay MAP Fund (the “Fund”). The Board was asked to approve the Agreement in connection with a “change in control” of Markston and, accordingly, the termination by law and the express terms of the previous subadvisory agreement between New York Life Investments and Markston with respect to the Fund.
In reaching its decision to approve the continued retention of Markston and the Agreement, the Board considered information presented to it as part of its consideration and approval of the Agreement at the Board’s meeting in September 2011, as well as other relevant information furnished to it throughout the year by New York Life Investments and Markston at regular and special Board meetings. The Board also requested and received responses from Markston to a comprehensive list of questions encompassing a variety of topics prepared on behalf of the Board by independent legal counsel to the Board. The Board noted that it had also requested and received responses to similar questions in connection with its approvals of the Fund’s previous subadvisory agreement with Markston during the Board’s meetings in June 2010 and December 2010 (the “Prior Contract Review Processes”). The Board considered its historical experience with Markston’s capabilities and resources, and its evaluation of Markston in connection with the Prior Contract Review Processes, which culminated with approval of the previous subadvisory agreement between New York Life Investments and Markston, on behalf of the Fund. In addition, the Board considered the “change of control” of Markston and the impact on the Fund of a related change in the Fund’s portfolio management team.
In determining to approve the continued retention of Markston and the Agreement, the members of the Board reviewed and evaluated all of the information and factors they believed to be relevant and appropriate in light of legal advice furnished to them by independent legal counsel and through the exercise of their own business judgment. The broad factors considered by the Board are discussed in greater detail below, and included, among other things: (i) the nature, extent, and quality of the services to be provided to the Fund by Markston; (ii) the investment performance of the Fund and Markston; (iii) the costs of the services to be provided and the profits to be realized by Markston and its affiliates from its relationship with the Fund; (iv) the extent to which economies of scale may be realized as the Fund grows, and the extent to which economies of scale may benefit Fund investors; and (v) the reasonableness of the Fund’s management and subadvisory fee levels and overall total ordinary operating expenses.
While the members of the Board may have weighed certain factors differently, the Board’s decision to approve the continued retention of Markston and the Agreement was based on a comprehensive consideration of all the information provided to the Board, including information provided to the Board in connection with its review of Markston. The Board also considered that shareholders of the Fund approved the ability of New York Life Investments to act as a “manager of managers,” which allows the Board and New York Life Investments to retain unaffiliated subadvisors for the Fund without the approval of Fund shareholders. A more detailed discussion of the factors that figured prominently in the Board’s decision to approve the continued retention of Markston and the Agreement is provided below.
Nature, Extent and Quality of Services to Be Provided by Markston
In considering the approval of the continued retention of Markston and the Agreement, the Board examined the nature, extent and quality of the services that Markston historically had provided to the Fund. Based on information provided to the Board in connection with the Prior Contract Review Processes, the Board acknowledged Markston’s historical service to the Fund, and took note of the experience of Markston’s portfolio managers, the number of accounts managed by the portfolio managers and Markston’s method for compensating portfolio managers. The Board also considered the experience of senior personnel at Markston. Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreement, that the Fund likely would continue to benefit from the nature, extent and quality of these services as a result of Markston’s experience, personnel, operations and resources.
Investment Performance
In evaluating investment performance, the Board took note of the Fund’s historical investment performance results, as presented to the Board in connection with the Prior Contract Review Processes, in light of the Fund’s investment objectives, strategies and risks, as disclosed in the Fund’s prospectus. The Board considered information about the Fund’s investment performance that is provided to the Board in connection with its regularly scheduled meetings, and also took note of information provided in connection with the Prior Contract Review Processes showing the investment performance of the Fund as compared to similar peer funds. The Board also considered the strength of Markston’s resources (including research capabilities). Based on these considerations, the Board concluded, within the context of its overall determinations regarding the Agreement, that the retention of Markston as subadvisor to the Fund is likely to benefit the Fund’s long-term investment performance.
Costs of the Services Provided, and Profits to Be Realized, by Markston
The Board considered the costs of the services to be provided by Markston under the Agreement, and the profits to be realized by Markston due to its relationship with the Fund, taking into account information provided to the Board in connection with the Prior Contract Review Processes. In evaluating any costs and profits of Markston due to its relationship with the Fund in connection with the Prior Contract Review Processes, the Board considered, among other things, Markston’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 Markston must be in a position to pay and retain experienced professional personnel to provide services to the Fund, and that Markston’s ability to maintain a strong financial
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position is important in order for Markston to provide high-quality ongoing services to the Fund and its investors.
In addition, the Board considered past 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. In addition, because Markston is not affiliated with New York Life Investments, and Markston’s fees are paid directly by New York Life Investments, the Board historically has focused primarily on the profitability of the relationship between New York Life Investments, its affiliates and the Fund.
In considering the costs and profitability of the Fund, the Board also considered certain fall-out benefits that may be realized by Markston due to its relationship with the Fund. The Board recognized, for example, the benefits to Markston from legally permitted “soft-dollar” arrangements by which brokers may provide research and other services to Markston in exchange for commissions paid by the Fund with respect to trades on the Fund’s portfolio securities.
After evaluating the information presented to the Board, the Board concluded, within the context of its overall determinations regarding the Agreement, that any profits realized by Markston due to its relationship with the Fund supported the Board’s determination to approve the Agreement. The Board also concluded that any profits realized by Markston will be the result of arm’s-length negotiations between New York Life Investments and Markston, and are based on subadvisory fees paid to Markston by New York Life Investments, not the Fund.
Extent to Which Economies of Scale May Be Realized as the Fund Grow
The Board also considered whether the Fund’s expense structure permitted economies of scale to be shared with the Fund’s investors, taking into account information provided to the Board in connection with the Prior Contract Review Processes.
Based on this information, the Board concluded, within the context of its overall determinations regarding the Agreement, that the Fund’s expense structure appropriately reflects economies of scale for the benefit of Fund investors. The Board noted, however, that it would continue to evaluate the reasonableness of the Fund’s expense structure as the Fund continues to grow over time.
Management and Subadvisory Fees and Total Ordinary Operating Expenses
The Board evaluated the reasonableness of the fees to be paid under the existing management agreement with New York Life Investments and the Agreement, and the Fund’s expected total ordinary operating expenses. The Board considered that the fees to be paid to Markston under the Agreement are paid by New York Life Investments, not the Fund, and will result in no increase in the Fund’s expenses. In assessing the reasonableness of the Fund’s fees and expenses the Board primarily considered comparative data on the fees and expenses charged by similar mutual funds managed by other advisers, based on information provided to the Board in connection with the Prior Contract Review Processes. In addition, the Board considered information provided by New York Life Investments and Markston on fees charged to other investment advisory clients, including institutional separate accounts and other funds with similar investment objectives as the Fund. In this regard, the Board took into account explanations from New York Life Investments and Markston about the different scope of services provided to retail mutual funds as compared with other investment advisory clients.
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 Agreement, support a conclusion that these fees and expenses are reasonable.
Conclusion
On the basis of the information provided to it and its evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the Agreement.
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Federal Income Tax Information (Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders within 60 days of the Fund’s fiscal year end (October 31, 2011) as to the federal tax status of dividends paid by the Fund during such fiscal years.
For the fiscal year ended October 31, 2011, the Fund designated approximately $40,608,926 under the Internal Revenue Code as qualified dividend income eligible for reduced tax rates.
The dividends paid by the Fund during the fiscal year ended October 31, 2011, should be multiplied by 100.0% to arrive at the amount eligible for the corporate dividends received deduction.
In February 2012, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2011. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2011.
Proxy Voting Policies and Procedures
and Proxy Voting Record
and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
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Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, Eclipse Funds, Eclipse Funds Inc., MainStay Funds Trust, and MainStay VP Funds Trust) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s). Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation upon reaching age 72. A Board Member reaching the age of 72 may continue for additional one-year periods with the approval of the Board’s Nominating and Governance Committee.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Interested Board Member* | ||||||||
John Y. Kim 9/24/60 | Indefinite; Eclipse Funds: Trustee since 2008 (2 funds); Eclipse Funds Inc.: Director since 2008 (1 fund); The MainStay Funds: Trustee since 2008 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc. since 2008 (21 portfolios). | Member of the Board of Managers (since 2011) of New York Life Enterprises LLC; Chairman (since 2011), Member of the Board of Managers, Chief Executive Officer and President (since 2008) of New York Life Investment Management LLC and New York Life Investment Management Holdings LLC; Executive Vice President (since 2011) of New York Life Foundation; Member of the Board of Managers and Chairman of the Board of Private Advisors, L.L.C. (since 2010); Executive Vice President, New York Life Insurance Company (since 2008); Chairman of the Board (2008-2010) and Member of the Boards of Managers (since 2008) of MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, Madison Square Investors LLC, NYLCAP Manager LLC and McMorgan & Company LLC; Chairman of the Board and Chief Executive Officer, NYLIFE Distributors LLC (2008-2010); Executive Vice President of NYLIFE Insurance Company of Arizona and New York Life Insurance and Annuity Corporation (since 2008); President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 66 | None | ||||
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Susan B. Kerley 8/12/51 | Indefinite; Eclipse Funds: Chairman since 2005, and Trustee since 2000 (2 funds); Eclipse Funds Inc.: Chairman since 2005 and Director since 1990 (1 fund); The MainStay Funds: Chairman and Board Member since 2007 (14 funds); MainStay Funds Trust: Chairman and Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Chairman and Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | President, Strategic Management Advisors LLC (since 1990) | 66 | Trustee, Legg Mason Partners Funds, since 1991 (58 portfolios) | ||||
Alan R. Latshaw 3/27/51 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2006 (14 funds); MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 66 | Trustee, State Farm Associates Funds Trusts since 2005 (4 portfolios); Trustee, State Farm Mutual Fund Trust since 2005 (15 portfolios); Trustee, State Farm Variable Product Trust since 2005 (9 portfolios) | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Peter Meenan 12/5/41 | Indefinite; Eclipse Funds: Trustee since 2002 (2 funds); Eclipse Funds Inc.: Director since 2002 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Independent Consultant; President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 66 | None | ||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2006 (21 portfolios). | Managing Director, ICC Capital Management; President—Shields/Alliance, Alliance Capital Management (1994 to 2004) | 66 | None | ||||
Richard S. Trutanic 2/13/52 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 1994 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 66 | None | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Roman L. Weil 5/22/40 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1994 and Audit Committee Financial Expert since 2003 (21 portfolios). | Visiting Professor, NYU Stem School of Business, New York University (since 2011); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School of Business, University of Chicago (1965-2008) | 66 | None | ||||
John A. Weisser 10/22/41 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1997 (21 portfolios). | Retired. Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 66 | Trustee, Direxion Funds since 2007 (27 portfolios); Direxion Insurance Trust since 2007 (1 portfolio); Trustee, Direxion Shares ETF Trust, since 2008 (50 portfolios) | ||||
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The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.
Positions(s) Held | ||||
Name and | with the Funds | Principal Occupation(s) | ||
Date of Birth | and Length of Service | During Past Five Years | ||
Officers | ||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007); Vice President, Prudential Investments (2000 to 2007); Assistant Treasurer, JennisonDryden Family of Funds, Target Portfolio Trust, The Prudential Series Fund and American Skandia Trust (2006 to 2007); Treasurer and Principal Financial Officer, The Greater China Fund (2007) | ||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance (since 2009), Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Assistant Secretary NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2009); Assistant Secretary, The MainStay Funds and ICAP Funds, Inc. (2006 to 2008); Assistant Secretary, Eclipse Funds, Eclipse Funds, Inc. and MainStay VP Series Fund, Inc. (2005 to 2008) | ||
Stephen P. Fisher 2/22/59 | President, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Director, Senior Vice President, New York Life Insurance and Annuity Corporation (since 2011); Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2007); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007) | ||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2010); Director and Counsel of Credit Suisse, Chief Legal Officer and Secretary of Credit Suisse Asset Management, LLC and Credit Suisse Funds (2003 to 2010) | ||
Scott T. Harrington 2/8/59 | Vice President — Administration, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Director (since 2009), New York Life Trust Company FSB; Vice President—Administration, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2005) | ||
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one-year term. |
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay offerings is listed here, with information about the manager, subadvisors, legal counsel, and independent registered public accounting firm.
Equity Funds
MainStay 130/30 Core Fund
MainStay Common Stock Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Fund
MainStay Equity Index Fund1
MainStay Growth Equity Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Small Cap Fund
Income Funds
MainStay Flexible Bond Opportunities Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Municipal Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Money Market Fund
MainStay Principal Preservation Fund
MainStay Short Term Bond Fund
MainStay Tax Free Bond Fund
Blended Funds
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
International Funds
MainStay 130/30 International Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay Global High Income Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
Asset Allocation Funds
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
Retirement Funds
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC2
Chicago, Illinois
MacKay Shields LLC2
New York, New York
Madison Square Investors LLC2
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management, Inc.
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firm
KPMG LLP
1. | Closed to new investors and new purchases as of January 1, 2002. |
2. | An affiliate of New York Life Investment Management LLC. |
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mainstayinvestments.com
The MainStay Funds are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC,
169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
MainStay Investments is a registered service mark and name under which New York Life Investment Management LLC does business.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment
advisory products and services.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment
advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
© 2012 by NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency | ||||||||
NYLIM-24956 MS284-11 | MSMP11-12/11 |
N30
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MainStay Money Market Fund
Message from the President and Annual Report
October 31, 2011
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Message from the President
Volatility was the keynote of the 12 months ended October 31, 2011. U.S. stocks generally advanced, but a variety of domestic and international forces influenced the market.
Early in November 2010, the Federal Open Market Committee (FOMC) announced its intention to extend quantitative easing by purchasing additional longer-term Treasury securities. The stock market reacted positively to this news—and to the midterm elections—and stocks generally advanced through mid-February.
Beginning in December 2010, a wave of protests and civil unrest across North Africa and the Middle East led to a substantial rise in the price of oil. By mid-February, stock prices started to decline. In March, a major earthquake and tsunami in Japan caused manufacturing supply-line interruptions and further setbacks for equity investors. After a sharp decline and a rapid recovery, stocks reached their high point for the 12-month period at the end of April 2011.
Pressed by a weak economy, lackluster employment and widespread concerns about European sovereign debt, the stock market faced wide fluctuations in the coming months. The volatility included a precipitous decline at the end of July into early August. Shortly thereafter, the FOMC expressed its expectation that economic conditions were “likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
After several unsuccessful attempts to recover from their dramatic drop, U.S. stocks reached their low point for the reporting period in early October. Then, buoyed by positive economic data and progress in the European debt situation, the U.S. stock market advanced rapidly in October, to close the reporting period with its best monthly performance in nearly a decade.
International stocks suffered from the turmoil in the Middle East and North Africa, the natural disasters in Japan, the sovereign debt concerns in Europe and the added threat of an economic slowdown in China. For the 12-month period, international stocks declined overall, with particular weakness in Europe.
The bond markets felt the impact of the European debt crisis, and several European nations suffered downgrades. In July, the United States faced a congressional deadlock on raising the debt ceiling and reducing deficit spending. In early August, Standard & Poor’s downgraded the debt of the United States of America to AA+.
Slow progress in resolving the European debt situation led to a flight to quality (or a movement toward securities perceived to carry lower risk). Amid strong demand, U.S. Treasury securities saw prices rise and yields decline, despite the downgrade by Standard & Poor’s. High-grade corporate
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
Throughout the 12-month reporting period, our portfolio managers took note of shifting market forces. But their primary focus was on the investment objectives of their respective Funds and the long-term strategies they were pursuing to achieve them. Some may have sought to capitalize on day-to-day market inefficiencies, but all remained focused on the long-term interests of our shareholders. They sought to apply time-tested investment principles consistently throughout the reporting period.
The information that follows provides specifics about the securities, decisions and market forces that affected your MainStay Fund(s) during the 12 months ended October 31, 2011. Behind the details, we hope you’ll recognize the professionalism and discipline that guided our portfolio managers during this volatile period.
We thank you for investing with MainStay and look forward to serving you for many years to come.
Sincerely,
Stephen P. Fisher
President
President
Table of Contents
Table of Contents
Annual Report | ||
Investment and Performance Comparison | 5 | |
Portfolio Management Discussion and Analysis | 9 | |
Portfolio of Investments | 11 | |
Financial Statements | 16 | |
Notes to Financial Statements | 21 | |
Report of Independent Registered Public Accounting Firm | 25 | |
Federal Income Tax Information | 26 | |
Proxy Voting Policies and Procedures and Proxy Voting Record | 26 | |
Shareholder Reports and Quarterly Portfolio Disclosure | 26 | |
Board Members and Officers | 27 | |
An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
Table of Contents
Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.
Average Annual Total Returns for the Year Ended October 31, 2011
Gross | ||||||||||||||||||
Expense | ||||||||||||||||||
Class | Sales Charge | One Year | Five Years | Ten Years | Ratio2 | |||||||||||||
Investor Class Shares3,4 | No Sales Charge | 0 | .01% | 1 | .46% | 1 | .62% | 0 | .94% | |||||||||
Class A Shares3 | No Sales Charge | 0 | .01 | 1 | .49 | 1 | .63 | 0 | .72 | |||||||||
Class B Shares3 | No Sales Charge | 0 | .01 | 1 | .47 | 1 | .62 | 0 | .94 | |||||||||
Class C Shares3 | No Sales Charge | 0 | .01 | 1 | .47 | 1 | .62 | 0 | .94 | |||||||||
7-Day Current Yield: 0.01%
1. | The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or Fund-share redemptions. Total returns reflect maximum applicable sales charges as indicated in the table above, change in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | As of October 31, 2011, MainStay Money Market Fund had an effective 7-day yield of 0.01%, 0.01%, 0.01% and 0.01% for Investor Class, Class A, B and C shares, respectively. The 7-day current yield was 0.01%, 0.01%, 0.01% and 0.01% for Investor Class, Class A, B and C shares, respectively. These yields reflect certain expense limitations. Had these expense limitations not been in effect, the effective 7-day yield would have been –0.72%, –0.28%, –0.72% and –0.72% for Investor Class, Class A, B and C shares, respectively, and the 7-day current yield would have been –0.72%, –0.28%, –0.72%, –0.72% for Investor Class, Class A, B and C shares, respectively. The current yield reflects the Fund’s earnings better than does the Fund’s total return. |
4. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A Shares through February 27, 2008, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Investor Class shares might have been lower. |
The footnote on the next page is an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com 5
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One | Five | Ten | ||||||||||
Benchmark Performance | Year | Years | Years | |||||||||
Average Lipper Money Market Fund5 | 0 | .02% | 1 | .51% | 1 | .59% | ||||||
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
Table of Contents
Cost in Dollars of a $1,000 Investment in MainStay Money Market Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2011, to October 31, 2011, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2011, to October 31, 2011.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2011. 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.
Ending Account | ||||||||||||||||||||||
Ending Account | Value (Based | |||||||||||||||||||||
Value (Based | on Hypothetical | |||||||||||||||||||||
Beginning | on Actual | Expenses | 5% Annualized | Expenses | ||||||||||||||||||
Account | Returns and | Paid | Return and | Paid | ||||||||||||||||||
Value | Expenses) | During | Actual Expenses) | During | ||||||||||||||||||
Share Class | 5/1/11 | 10/31/11 | Period1 | 10/31/11 | Period1 | |||||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,000.10 | $ | 0.71 | $ | 1,024.50 | $ | 0.71 | ||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,000.10 | $ | 0.71 | $ | 1,024.50 | $ | 0.71 | ||||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,000.10 | $ | 0.71 | $ | 1,024.50 | $ | 0.71 | ||||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,000.10 | $ | 0.71 | $ | 1,024.50 | $ | 0.71 | ||||||||||||
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (0.14% for Investor Class, Class A, Class B and Class C) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the one-half year period). The table above represents the actual expenses incurred during the one-half year period. |
mainstayinvestments.com 7
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Portfolio Composition as of October 31, 2011 (Unaudited)
Other Commercial | ||||
Paper | 46.8 | |||
Treasury Debt | 19.5 | |||
Other Notes | 8.1 | |||
Government Agency Debt | 7.3 | |||
Financial Company Commercial Paper | 6.6 | |||
certificates of deposit | 6.3 | |||
Treasury Repurchase Agreements | 4.8 | |||
Asset Backed Commercial Paper | 0.7 | |||
Other Assets, Less Liabilities | (0.1 | ) |
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
8 MainStay Money Market Fund
Table of Contents
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers David E. Clement, CFA, and Thomas J. Girard of New York Life Investments,1 the Fund’s Manager.
How did MainStay Money Market Fund perform relative to its peers during the 12 months ended October 31, 2011?
As of October 31, 2011, MainStay Money Market Fund provided a 7-day current yield of 0.01% for Investor Class, Class A, Class B and Class C shares. As of the same date, the Fund provided a 7-day effective yield of 0.01% for all share classes. For the 12 months ended October 31, 2011, MainStay Money Market Fund returned 0.01% for all share classes. All share classes underperformed the 0.02% return of the average Lipper2 money market fund for the 12 months ended October 31, 2011.
What factors affected the Fund’s relative performance during the reporting period?
A variety of factors affected the Fund’s relative performance during the reporting period. Repurchase rates declined dramatically, which detracted from the Fund’s relative performance because we had been using repurchase agreements to help satisfy the requirement instituted by regulators last year that a money market fund must invest at least 30% of total assets in instruments that are readily convertible to cash within five business days. During the reporting period, some of the longer-dated higher-yielding floating-rate securities backed by the Federal Deposit Insurance Corporation (FDIC) that we purchased in 2009 began to mature. The maturities of the higher-yielding FDIC-backed securities detracted from performance because replacements with comparable backing and yield were difficult to find. An underweight position in European bank securities—a higher-yielding sector—detracted from relative performance. On the positive side, asset-backed securities and floating-rate agency securities added to the Fund’s relative performance.
What was the Fund’s duration3 strategy during the reporting period?
During the reporting period, we kept the Fund’s average weighted duration between 50 and 55 days. We view this as a longer duration because regulations prevent money market funds from maintaining an average weighted duration longer than 60 days. This strategy was particularly effective among LIBOR-based4 investments because of the steepness of the LIBOR yield curve5 relative to the Treasury curve.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
The Federal Open Market Committee (FOMC) kept the federal funds target rate in a very low range, which gave us the confidence to go out further on an upward-sloping yield curve during the first half of the reporting period. This was accomplished by using longer-dated Treasury coupon securities and asset-backed securities. (Asset-backed securities must be recorded as though they will mature on their legal maturity date even though their average lives are typically much shorter.)
We hedged this positioning by participating in the floating-rate securities market. In our opinion, the use of floating-rate securities offered two potential advantages. First, if interest rates rose, we would participate in the upward movement. Second, floating-rate securities offered what we felt were compelling yields compared to other available investments.
Later in the reporting period, negative sentiment regarding the Eurozone sovereign debt crisis was at the forefront of the market. This resulted in significant downward pressure on Treasury rates as money funds began to pare back their holdings of European bank paper in favor of Treasury securities. When the FOMC expressed its anticipation that economic conditions were “likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013,” the flow of higher-yielding floating-rate assets sharply declined. This forced the Fund into the already crowded government and domestic commercial paper markets.
During the reporting period, which market segments were the strongest contributors to the Fund’s perfor-mance and which market segments were partic-ularly weak?
The strongest contributors to the Fund’s performance included floating-rate securities (corporate and agency floaters) and asset-backed securities. The weakest contributors to the Fund’s performance were repurchase agreements and the Fund’s nonparticipation in longer-maturity Yankee bank issues.
1. New York Life Investments is a service mark used by New York Life Investment Management LLC.
2. See footnote on page 6 for more information on Lipper Inc.
3. Duration is a measure of the price sensitivity of a fixed-income investment to changes in interest rates. Duration is expressed as a number of days and is considered a more accurate sensitivity gauge than average maturity.
4. London InterBank Offered Rate (LIBOR) is an interest rate that is widely used as a reference rate in bank, corporate and government lending agreements.
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.
mainstayinvestments.com 9
Table of Contents
Did the Fund make any significant purchases or sales during the reporting period?
Significant purchases that added to the Fund’s return during the reporting period included the asset-backed securities of Great America Leasing Receivables and Macquarie Equipment Funding Trust. The Fund’s yield was also strengthened by investments in the floating-rate securities of Federal Farm Credit Bank, Federal Home Loan Bank, Toronto-Dominion Bank and Sanofi-Aventis S.A. There were no significant sales during the reporting period.
How did the Fund’s sector weightings change during the reporting period?
During the reporting period, we increased the Fund’s weightings in repurchase agreements, Treasury securities and asset-backed securities. The Fund decreased its weightings in FDIC-backed securities and agency securities.
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
10 MainStay Money Market Fund
Table of Contents
Portfolio of Investments October 31, 2011
Principal | Amortized | |||||||
Amount | Cost | |||||||
Short-Term Investments 100.1%† | ||||||||
Asset-Backed Commercial Paper 0.7% | ||||||||
Straight-A Funding LLC 0.16%, due 11/16/11 (a) | $ | 3,918,000 | $ | 3,917,739 | ||||
Certificates of Deposit 6.3% | ||||||||
Bank of Nova Scotia 0.38%, due 3/22/12 (b) | 6,025,000 | 6,025,000 | ||||||
National Australia Bank, Ltd. 0.28%, due 12/8/11 | 6,195,000 | 6,195,000 | ||||||
0.31%, due 1/9/12 | 6,025,000 | 6,025,000 | ||||||
Toronto-Dominion Bank (The) 0.315%, due 9/20/12 (b) | 6,080,000 | 6,080,000 | ||||||
Westpac Banking Corp. 0.32%, due 2/1/12 | 6,035,000 | 6,035,000 | ||||||
0.46%, due 3/23/12 | 6,025,000 | 6,025,000 | ||||||
36,385,000 | ||||||||
Financial Company Commercial Paper 6.6% | ||||||||
Bank of Nova Scotia 0.10%, due 11/28/11 (c) | 1,225,000 | 1,224,908 | ||||||
Caterpillar Financial Services Corp. 0.10%, due 12/6/11 (c) | 7,315,000 | 7,314,289 | ||||||
National Rural Utilities Cooperative Finance Corp. 0.12%, due 11/30/11 (c) | 7,295,000 | 7,294,295 | ||||||
0.12%, due 12/1/11 (c) | 5,905,000 | 5,904,409 | ||||||
PACCAR Financial Corp. 0.06%, due 11/3/11 (c) | 4,875,000 | 4,874,984 | ||||||
0.20%, due 11/15/11 (c) | 5,025,000 | 5,024,609 | ||||||
Private Export Funding Corp. 0.05%, due 11/22/11 (a)(c) | 6,100,000 | 6,099,822 | ||||||
37,737,316 | ||||||||
Government Agency Debt 7.3% | ||||||||
Federal Farm Credit Bank | ||||||||
0.10%, due 7/5/12 (b) | 5,980,000 | 5,976,400 | ||||||
0.12%, due 11/4/11 (b) | 4,995,000 | 4,995,000 | ||||||
0.25%, due 1/12/12 (b) | 6,420,000 | 6,420,000 | ||||||
Federal Home Loan Bank 0.17%, due 1/24/12 (b) | 5,095,000 | 5,095,000 | ||||||
Federal National Mortgage Association 0.273%, due 9/17/12 (b) | 6,420,000 | 6,424,152 | ||||||
0.30%, due 9/13/12 (b) | 1,720,000 | 1,721,498 | ||||||
Federal National Mortgage Association (Discount Note) 0.005%, due 11/7/11 (c) | 11,535,000 | 11,534,990 | ||||||
42,167,040 | ||||||||
Other Commercial Paper 46.8% | ||||||||
BHP Billiton Finance (USA), Ltd. 0.14%, due 11/15/11 (a)(c) | 6,000,000 | 5,999,673 | ||||||
Campbell Soup Co. 0.301%, due 12/14/11 (a)(c) | 6,330,000 | 6,327,732 | ||||||
0.401%, due 11/29/11 (a)(c) | 5,070,000 | 5,068,423 | ||||||
Canadian Wheat Board 0.05%, due 11/28/11 (c) | 3,825,000 | 3,824,857 | ||||||
Caterpillar, Inc. 0.09%, due 12/22/11 (a)(c) | 2,430,000 | 2,429,690 | ||||||
Cisco Systems, Inc. 0.081%, due 11/8/11 (a)(c) | 6,235,000 | 6,234,903 | ||||||
Coca-Cola Co. (The) 0.08%, due 11/18/11 (a)(c) | 6,035,000 | 6,034,772 | ||||||
0.11%, due 11/10/11 (a)(c) | 6,180,000 | 6,179,830 | ||||||
0.12%, due 11/17/11 (a)(c) | 2,960,000 | 2,959,842 | ||||||
Devon Energy Corp. 0.23%, due 11/1/11 (a)(c) | 2,120,000 | 2,120,000 | ||||||
Duke Energy Corp. 0.34%, due 11/21/11 (a)(c) | 2,400,000 | 2,399,547 | ||||||
E.I. du Pont de Nemours & Co. 0.17%, due 12/12/11 (a)(c) | 2,410,000 | 2,409,533 | ||||||
Eli Lilly & Co. 0.04%, due 11/2/11 (a)(c) | 4,500,000 | 4,499,995 | ||||||
Emerson Electric Co. 0.05%, due 11/3/11 (a)(c) | 2,000,000 | 1,999,994 | ||||||
0.05%, due 11/9/11 (a)(c) | 4,005,000 | 4,004,956 | ||||||
0.07%, due 11/14/11 (a)(c) | 6,225,000 | 6,224,843 | ||||||
Exxon Mobil Corp. 0.05%, due 11/18/11 (c) | 6,250,000 | 6,249,852 | ||||||
General Electric Co. 0.07%, due 11/17/11 (c) | 5,875,000 | 5,874,817 | ||||||
Google, Inc. 0.05%, due 11/21/11 (a)(c) | 6,130,000 | 6,129,830 | ||||||
0.06%, due 11/21/11 (c) | 7,315,000 | 7,314,756 | ||||||
Henkel of America, Inc. 0.14%, due 12/5/11 (a)(c) | 1,944,000 | 1,943,743 | ||||||
Hewlett-Packard Co. 0.22%, due 1/17/12 (a)(c) | 5,380,000 | 5,377,468 | ||||||
Illinois Tool Works, Inc. 0.06%, due 11/10/11 (a)(c) | 5,070,000 | 5,069,924 | ||||||
0.07%, due 11/15/11 (a)(c) | 7,050,000 | 7,049,808 | ||||||
International Business Machines Corp. 0.05%, due 11/7/11 (a)(c) | 3,880,000 | 3,879,968 | ||||||
0.06%, due 11/16/11 (a)(c) | 6,120,000 | 6,119,847 | ||||||
0.06%, due 12/13/11 (a)(c) | 435,000 | 434,970 | ||||||
Johnson & Johnson 0.05%, due 11/28/11 (a)(c) | 10,055,000 | 10,054,623 | ||||||
0.05%, due 12/27/11 (a)(c) | 6,460,000 | 6,459,498 |
† | Percentages indicated are based on Fund net assets. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 11 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
Principal | Amortized | |||||||
Amount | Cost | |||||||
Short-Term Investments (continued) | ||||||||
Other Commercial Paper (continued) | ||||||||
Kellogg Co. 0.22%, due 11/10/11 (a)(c) | $ | 2,430,000 | $ | 2,429,866 | ||||
McDonald’s Corp. 0.07%, due 12/16/11 (a)(c) | 2,445,000 | 2,444,786 | ||||||
0.08%, due 11/1/11 (a)(c) | 4,000,000 | 4,000,000 | ||||||
Merck & Co., Inc. 0.06%, due 11/9/11 (a)(c) | 7,000,000 | 6,999,907 | ||||||
Nestle Finance International, Ltd. 0.05%, due 12/1/11 (c) | 7,295,000 | 7,294,696 | ||||||
Novartis Finance Corp. 0.07%, due 11/1/11 (a)(c) | 6,095,000 | 6,095,000 | ||||||
0.09%, due 11/21/11 (a)(c) | 6,605,000 | 6,604,670 | ||||||
Parker Hannifin Corp. 0.06%, due 11/9/11 (a)(c) | 3,660,000 | 3,659,951 | ||||||
0.07%, due 11/30/11 (a)(c) | 5,595,000 | 5,594,684 | ||||||
0.08%, due 11/22/11 (a)(c) | 5,415,000 | 5,414,747 | ||||||
PepsiCo, Inc. 0.05%, due 12/16/11 (a)(c) | 3,140,000 | 3,139,804 | ||||||
0.07%, due 12/5/11 (a)(c) | 2,415,000 | 2,414,840 | ||||||
0.08%, due 11/22/11 (a)(c) | 6,025,000 | 6,024,719 | ||||||
Procter & Gamble Co. (The) 0.10%, due 2/14/12 (a)(c) | 6,100,000 | 6,098,221 | ||||||
Roche Holding, Inc. 0.06%, due 11/23/11 (a)(c) | 6,255,000 | 6,254,771 | ||||||
Schlumberger Technology Corp. 0.12%, due 11/8/11 (a)(c) | 6,080,000 | 6,079,858 | ||||||
Siemens Capital Co. LLC 0.12%, due 11/21/11 (a)(c) | 6,130,000 | 6,129,591 | ||||||
0.14%, due 12/8/11 (a)(c) | 6,095,000 | 6,094,123 | ||||||
0.14%, due 12/14/11 (a)(c) | 1,700,000 | 1,699,716 | ||||||
South Carolina Electric & Gas Co. 0.385%, due 11/4/11 (c) | 2,365,000 | 2,364,925 | ||||||
Target Corp. 0.06%, due 11/7/11 (c) | 6,120,000 | 6,119,939 | ||||||
0.07%, due 11/7/11 (c) | 2,920,000 | 2,919,966 | ||||||
Wal-Mart Stores, Inc. 0.05%, due 12/7/11 (a)(c) | 6,120,000 | 6,119,694 | ||||||
0.09%, due 11/17/11 (a)(c) | 6,025,000 | 6,024,759 | ||||||
Walt Disney Co. (The) 0.05%, due 11/29/11 (a)(c) | 3,570,000 | 3,569,861 | ||||||
0.07%, due 12/6/11 (a)(c) | 6,035,000 | 6,034,589 | ||||||
268,305,377 | ||||||||
Other Notes 8.1% | ||||||||
Bank of Nova Scotia 0.24%, due 11/16/11 | 6,145,000 | 6,145,000 | ||||||
BMW Vehicle Lease Trust Series 2011-1, Class A1 0.289%, due 4/20/12 | 481,559 | 481,559 | ||||||
BMW Vehicle Owner Trust Series 2011-A, Class A1 0.306%, due 9/25/12 | 817,297 | 817,297 | ||||||
CNH Equipment Trust | ||||||||
Series 2011-A, Class A1 0.336%, due 5/15/12 | 1,202,054 | 1,202,054 | ||||||
Series 2011-B, Class A1 0.384%, due 10/12/12 | 2,334,499 | 2,334,499 | ||||||
Enterprise Fleet Financing LLC Series 2011-2, Class A1 0.384%, due 7/20/12 (a) | 1,321,628 | 1,321,628 | ||||||
Ford Credit Auto Lease Trust Series 2011-A, Class A1 0.261%, due 7/15/12 (a) | 950,013 | 950,013 | ||||||
Ford Credit Auto Owner Trust Series 2011-B, Class A1 0.219%, due 8/15/12 (a) | 486,591 | 486,591 | ||||||
GE Equipment Midticket LLC Series 2011-1, Class A1 0.429%, due 10/22/12 | 1,210,000 | 1,210,000 | ||||||
GE Equipment Small Ticket LLC Series 2011-1A, Class A1 0.383%, due 2/21/12 (a) | 144,197 | 144,197 | ||||||
GE Equipment Transportation LLC Series 2011-1, Class A1 0.294%, due 7/20/12 | 612,072 | 612,072 | ||||||
Great America Leasing Receivables Series 2011-1, Class A1 0.405%, due 3/15/12 (a) | 236,594 | 236,594 | ||||||
Holmes Master Issuer PLC Series 2011-3A, Class A1 0.373%, due 7/15/12 (a)(b) | 7,295,000 | 7,295,000 | ||||||
Huntington Auto Trust Series 2011-1A, Class A1 0.364%, due 9/17/12 (a) | 964,447 | 964,447 | ||||||
International Bank for Reconstruction & Development 0.22%, due 7/25/12 (b) | 4,910,000 | 4,910,000 | ||||||
John Deere Owner Trust Series 2011-A, Class A1 0.306%, due 5/11/12 | 679,869 | 679,869 | ||||||
Macquarie Equipment Funding Trust Series 2011-A, Class A1 0.432%, due 3/20/12 (a) | 494,713 | 494,713 | ||||||
MMAF Equipment Finance LLC Series 2011-AA, Class A1 0.323%, due 8/15/12 (a) | 961,915 | 961,915 | ||||||
Nissan Auto Lease Trust Series 2011-B, Class A1 0.35%, due 10/15/12 | 1,479,987 | 1,479,987 |
The notes to the financial statements are an integral part of,
12 MainStay Money Market Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | Amortized | |||||||
Amount | Cost | |||||||
Short-Term Investments (continued) | ||||||||
Other Notes (continued) | ||||||||
Nissan Auto Receivables Owner Trust Series 2011-A, Class A1 0.261%, due 4/16/12 | $ | 511,580 | $ | 511,580 | ||||
Sanofi 0.413%, due 3/28/12 (b) | 6,455,000 | 6,455,000 | ||||||
SMART Trust Series 2011-2USA, Class A1 0.365%, due 7/14/12 (a) | 1,220,808 | 1,220,808 | ||||||
Toronto-Dominion Bank (The) 0.323%, due 1/12/12 (b) | 5,095,000 | 5,095,000 | ||||||
World Omni Auto Receivables Trust Series 2011-A, Class A1 0.294%, due 3/15/12 | 90,308 | 90,308 | ||||||
World Omni Automobile Lease Securitization Trust Series 2011-A, Class A1 0.301%, due 4/16/12 | 232,660 | 232,660 | ||||||
46,332,791 | ||||||||
Treasury Debt 19.5% | ||||||||
United States Treasury Bill 0.01%, due 11/10/11 (c) | 10,665,000 | 10,664,973 | ||||||
United States Treasury Notes | ||||||||
0.375%, due 8/31/12 | 1,750,000 | 1,751,838 | ||||||
0.375%, due 9/30/12 | 6,000,000 | 6,011,844 | ||||||
0.375%, due 10/31/12 | 4,000,000 | 4,008,192 | ||||||
0.625%, due 6/30/12 | 7,145,000 | 7,163,611 | ||||||
0.625%, due 7/31/12 | 2,555,000 | 2,562,817 | ||||||
0.75%, due 5/31/12 | 5,920,000 | 5,937,884 | ||||||
0.875%, due 1/31/12 | 13,800,000 | 13,827,329 | ||||||
0.875%, due 2/29/12 | 10,305,000 | 10,330,267 | ||||||
1.00%, due 12/31/11 | 37,185,000 | 37,242,289 | ||||||
1.00%, due 3/31/12 | 6,510,000 | 6,530,613 | ||||||
1.00%, due 4/30/12 | 5,775,000 | 5,796,543 | ||||||
111,828,200 | ||||||||
Treasury Repurchase Agreements 4.8% | ||||||||
Bank of America N.A. 0.08%, dated 10/31/11 due 11/1/11 Proceeds at Maturity $13,741,031 (Collateralized by a United States Treasury Note, with a rate of 3.625% and a maturity date of 2/15/20, with a Principal Amount of $12,365,700 and a Market Value of $14,015,840) | 13,741,000 | 13,741,000 | ||||||
Deutsche Bank Securities, Inc. 0.09%, dated 10/31/11 due 11/1/11 Proceeds at Maturity $13,740,034 (Collateralized by a United States Treasury Note, with a rate of 1.375% and a maturity date of 9/30/18, with a Principal Amount of $14,318,100 and a Market Value of $14,014,851) | 13,740,000 | 13,740,000 | ||||||
27,481,000 | ||||||||
Total Short-Term Investments (Amortized Cost $574,154,463) (d) | 100.1 | % | 574,154,463 | |||||
Other Assets, Less Liabilities | (0.1 | ) | (389,050 | ) | ||||
Net Assets | 100.0 | % | $ | 573,765,413 | ||||
(a) | May be sold to institutional investors only under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended. | |
(b) | Floating rate—Rate shown is the rate in effect at October 31, 2011. | |
(c) | Interest rate presented is yield to maturity. | |
(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. | mainstayinvestments.com 13 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
The following is a summary of the fair valuations according to the inputs used as of October 31, 2011, for valuing the Fund’s assets.
Asset Valuation Inputs
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Short-Term Investments | ||||||||||||||||
Asset-Backed Commercial Paper | $ | — | $ | 3,917,739 | $ | — | $ | 3,917,739 | ||||||||
Certificates of Deposit | — | 36,385,000 | — | 36,385,000 | ||||||||||||
Financial Company Commercial Paper | — | 37,737,316 | — | 37,737,316 | ||||||||||||
Government Agency Debt | — | 42,167,040 | — | 42,167,040 | ||||||||||||
Other Commercial Paper | — | 268,305,377 | — | 268,305,377 | ||||||||||||
Other Notes | — | 46,332,791 | — | 46,332,791 | ||||||||||||
Treasury Debt | — | 111,828,200 | — | 111,828,200 | ||||||||||||
Treasury Repurchase Agreements | — | 27,481,000 | — | 27,481,000 | ||||||||||||
Total Investments in Securities | $ | — | $ | 574,154,463 | $ | — | $ | 574,154,463 | ||||||||
(a) | For a complete listing of investments, see the Portfolio of Investments. |
The Fund recognizes transfers between the Levels as of the beginning of the period.
For the year ended October 31, 2011, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
At October 31, 2011, 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,
14 MainStay Money Market Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
The table below sets forth the diversification of MainStay Money Market Fund investments by industry.
Industry Diversification (Unaudited)
Amortized | ||||||||
Cost | Percent † | |||||||
Automobile ABS | $ | 8,556,878 | 1.5 | % | ||||
Banks | 12,464,908 | 2.2 | ||||||
Beverages | 26,753,807 | 4.7 | ||||||
Certificate of Deposit | 36,385,000 | 6.3 | ||||||
Chemicals | 4,353,276 | 0.8 | ||||||
Computers | 15,812,253 | 2.8 | ||||||
Cosmetics & Personal Care | 6,098,221 | 1.1 | ||||||
Electric | 4,764,472 | 0.8 | ||||||
Electrical Components & Equipment | 12,229,793 | 2.1 | ||||||
Finance—Auto Loans | 12,329,283 | 2.1 | ||||||
Finance—Other Services | 26,612,815 | 4.6 | ||||||
Food | 21,120,717 | 3.7 | ||||||
Health Care—Products | 16,514,121 | 2.9 | ||||||
Health Care—Services | 6,254,771 | 1.1 | ||||||
Internet | 13,444,586 | 2.3 | ||||||
Media | 9,604,450 | 1.7 | ||||||
Mining | 5,999,673 | 1.0 | ||||||
Miscellaneous—Manufacturing | 46,587,361 | 8.1 | ||||||
Multi-National | 4,910,000 | 0.9 | ||||||
Oil & Gas | 14,449,710 | 2.5 | ||||||
Other ABS | 7,875,913 | 1.4 | ||||||
Pharmaceuticals | 30,654,572 | 5.3 | ||||||
Repurchase Agreements | 27,481,000 | 4.8 | ||||||
Retail | 27,629,144 | 4.8 | ||||||
Sovereign | 3,824,857 | 0.7 | ||||||
Special Purpose Entity | 10,152,642 | 1.8 | ||||||
U.S. Government & Agency | 153,995,240 | 26.8 | ||||||
Whole Loan Collateral Collateralized Mortgage Obligation | 7,295,000 | 1.3 | ||||||
574,154,463 | 100.1 | |||||||
Other Assets, Less Liabilities | (389,050 | ) | (0.1 | ) | ||||
Net Assets | $ | 573,765,413 | 100.0 | % | ||||
† | Percentages indicated are based on Fund net assets. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 15 |
Table of Contents
Statement of Assets and Liabilities as of October 31, 2011
Assets | ||||
Investment in securities, at value (amortized cost $574,154,463) | $ | 574,154,463 | ||
Cash | 216 | |||
Receivables: | ||||
Fund shares sold | 2,791,264 | |||
Interest | 245,818 | |||
Manager (See Note 3) | 62,882 | |||
Other assets | 58,966 | |||
Total assets | 577,313,609 | |||
Liabilities | ||||
Payables: | ||||
Fund shares redeemed | 3,221,155 | |||
Transfer agent (See Note 3) | 245,052 | |||
Shareholder communication | 46,688 | |||
Professional fees | 19,100 | |||
Trustees | 2,288 | |||
Custodian | 1,455 | |||
Accrued expenses | 10,323 | |||
Dividend payable | 2,135 | |||
Total liabilities | 3,548,196 | |||
Net assets | $ | 573,765,413 | ||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 5,738,139 | ||
Additional paid-in capital | 568,026,961 | |||
573,765,100 | ||||
Accumulated net realized gain (loss) on investments | 313 | |||
Net assets | $ | 573,765,413 | ||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 63,169,361 | ||
Shares of beneficial interest outstanding | 63,178,971 | |||
Net asset value and offering price per share outstanding | $ | 1.00 | ||
Class A | ||||
Net assets applicable to outstanding shares | $ | 373,790,091 | ||
Shares of beneficial interest outstanding | 373,819,103 | |||
Net asset value and offering price per share outstanding | $ | 1.00 | ||
Class B | ||||
Net assets applicable to outstanding shares | $ | 102,907,928 | ||
Shares of beneficial interest outstanding | 102,915,336 | |||
Net asset value and offering price per share outstanding | $ | 1.00 | ||
Class C | ||||
Net assets applicable to outstanding shares | $ | 33,898,033 | ||
Shares of beneficial interest outstanding | 33,900,475 | |||
Net asset value and offering price per share outstanding | $ | 1.00 | ||
The notes to the financial statements are an integral part of,
16 MainStay Money Market Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statement of Operations for the year ended October 31, 2011
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 985,417 | ||
Expenses | ||||
Manager (See Note 3) | 2,465,535 | |||
Transfer agent (See Note 3) | 1,373,426 | |||
Registration | 117,355 | |||
Shareholder communication | 105,461 | |||
Professional fees | 82,740 | |||
Custodian | 25,039 | |||
Trustees | 14,862 | |||
Miscellaneous | 19,150 | |||
Total expenses before waiver/reimbursement | 4,203,568 | |||
Expense waiver/reimbursement from Manager (See Note 3) | (3,277,067 | ) | ||
Net expenses | 926,501 | |||
Net investment income (loss) | 58,916 | |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments | 313 | |||
Net increase (decrease) in net assets resulting from operations | $ | 59,229 | ||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 17 |
Table of Contents
Statements of Changes in Net Assets
for the years ended October 31, 2011 and October 31, 2010
2011 | 2010 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 58,916 | $ | 50,207 | ||||
Net realized gain (loss) on investments | 313 | 1,079 | ||||||
Net increase (decrease) in net assets resulting from operations | 59,229 | 51,286 | ||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (6,784 | ) | (14,067 | ) | ||||
Class A | (36,835 | ) | (68,137 | ) | ||||
Class B | (12,070 | ) | (29,495 | ) | ||||
Class C | (3,227 | ) | (6,590 | ) | ||||
Total dividends to shareholders | (58,916 | ) | (118,289 | ) | ||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 592,279,017 | 481,351,855 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 54,492 | 113,620 | ||||||
Cost of shares redeemed | (530,560,321 | ) | (494,050,599 | ) | ||||
Increase (decrease) in net assets derived from capital share transactions | 61,773,188 | (12,585,124 | ) | |||||
Net increase (decrease) in net assets | 61,773,501 | (12,652,127 | ) | |||||
Net Assets | ||||||||
Beginning of year | 511,991,912 | 524,644,039 | ||||||
End of year | $ | 573,765,413 | $ | 511,991,912 | ||||
The notes to the financial statements are an integral part of,
18 MainStay Money Market Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Investor Class | ||||||||||||||||||
February 28, | ||||||||||||||||||
2008** | ||||||||||||||||||
through | ||||||||||||||||||
Year ended October 31, | October 31, | |||||||||||||||||
2011 | 2010 | 2009 | 2008 | |||||||||||||||
Net asset value at beginning of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||
Net investment income (loss) | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.01 | |||||||||||
Net realized and unrealized gain (loss) on investments | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||
Total from investment operations | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.01 | |||||||||||
Less dividends: | ||||||||||||||||||
From net investment income | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.01 | ) | ||||||||||
Return of capital | — | (0.00 | )‡ | — | — | |||||||||||||
Total dividends | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.01 | ) | ||||||||||
Net asset value at end of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||
Total investment return | 0.01 | % | 0.02 | % | 0.12 | % | 1.24 | %(a) | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||
Net investment income (loss) | 0.01 | % | 0.01 | % | 0.13 | % | 1.67 | %†† | ||||||||||
Net expenses | 0.18 | % | 0.25 | % | 0.50 | % | 0.80 | %†† | ||||||||||
Expenses (before waiver/reimbursement) | 0.91 | % | 0.94 | % | 0.95 | % | 0.88 | %†† | ||||||||||
Net assets at end of period (in 000’s) | $ | 63,169 | $ | 64,360 | $ | 67,220 | $ | 72,721 |
** | Commencement of operations. | |
†† | Annualized. | |
‡ | Less than one cent per share. | |
(a) | Total investment return is not annualized. |
Class A | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||
Net investment income (loss) | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.03 | 0.05 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||||
Total from investment operations | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.03 | 0.05 | ||||||||||||||
Less dividends: | ||||||||||||||||||||||
From net investment income | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.03 | ) | (0.05 | ) | ||||||||||||
Return of capital | — | (0.00 | )‡ | — | — | — | ||||||||||||||||
Total dividends | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.03 | ) | (0.05 | ) | ||||||||||||
Net asset value at end of year | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||
Total investment return | 0.01 | % | 0.02 | % | 0.16 | % | 2.65 | % | 4.69 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 0.01 | % | 0.01 | % | 0.18 | % | 2.65 | % | 4.59 | % | ||||||||||||
Net expenses | 0.17 | % | 0.25 | % | 0.47 | % | 0.68 | % | 0.70 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 0.71 | % | 0.72 | % | 0.73 | % | 0.71 | % | 0.83 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 373,790 | $ | 301,795 | $ | 279,766 | $ | 372,956 | $ | 346,960 |
‡ | Less than one cent per share. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 19 |
Table of Contents
Financial Highlights selected per share data and ratios
Class B | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||
Net investment income (loss) | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.03 | 0.05 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||||
Total from investment operations | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.03 | 0.05 | ||||||||||||||
Less dividends: | ||||||||||||||||||||||
From net investment income | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.03 | ) | (0.05 | ) | ||||||||||||
Return of capital | — | (0.00 | )‡ | — | — | — | ||||||||||||||||
Total dividends | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.03 | ) | (0.05 | ) | ||||||||||||
Net asset value at end of year | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||
Total investment return | 0.01 | % | 0.02 | % | 0.12 | % | 2.57 | % | 4.69 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 0.01 | % | 0.01 | % | 0.14 | % | 2.54 | % | 4.59 | % | ||||||||||||
Net expenses | 0.18 | % | 0.25 | % | 0.51 | % | 0.76 | % | 0.70 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 0.91 | % | 0.94 | % | 0.95 | % | 0.84 | % | 0.83 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 102,908 | $ | 118,529 | $ | 144,464 | $ | 187,237 | $ | 176,753 |
‡ | Less than one cent per share. |
Class C | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||
Net investment income (loss) | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.03 | 0.05 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||||
Total from investment operations | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.03 | 0.05 | ||||||||||||||
Less dividends: | ||||||||||||||||||||||
From net investment income | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.03 | ) | (0.05 | ) | ||||||||||||
Return of capital | — | (0.00 | )‡ | — | — | — | ||||||||||||||||
Total dividends | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.03 | ) | (0.05 | ) | ||||||||||||
Net asset value at end of year | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||
Total investment return | 0.01 | % | 0.02 | % | 0.12 | % | 2.57 | % | 4.69 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 0.01 | % | 0.01 | % | 0.15 | % | 2.51 | % | 4.59 | % | ||||||||||||
Net expenses | 0.18 | % | 0.25 | % | 0.52 | % | 0.76 | % | 0.70 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 0.91 | % | 0.94 | % | 0.95 | % | 0.83 | % | 0.83 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 33,898 | $ | 27,307 | $ | 33,194 | $ | 56,458 | $ | 36,270 |
‡ | Less than one cent per share. |
The notes to the financial statements are an integral part of,
20 MainStay Money Market Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Notes to Financial Statements
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of fourteen funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay Money Market Fund (the “Fund”), a diversified fund.
The Fund currently offers four classes of shares at net asset value (“NAV”) without the imposition of a front-end sales charge or a contingent deferred sales charge (“CDSC”). Class A shares commenced operations on January 3, 1995. Class B shares commenced operations on May 1, 1986. Class C shares commenced operations on September 1, 1998. Investor Class shares commenced operations on February 28, 2008. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The four classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions.
The Fund’s investment objective is to seek a high level of current income while preserving capital and maintaining liquidity.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Valuation of Fund Shares. The Fund seeks to maintain a NAV of $1.00 per share, although there is no assurance that it will be able to do so on a continuous basis, and it has adopted certain investment, portfolio and dividend and distribution policies designed to enable it to do as such. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
(B) Securities Valuation. Securities are valued at their amortized cost per the requirements of Rule 2a-7 under the 1940 Act. 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.
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are determined within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish 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 developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in determining the fair value of investments) |
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may utilize some of the following fair value techniques: multi-dimensional relational pricing models and option adjusted spread pricing. For the year ended October 31, 2011, there have been no changes to the fair value methodologies.
Securities valued at amortized cost are not obtained from a quoted price in an active market and are generally categorized as Level 2 in the hierarchy. The aggregate value by input level, as of October 31, 2011, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
(C) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provision is required.
Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provision for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(D) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund declares dividends of net investment income daily and pays them monthly and declares and pays distribution of net realized capital gains, if any, annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares
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Notes to Financial Statements (continued)
of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(E) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Interest income is accrued daily and discounts and premiums on securities purchased for the Fund are accreted and amortized, respectively, on the straight-line method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
(F) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(G) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(H) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager (as defined in Note 3(A)) to be creditworthy, pursuant to guidelines established by the Fund’s Board. Repurchase agreements are considered under the 1940 Act to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in such repurchase agreements. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default of 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, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(I) Concentration of Risk. The Fund’s investments may include securities such as variable rate master demand notes, floating-rate notes and mortgage-related and asset-backed securities. If expectations about changes in interest rates, or assessments of an issuer’s credit worthiness or market conditions are incorrect, these types of investments could lose money.
The Fund may also invest in U.S. dollar denominated securities of foreign issuers, which carry certain risks in addition to the usual risks inherent in domestic instruments. These risks include those resulting from future adverse political or economic developments and possible imposition of foreign governmental laws or restrictions. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic or political developments in a specific country, industry or region.
(J) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
Note 3–Fees and Related Party Transactions
(A) Manager. New York Life Investment Management LLC (“New York Life Investments” or “Manager”), 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, including a portion of the total compensation of the Chief Compliance Officer (“CCO”) of the Fund which is the responsibility of all investment companies for which the CCO serves, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. New York Life Investments is responsible for the day-to-day portfolio management of the Fund.
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.45% up to $500 million; 0.40% from $500 million to $1 billion; and 0.35% in excess of $1 billion, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% on from $20 million to $100 million; and 0.01% in excess of $100 million. The effective management fee rate (exclusive of any applicable waivers/reimbursement) was 0.47% for the year ended October 31, 2011, inclusive of a fee for fund accounting services of 0.02% of the Fund’s average daily net assets.
The Manager has contractually agreed to waive fees and/or reimburse expenses so that Total Annual Fund Operating Expenses do not exceed the following percentages of average daily net assets: Investor Class, 0.80%; Class A, 0.70%; Class B, 0.80%; and Class C, 0.80%. This agreement expires on February 28, 2012 and may only be amended or terminated prior to that date by action of the Board. Total Annual Fund Operating Expenses excludes taxes, interest, litigation, extraordinary expenses, brokerage and other transaction expenses relating to the purchase or sale of portfolio investments, and acquired (underlying) fund fees and expenses.
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From time to time, the Manager may limit expenses of the Fund to the extent it deems appropriate to enhance the yield of the Fund, or a particular class of the Fund, during periods when expenses have a significant impact on the yield of the Fund, or a particular class of the Fund, as applicable, because of low interest rates. This expense limitation policy is voluntary and in addition to any contractual arrangements that may be in place with respect to the Fund and described in the Fund’s prospectus. It may be revised or terminated by the Manager at any time without notice.
For the year ended October 31, 2011, New York Life Investments earned fees from the Fund in the amount of $2,465,535 and waived its fees and/or reimbursed expenses in the amount of $3,277,067.
State Street Bank and Trust Company (“State Street”), 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Contingent Deferred Sales Charge. Although the Fund does not assess a CDSC upon redemption of Class B or Class C shares of the Fund, the applicable CDSC will be assessed when shares were redeemed from the Fund if the shareholder previously exchanged his or her investment into the Fund from another Fund in the Trust. 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 contingent deferred sales charges of, Class A, Class B and Class C of $35,007, $164,592 and $16,271, respectively for the year ended October 31, 2011.
(C) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (���BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2011, were as follows:
Investor Class | $ | 233,196 | ||
Class A | 611,819 | |||
Class B | 415,179 | |||
Class C | 113,232 | |||
(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.
(E) Capital. At October 31, 2011, New York Life and its affiliates beneficially held shares of the Fund with the following values and percentages of net assets as follows:
Class A | $ | 611 | 0.0 | %‡ | ||||
Class C | 117 | 0.0 | ‡ | |||||
‡ | Less than one-tenth of a percent. |
(F) Other. Pursuant to a Legal Services Agreement, a portion of the cost of legal services provided to the Fund by the Office of the General Counsel of New York Life Investments was payable directly by the Fund through March 17, 2011. For the year ended October 31, 2011, these fees, which are included in professional fees shown on the Statement of Operations, were $8,124. Effective March 18, 2011, the Legal Services Agreement expired and was not renewed. Therefore, the Fund is no longer directly responsible for any portion of the cost of legal services.
Note 4–Federal Income Tax
As of October 31, 2011, the components of accumulated gain (loss) on a tax basis were as follows:
Accumulated | ||||||||||||||||||
Capital | Other | Unrealized | Total | |||||||||||||||
Ordinary | and Other | Temporary | Appreciation | Accumulated | ||||||||||||||
Income | Gain (Loss) | Differences | (Depreciation) | Gain (Loss) | ||||||||||||||
$ | 2,448 | $ | — | $ | (2,135 | ) | $ | — | $ | 313 | ||||||||
The other temporary differences are primarily due to dividends payable.
Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 shown in the Statements of Changes in Net Assets was as follows:
2011 | 2010 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 58,916 | $ | 118,289 | ||||
Note 5–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
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Notes to Financial Statements (continued)
Note 6–Capital Share Transactions
Investor Class (at $1 per share) | Shares | |||
Year ended October 31, 2011: | ||||
Shares sold | 55,640,962 | |||
Shares issued to shareholders in reinvestment of dividends | 5,556 | |||
Shares redeemed | (48,995,174 | ) | ||
Net increase (decrease) in shares outstanding before conversion | 6,651,344 | |||
Shares converted into Investor Class (See Note 1) | 5,265,892 | |||
Shares converted from Investor Class (See Note 1) | (13,105,669 | ) | ||
Net increase (decrease) | (1,188,433 | ) | ||
Year ended October 31, 2010: | ||||
Shares sold | 53,744,737 | |||
Shares issued to shareholders in reinvestment of dividends | 13,680 | |||
Shares redeemed | (53,422,575 | ) | ||
Net increase (decrease) in shares outstanding before conversion | 335,842 | |||
Shares converted into Investor Class (See Note 1) | 13,297,505 | |||
Shares converted from Investor Class (See Note 1) | (16,485,615 | ) | ||
Net increase (decrease) | (2,852,268 | ) | ||
Class A (at $1 per share) | Shares | |||
Year ended October 31, 2011: | ||||
Shares sold | 448,411,673 | |||
Shares issued to shareholders in reinvestment of dividends | 35,048 | |||
Shares redeemed | (385,368,151 | ) | ||
Net increase (decrease) in shares outstanding before conversion | 63,078,570 | |||
Shares converted into Class A (See Note 1) | 13,866,381 | |||
Shares converted from Class A (See Note 1) | (4,955,930 | ) | ||
Net increase (decrease) | 71,989,021 | |||
Year ended October 31, 2010: | ||||
Shares sold | 352,517,198 | |||
Shares issued to shareholders in reinvestment of dividends | 65,335 | |||
Shares redeemed | (334,508,432 | ) | ||
Net increase (decrease) in shares outstanding before conversion | 18,074,101 | |||
Shares converted into Class A (See Note 1) | 16,856,364 | |||
Shares converted from Class A (See Note 1) | (12,862,782 | ) | ||
Net increase (decrease) | 22,067,683 | |||
Class B (at $1 per share) | Shares | |||
Year ended October 31, 2011: | ||||
Shares sold | 36,254,235 | |||
Shares issued to shareholders in reinvestment of dividends | 10,848 | |||
Shares redeemed | (50,814,001 | ) | ||
Net increase (decrease) in shares outstanding before conversion | (14,548,918 | ) | ||
Shares converted from Class B (See Note 1) | (1,070,674 | ) | ||
Net increase (decrease) | (15,619,592 | ) | ||
Year ended October 31, 2010: | ||||
Shares sold | 38,638,162 | |||
Shares issued to shareholders in reinvestment of dividends | 28,319 | |||
Shares redeemed | (63,778,006 | ) | ||
Net increase (decrease) in shares outstanding before conversion | (25,111,525 | ) | ||
Shares converted from Class B (See Note 1) | (805,472 | ) | ||
Net increase (decrease) | (25,916,997 | ) | ||
Class C (at $1 per share) | Shares | |||
Year ended October 31, 2011: | ||||
Shares sold | 51,972,218 | |||
Shares issued to shareholders in reinvestment of dividends | 2,888 | |||
Shares redeemed | (45,382,993 | ) | ||
Net increase (decrease) | 6,592,113 | |||
Year ended October 31, 2010: | ||||
Shares sold | 36,451,758 | |||
Shares issued to shareholders in reinvestment of dividends | 6,311 | |||
Shares redeemed | (42,341,583 | ) | ||
Net increase (decrease) | (5,883,514 | ) | ||
Note 7–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2011, events and transactions subsequent to October 31, 2011 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.
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Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Money Market Fund (“the Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Money Market Fund of The MainStay Funds as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
-s- KPMG LLP
Philadelphia, Pennsylvania
December 22, 2011
December 22, 2011
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Federal Income Tax Information (Unaudited)
In February 2012, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2011. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q and every month on Form N-MFP. In addition, the Fund will make available its complete schedule of portfolio holdings on its website at www.mainstayinvestments.com, five days after month-end. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). Form N-MFP will be made available to the public by the SEC 60 days after the month to which the information pertains, and a link to each of the most recent 12 months of filings on Form N-MFP will be provided on the Fund’s website. You can also obtain and review copies of Forms N-Q and N-MFP by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
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Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, Eclipse Funds, Eclipse Funds Inc., MainStay Funds Trust, and MainStay VP Funds Trust) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s). Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation upon reaching age 72. A Board Member reaching the age of 72 may continue for additional one-year periods with the approval of the Board’s Nominating and Governance Committee.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Interested Board Member* | ||||||||
John Y. Kim 9/24/60 | Indefinite; Eclipse Funds: Trustee since 2008 (2 funds); Eclipse Funds Inc.: Director since 2008 (1 fund); The MainStay Funds: Trustee since 2008 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc. since 2008 (21 portfolios). | Member of the Board of Managers (since 2011) of New York Life Enterprises LLC; Chairman (since 2011), Member of the Board of Managers, Chief Executive Officer and President (since 2008) of New York Life Investment Management LLC and New York Life Investment Management Holdings LLC; Executive Vice President (since 2011) of New York Life Foundation; Member of the Board of Managers and Chairman of the Board of Private Advisors, L.L.C. (since 2010); Executive Vice President, New York Life Insurance Company (since 2008); Chairman of the Board (2008-2010) and Member of the Boards of Managers (since 2008) of MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, Madison Square Investors LLC, NYLCAP Manager LLC and McMorgan & Company LLC; Chairman of the Board and Chief Executive Officer, NYLIFE Distributors LLC (2008-2010); Executive Vice President of NYLIFE Insurance Company of Arizona and New York Life Insurance and Annuity Corporation (since 2008); President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 66 | None | ||||
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Susan B. Kerley 8/12/51 | Indefinite; Eclipse Funds: Chairman since 2005, and Trustee since 2000 (2 funds); Eclipse Funds Inc.: Chairman since 2005 and Director since 1990 (1 fund); The MainStay Funds: Chairman and Board Member since 2007 (14 funds); MainStay Funds Trust: Chairman and Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Chairman and Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | President, Strategic Management Advisors LLC (since 1990) | 66 | Trustee, Legg Mason Partners Funds, since 1991 (58 portfolios) | ||||
Alan R. Latshaw 3/27/51 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2006 (14 funds); MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 66 | Trustee, State Farm Associates Funds Trusts since 2005 (4 portfolios); Trustee, State Farm Mutual Fund Trust since 2005 (15 portfolios); Trustee, State Farm Variable Product Trust since 2005 (9 portfolios) | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Peter Meenan 12/5/41 | Indefinite; Eclipse Funds: Trustee since 2002 (2 funds); Eclipse Funds Inc.: Director since 2002 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Independent Consultant; President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 66 | None | ||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2006 (21 portfolios). | Managing Director, ICC Capital Management; President—Shields/Alliance, Alliance Capital Management (1994 to 2004) | 66 | None | ||||
Richard S. Trutanic 2/13/52 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 1994 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 66 | None | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Roman L. Weil 5/22/40 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1994 and Audit Committee Financial Expert since 2003 (21 portfolios). | Visiting Professor, NYU Stem School of Business, New York University (since 2011); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School of Business, University of Chicago (1965-2008) | 66 | None | ||||
John A. Weisser 10/22/41 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1997 (21 portfolios). | Retired. Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 66 | Trustee, Direxion Funds since 2007 (27 portfolios); Direxion Insurance Trust since 2007 (1 portfolio); Trustee, Direxion Shares ETF Trust, since 2008 (50 portfolios) | ||||
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The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.
Positions(s) Held | ||||
Name and | with the Funds | Principal Occupation(s) | ||
Date of Birth | and Length of Service | During Past Five Years | ||
Officers | ||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007); Vice President, Prudential Investments (2000 to 2007); Assistant Treasurer, JennisonDryden Family of Funds, Target Portfolio Trust, The Prudential Series Fund and American Skandia Trust (2006 to 2007); Treasurer and Principal Financial Officer, The Greater China Fund (2007) | ||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance (since 2009), Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Assistant Secretary NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2009); Assistant Secretary, The MainStay Funds and ICAP Funds, Inc. (2006 to 2008); Assistant Secretary, Eclipse Funds, Eclipse Funds, Inc. and MainStay VP Series Fund, Inc. (2005 to 2008) | ||
Stephen P. Fisher 2/22/59 | President, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Director, Senior Vice President, New York Life Insurance and Annuity Corporation (since 2011); Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2007); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007) | ||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2010); Director and Counsel of Credit Suisse, Chief Legal Officer and Secretary of Credit Suisse Asset Management, LLC and Credit Suisse Funds (2003 to 2010) | ||
Scott T. Harrington 2/8/59 | Vice President — Administration, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Director (since 2009), New York Life Trust Company FSB; Vice President—Administration, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2005) | ||
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one-year term. |
mainstayinvestments.com 31
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay offerings is listed here, with information about the manager, subadvisors, legal counsel, and independent registered public accounting firm.
Equity Funds
MainStay 130/30 Core Fund
MainStay Common Stock Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Fund
MainStay Equity Index Fund1
MainStay Growth Equity Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Small Cap Fund
Income Funds
MainStay Flexible Bond Opportunities Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Municipal Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Money Market Fund
MainStay Principal Preservation Fund
MainStay Short Term Bond Fund
MainStay Tax Free Bond Fund
Blended Funds
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
International Funds
MainStay 130/30 International Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay Global High Income Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
Asset Allocation Funds
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
Retirement Funds
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC2
Chicago, Illinois
MacKay Shields LLC2
New York, New York
Madison Square Investors LLC2
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management, Inc.
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firm
KPMG LLP
1. | Closed to new investors and new purchases as of January 1, 2002. |
2. | An affiliate of New York Life Investment Management LLC. |
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mainstayinvestments.com
The MainStay Funds are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC,
169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
MainStay Investments is a registered service mark and name under which New York Life Investment Management LLC does business.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York , NY 10010, provides investment
advisory products and services.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York , NY 10010, provides investment
advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
© 2012 by NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency | ||||||||
NYLIM-24854 MS284-11 | MSMM11-12/11 |
N12
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MainStay Principal Preservation Fund
Message from the President and Annual Report
October 31, 2011
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Message from the President
Volatility was the keynote of the 12 months ended October 31, 2011. U.S. stocks generally advanced, but a variety of domestic and international forces influenced the market.
Early in November 2010, the Federal Open Market Committee (FOMC) announced its intention to extend quantitative easing by purchasing additional longer-term Treasury securities. The stock market reacted positively to this news—and to the midterm elections—and stocks generally advanced through mid-February.
Beginning in December 2010, a wave of protests and civil unrest across North Africa and the Middle East led to a substantial rise in the price of oil. By mid-February, stock prices started to decline. In March, a major earthquake and tsunami in Japan caused manufacturing supply-line interruptions and further setbacks for equity investors. After a sharp decline and a rapid recovery, stocks reached their high point for the 12-month period at the end of April 2011.
Pressed by a weak economy, lackluster employment and widespread concerns about European sovereign debt, the stock market faced wide fluctuations in the coming months. The volatility included a precipitous decline at the end of July into early August. Shortly thereafter, the FOMC expressed its expectation that economic conditions were “likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
After several unsuccessful attempts to recover from their dramatic drop, U.S. stocks reached their low point for the reporting period in early October. Then, buoyed by positive economic data and progress in the European debt situation, the U.S. stock market advanced rapidly in October, to close the reporting period with its best monthly performance in nearly a decade.
International stocks suffered from the turmoil in the Middle East and North Africa, the natural disasters in Japan, the sovereign debt concerns in Europe and the added threat of an economic slowdown in China. For the 12-month period, international stocks declined overall, with particular weakness in Europe.
The bond markets felt the impact of the European debt crisis, and several European nations suffered downgrades. In July, the United States faced a congressional deadlock on raising the debt ceiling and reducing deficit spending. In early August, Standard & Poor’s downgraded the debt of the United States of America to AA+.
Slow progress in resolving the European debt situation led to a flight to quality (or a movement toward securities perceived to carry lower risk). Amid strong demand, U.S. Treasury securities saw prices rise and yields decline, despite the downgrade by Standard & Poor’s. High-grade corporate
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
Throughout the 12-month reporting period, our portfolio managers took note of shifting market forces. But their primary focus was on the investment objectives of their respective Funds and the long-term strategies they were pursuing to achieve them. Some may have sought to capitalize on day-to-day market inefficiencies, but all remained focused on the long-term interests of our shareholders. They sought to apply time-tested investment principles consistently throughout the reporting period.
The information that follows provides specifics about the securities, decisions and market forces that affected your MainStay Fund(s) during the 12 months ended October 31, 2011. Behind the details, we hope you’ll recognize the professionalism and discipline that guided our portfolio managers during this volatile period.
We thank you for investing with MainStay and look forward to serving you for many years to come.
Sincerely,
Stephen P. Fisher
President
President
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Annual Report | ||
Investment and Performance Comparison | 5 | |
Portfolio Management Discussion and Analysis | 9 | |
Portfolio of Investments | 11 | |
Financial Statements | 16 | |
Notes to Financial Statements | 20 | |
Report of Independent Registered Public Accounting Firm | 23 | |
Federal Income Tax Information | 24 | |
Proxy Voting Policies and Procedures and Proxy Voting Record | 24 | |
Shareholder Reports and Quarterly Portfolio Disclosure | 24 | |
Board Members and Officers | 25 | |
An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
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Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.
Average Annual Total Returns for the Year Ended October 31, 2011
Gross | ||||||||||||||||||
Expense | ||||||||||||||||||
Class | Sales Charge | One Year | Five Years | Ten Years | Ratio2 | |||||||||||||
Class I Shares3 | No Sales Charge | 0 | .01% | 1 | .80% | 2 | .00% | 0 | .43% | |||||||||
7-Day Current Yield: 0.01%
1. | The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or Fund-share redemptions. Total returns reflect maximum applicable sales charges as indicated in the table above, change in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on current fee waivers and/or expense limitations, please refer to the notes to the financial statements. On November 27, 2007, McMorgan Principal Preservation Fund was reorganized into MainStay Principal Preservation Fund Class I shares. Prior to November 27, 2007, performance for MainStay Principal Preservation Fund Class I shares includes the historical performance of the McMorgan Class shares of the McMorgan Principal Preservation Fund. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | As of October 31, 2011, MainStay Principal Preservation Fund had an effective 7-day yield of 0.01% for Class I shares. The 7-day current yield was 0.01% for Class I shares. These yields reflect certain fee waivers and/or expense limitations. Had these expense limitations not been in effect, the effective 7-day yield would have been –0.15% for Class I shares and the 7-day current yield would have been –0.15% for Class I shares. The current yield reflects the Fund’s earnings better than the Fund’s total return. |
The footnote on the next page is an integral part of the table and graph and should be carefully read in conjunction with them.
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One | Five | Ten | ||||||||||
Benchmark Performance | Year | Years | Years | |||||||||
Average Lipper Institutional Money Market Fund4 | 0 | .05% | 1 | .74% | 1 | .92% | ||||||
4. | The average Lipper institutional money market fund is an equally weighted performance average adjusted for capital gains distributions and income dividends of all of the institutional 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, expenses or taxes. Lipper averages are not class specific. Lipper returns are unaudited. |
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 Principal Preservation Fund
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Cost in Dollars of a $1,000 Investment in MainStay Principal Preservation Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2011, to October 31, 2011, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2011, to October 31, 2011.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2011. 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.
Ending Account | ||||||||||||||||||||||
Ending Account | Value (Based | |||||||||||||||||||||
Value (Based | on Hypothetical | |||||||||||||||||||||
Beginning | on Actual | Expenses | 5% Annualized | Expenses | ||||||||||||||||||
Account | Returns and | Paid | Return and | Paid | ||||||||||||||||||
Value | Expenses) | During | Actual Expenses) | During | ||||||||||||||||||
Share Class | 5/1/11 | 10/31/11 | Period1 | 10/31/11 | Period1 | |||||||||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,000.10 | $ | 0.76 | $ | 1,024.40 | $ | 0.77 | ||||||||||||
1. | Expenses are equal to the Fund’s Class I annualized expense ratio (0.15%) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the one-half year period). The table above represents the actual expenses incurred during the one-half year period. |
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Portfolio Composition as of October 31, 2011 (Unaudited)
Other Commercial Paper | 43.30 | |||
Treasury Debt | 17.90 | |||
Treasury Repurchase Agreements | 9.40 | |||
Other Notes | 8.90 | |||
Government Agency Debt | 7.50 | |||
Financial Company Commercial Paper | 6.30 | |||
Certificates of Deposit | 6.10 | |||
Asset-Backed Commercial Paper | 0.60 | |||
Other Assets, Less Liabilities | 0.00 |
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
‡ | Less than one-tenth of a percent. |
8 MainStay Principal Preservation Fund
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Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers David E. Clement, CFA, and Thomas J. Girard of New York Life Investments,1 the Fund’s Manager.
How did MainStay Principal Preservation Fund perform relative to its peers during the 12 months ended October 31, 2011?
As of October 31, 2011, MainStay Principal Preservation Fund Class I shares provided a 7-day current yield of 0.01% and a 7-day effective yield of 0.01%. For the 12 months ended October 31, 2011, MainStay Principal Preservation Fund Class I shares returned 0.01%. The Fund underperformed the 0.05% return of the average Lipper2 institutional money market fund for the 12 months ended October 31, 2011.
What factors affected the Fund’s relative performance during the reporting period?
A variety of factors affected the Fund’s relative performance during the reporting period. Repurchase rates declined dramatically, which detracted from the Fund’s relative performance because we had been using repurchase agreements to help satisfy the requirement instituted by regulators last year that a money market fund must invest at least 30% of total assets in instruments that are readily convertible to cash within five business days. During the reporting period, some of the longer-dated higher-yielding floating-rate securities backed by the Federal Deposit Insurance Corporation (FDIC) that we purchased in 2009 began to mature. The maturities of the higher-yielding FDIC-backed securities detracted from performance because replacements with comparable backing and yield were difficult to find. An underweight position in European bank securities—a higher-yielding sector—detracted from relative performance. On the positive side, asset-backed securities and floating-rate agency securities added to the Fund’s relative performance.
What was the Fund’s duration3 strategy during the reporting period?
During the reporting period, we kept the Fund’s average weighted duration between 50 and 55 days. We view this as a longer duration because regulations prevent money market funds from maintaining an average weighted duration longer than 60 days. This strategy was particularly effective among LIBOR-based4 investments because of the steepness of the LIBOR yield curve5 relative to the Treasury curve.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
The Federal Open Market Committee (FOMC) kept the federal funds target rate in a very low range, which gave us the confidence to go out further on an upward-sloping yield curve during the first half of the reporting period. This was accomplished by using longer-dated Treasury coupon securities and asset-backed securities. (Asset-backed securities must be recorded as though they will mature on their legal maturity date even though their average lives are typically much shorter.)
We hedged this positioning by participating in the floating-rate securities market. In our opinion, the use of floating-rate securities offered two potential advantages. First, if interest rates rose, we would participate in the upward movement. Second, floating-rate securities offered what we felt were compelling yields compared to other available investments.
Later in the reporting period, negative sentiment regarding the Eurozone sovereign debt crisis was at the forefront of the market. This resulted in significant downward pressure on Treasury rates as money funds began to pare back their holdings of European bank paper in favor of Treasury securities. When the FOMC expressed its anticipation that economic conditions were “likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013,” the flow of higher-yielding floating-rate assets sharply declined. This forced the Fund into the already crowded government and domestic commercial paper markets.
During the reporting period, which market segments were the strongest contributors to the Fund’s perfor-mance and which market segments were partic-
ularly weak?
ularly weak?
The strongest contributors to the Fund’s performance included floating-rate securities (corporate and agency floaters) and asset-backed securities. The weakest contributors to the Fund’s performance were repurchase agreements and the Fund’s nonparticipation in longer-maturity Yankee bank issues.
Did the Fund make any significant purchases or sales during the reporting period?
Significant purchases that added to the Fund’s return during the reporting period included the asset-backed securities of Great America Leasing Receivables and Macquarie Equipment Funding Trust. The Fund’s yield was also strengthened by investments in the floating-rate securities of Federal Farm Credit Bank, Federal Home Loan Bank, Toronto-Dominion Bank and Sanofi-Aventis S.A. There were no significant sales during the reporting period.
1. New York Life Investments is a service mark used by New York Life Investment Management LLC.
2. See footnote on page 6 for more information on Lipper Inc.
3. Duration is a measure of the price sensitivity of a fixed-income investment to changes in interest rates. Duration is expressed as a number of days and is considered a more accurate sensitivity gauge than average maturity.
4. London InterBank Offered Rate (LIBOR) is an interest rate that is widely used as a reference rate in bank, corporate and government lending agreements.
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.
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How did the Fund’s sector weightings change during the reporting period?
During the reporting period, we increased the Fund’s weightings in repurchase agreements, Treasury securities and asset-backed securities. The Fund decreased its weightings in FDIC-backed securities and agency securities.
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
10 MainStay Principal Preservation Fund
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Portfolio of Investments October 31, 2011
Principal | Amortized | |||||||
Amount | Cost | |||||||
Short-Term Investments 100.0%† | ||||||||
Asset-Backed Commercial Paper 0.6% | ||||||||
Straight-A Funding LLC 0.16%, due 11/16/11 (a)(b) | $ | 614,000 | $ | 613,959 | ||||
Certificates of Deposit 6.1% | ||||||||
Bank of Nova Scotia 0.38%, due 3/22/12 (c) | 945,000 | 945,000 | ||||||
National Australia Bank, Ltd. 0.28%, due 12/8/11 | 1,000,000 | 1,000,000 | ||||||
0.31%, due 1/9/12 | 945,000 | 945,000 | ||||||
Toronto-Dominion Bank (The) 0.315%, due 9/20/12 (c) | 980,000 | 980,000 | ||||||
Westpac Banking Corp. 0.32%, due 2/1/12 | 940,000 | 940,000 | ||||||
0.46%, due 3/23/12 | 945,000 | 945,000 | ||||||
5,755,000 | ||||||||
Financial Company Commercial Paper 6.3% | ||||||||
Bank of Nova Scotia 0.10%, due 11/28/11 (a) | 190,000 | 189,986 | ||||||
Caterpillar Financial Services Corp. 0.10%, due 12/6/11 (a) | 1,135,000 | 1,134,890 | ||||||
National Rural Utilities Cooperative Finance Corp. 0.12%, due 11/30/11 (a) | 1,135,000 | 1,134,890 | ||||||
0.12%, due 12/1/11 (a) | 945,000 | 944,906 | ||||||
PACCAR Financial Corp. 0.06%, due 11/3/11 (a) | 765,000 | 764,997 | ||||||
0.20%, due 11/15/11 (a) | 805,000 | 804,937 | ||||||
Private Export Funding Corp. 0.05%, due 11/22/11 (a)(b) | 935,000 | 934,973 | ||||||
5,909,579 | ||||||||
Government Agency Debt 7.5% | ||||||||
Federal Farm Credit Bank | ||||||||
0.10%, due 7/5/12 (c) | 1,015,000 | 1,014,389 | ||||||
0.12%, due 11/4/11 (c) | 1,205,000 | 1,205,000 | ||||||
0.25%, due 1/12/12 (c) | 1,420,000 | 1,420,000 | ||||||
Federal Home Loan Bank 0.17%, due 1/24/12 (c) | 1,130,000 | 1,130,000 | ||||||
Federal National Mortgage Association | ||||||||
0.273%, due 9/17/12 (c) | 250,000 | 250,162 | ||||||
0.30%, due 9/13/12 (c) | 270,000 | 270,235 | ||||||
Federal National Mortgage Association (Discount Note) 0.005%, due 11/7/11 (a) | 1,795,000 | 1,794,999 | ||||||
7,084,785 | ||||||||
Other Commercial Paper 43.3% | ||||||||
BHP Billiton Finance (USA), Ltd. 0.14%, due 11/15/11 (a)(b) | 250,000 | 249,986 | ||||||
Campbell Soup Co. 0.301%, due 12/14/11 (a)(b) | 1,330,000 | 1,329,523 | ||||||
Canadian Wheat Board 0.05%, due 11/28/11 (a) | 615,000 | 614,977 | ||||||
Caterpillar, Inc. 0.09%, due 12/22/11 (a)(b) | 380,000 | 379,952 | ||||||
Cisco Systems, Inc. 0.081%, due 11/8/11 (a)(b) | 950,000 | 949,985 | ||||||
Coca-Cola Co. (The) | ||||||||
0.08%, due 11/18/11 (a)(b) | 940,000 | 939,964 | ||||||
0.11%, due 11/10/11 (a)(b) | 975,000 | 974,973 | ||||||
0.12%, due 11/17/11 (a)(b) | 465,000 | 464,975 | ||||||
Devon Energy Corp. 0.23%, due 11/1/11 (a)(b) | 345,000 | 345,000 | ||||||
Duke Energy Corp. 0.34%, due 11/21/11 (a)(b) | 384,000 | 383,927 | ||||||
E.I. du Pont de Nemours & Co. 0.17%, due 12/12/11 (a)(b) | 380,000 | 379,927 | ||||||
Eli Lilly & Co. 0.04%, due 11/2/11 (a)(b) | 665,000 | 664,999 | ||||||
Emerson Electric Co. 0.05%, due 11/3/11 (a)(b) | 500,000 | 499,999 | ||||||
0.05%, due 11/9/11 (a)(b) | 610,000 | 609,993 | ||||||
0.07%, due 11/14/11 (a)(b) | 955,000 | 954,976 | ||||||
Exxon Mobil Corp. 0.05%, due 11/18/11 (a) | 1,000,000 | 999,976 | ||||||
General Electric Co. 0.07%, due 11/17/11 (a) | 940,000 | 939,971 | ||||||
Google, Inc. 0.05%, due 11/21/11 (a)(b) | 940,000 | 939,974 | ||||||
0.06%, due 11/21/11 (a)(b) | 1,135,000 | 1,134,962 | ||||||
Henkel of America, Inc. 0.14%, due 12/5/11 (a)(b) | 315,000 | 314,958 | ||||||
Hewlett-Packard Co. 0.22%, due 1/17/12 (a)(b) | 850,000 | 849,600 | ||||||
Illinois Tool Works, Inc. 0.06%, due 11/10/11 (a)(b) | 790,000 | 789,988 | ||||||
0.07%, due 11/15/11 (a)(b) | 1,130,000 | 1,129,969 | ||||||
International Business Machines Corp. 0.05%, due 11/7/11 (a)(b) | 620,000 | 619,995 | ||||||
0.06%, due 11/16/11 (a)(b) | 945,000 | 944,976 | ||||||
0.06%, due 12/13/11 (a)(b) | 250,000 | 249,983 | ||||||
Johnson & Johnson | ||||||||
0.05%, due 11/28/11 (a)(b) | 1,555,000 | 1,554,942 | ||||||
0.05%, due 12/27/11 (a)(b) | 1,015,000 | 1,014,921 | ||||||
Kellogg Co. 0.22%, due 11/10/11 (a)(b) | 370,000 | 369,980 |
† | Percentages indicated are based on Fund net assets. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 11 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
Principal | Amortized | |||||||
Amount | Cost | |||||||
Short-Term Investments (continued) | ||||||||
Other Commercial Paper (continued) | ||||||||
McDonald’s Corp. 0.07%, due 12/16/11 (a)(b) | $ | 375,000 | $ | 374,967 | ||||
0.08%, due 11/1/11 (a)(b) | 650,000 | 650,000 | ||||||
Merck & Co., Inc. 0.06%, due 11/9/11 (a)(b) | 950,000 | 949,987 | ||||||
Nestle Finance International, Ltd. 0.05%, due 12/1/11 (a) | 1,135,000 | 1,134,953 | ||||||
Novartis Finance Corp. 0.07%, due 11/1/11 (a)(b) | 960,000 | 960,000 | ||||||
0.09%, due 11/21/11 (a)(b) | 1,020,000 | 1,019,949 | ||||||
Parker Hannifin Corp. 0.06%, due 11/9/11 (a)(b) | 560,000 | 559,993 | ||||||
0.07%, due 11/30/11 (a)(b) | 870,000 | 869,951 | ||||||
0.08%, due 11/22/11 (a)(b) | 840,000 | 839,961 | ||||||
PepsiCo, Inc. 0.05%, due 12/16/11 (a)(b) | 490,000 | 489,969 | ||||||
0.07%, due 12/5/11 (a)(b) | 375,000 | 374,975 | ||||||
0.08%, due 11/22/11 (a)(b) | 900,000 | 899,958 | ||||||
Procter & Gamble Co. (The) 0.10%, due 2/14/12 (a)(b) | 935,000 | 934,727 | ||||||
Roche Holding, Inc. 0.06%, due 11/23/11 (a)(b) | 955,000 | 954,965 | ||||||
Schlumberger Technology Corp. 0.12%, due 11/8/11 (a)(b) | 980,000 | 979,977 | ||||||
Siemens Capital Co. LLC | ||||||||
0.12%, due 11/21/11 (a)(b) | 940,000 | 939,937 | ||||||
0.14%, due 12/8/11 (a)(b) | 960,000 | 959,862 | ||||||
0.14%, due 12/14/11 (a)(b) | 265,000 | 264,956 | ||||||
South Carolina Electric & Gas Co. 0.385%, due 11/4/11 (a) | 370,000 | 369,988 | ||||||
Target Corp. 0.06%, due 11/7/11 (a) | 945,000 | 944,991 | ||||||
0.07%, due 11/7/11 (a) | 450,000 | 449,995 | ||||||
Wal-Mart Stores, Inc. 0.05%, due 12/7/11 (a)(b) | 945,000 | 944,953 | ||||||
0.09%, due 11/17/11 (a)(b) | 900,000 | 899,964 | ||||||
Walt Disney Co. (The) | ||||||||
0.05%, due 11/29/11 (a)(b) | 545,000 | 544,979 | ||||||
0.07%, due 12/6/11 (a)(b) | 940,000 | 939,936 | ||||||
40,851,244 | ||||||||
Other Notes 8.9% | ||||||||
Bank of Nova Scotia 0.24%, due 11/16/11 | 970,000 | 970,000 | ||||||
BMW Vehicle Lease Trust Series 2011-1, Class A1 0.289%, due 4/20/12 | 101,318 | 101,318 | ||||||
BMW Vehicle Owner Trust Series 2011-A, Class A1 0.306%, due 9/25/12 | 169,564 | 169,564 | ||||||
CNH Equipment Trust | ||||||||
Series 2011-A, Class A1 0.336%, due 5/15/12 | 256,120 | 256,120 | ||||||
Series 2011-B, Class A1 0.384%, due 10/12/12 | 376,682 | 376,682 | ||||||
Enterprise Fleet Financing LLC Series 2011-2, Class A1 0.384%, due 7/20/12 (b) | 277,246 | 277,246 | ||||||
Ford Credit Auto Owner Trust Series 2011-B, Class A1 0.219%, due 8/15/12 (b) | 87,777 | 87,777 | ||||||
GE Equipment Midticket LLC Series 2011-1, Class A1 0.429%, due 10/22/12 | 250,000 | 250,000 | ||||||
GE Equipment Small Ticket LLC Series 2011-1A, Class A1 0.383%, due 2/21/12 (b) | 30,458 | 30,458 | ||||||
GE Equipment Transportation LLC Series 2011-1, Class A1 0.294%, due 7/20/12 | 129,909 | 129,909 | ||||||
Great America Leasing Receivables Series 2011-1, Class A1 0.405%, due 3/15/12 (b) | 50,562 | 50,562 | ||||||
Holmes Master Issuer PLC Series 2011-3A, Class A1 0.373%, due 7/15/12 (b)(c) | 1,175,000 | 1,175,000 | ||||||
Huntington Auto Trust Series 2011-1A, Class A1 0.364%, due 9/17/12 (b) | 215,278 | 215,278 | ||||||
International Bank for Reconstruction & Development 0.22%, due 7/25/12 (c) | 875,000 | 875,000 | ||||||
John Deere Owner Trust Series 2011-A, Class A1 0.306%, due 5/11/12 | 143,042 | 143,042 | ||||||
Macquarie Equipment Funding Trust Series 2011-A, Class A1 0.432%, due 3/20/12 (b) | 105,938 | 105,938 | ||||||
MMAF Equipment Finance LLC Series 2011-AA, Class A1 0.323%, due 8/15/12 (b) | 133,599 | 133,599 | ||||||
Nissan Auto Lease Trust Series 2011-B, Class A1 0.35%, due 10/15/12 | 232,758 | 232,758 | ||||||
Nissan Auto Receivables Owner Trust Series 2011-A, Class A1 0.261%, due 4/16/12 | 107,635 | 107,635 | ||||||
Sanofi 0.413%, due 3/28/12 (c) | 1,335,000 | 1,335,000 |
The notes to the financial statements are an integral part of,
12 MainStay Principal Preservation Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | Amortized | |||||||
Amount | Cost | |||||||
Short-Term Investments (continued) | ||||||||
Other Notes (continued) | ||||||||
SMART Trust Series 2011-2USA, Class A1 0.365%, due 7/14/12 (b) | $ | 215,615 | $ | 215,615 | ||||
Toronto-Dominion Bank (The) 0.323%, due 1/12/12 (c) | 1,130,000 | 1,130,000 | ||||||
World Omni Auto Receivables Trust Series 2011-A, Class A1 0.294%, due 3/15/12 | 18,975 | 18,975 | ||||||
World Omni Automobile Lease Securitization Trust Series 2011-A, Class A1 0.301%, due 4/16/12 | 48,841 | 48,841 | ||||||
8,436,317 | ||||||||
Treasury Debt 17.9% | ||||||||
United States Treasury Bill 0.01%, due 11/10/11 (a) | 1,735,000 | 1,734,996 | ||||||
United States Treasury Notes | ||||||||
0.375%, due 8/31/12 | 250,000 | 250,263 | ||||||
0.375%, due 9/30/12 | 100,000 | 100,197 | ||||||
0.625%, due 6/30/12 | 1,455,000 | 1,458,791 | ||||||
0.625%, due 7/31/12 | 135,000 | 135,413 | ||||||
0.75%, due 5/31/12 | 1,265,000 | 1,268,821 | ||||||
0.875%, due 1/31/12 | 1,300,000 | 1,302,418 | ||||||
0.875%, due 2/29/12 | 1,830,000 | 1,834,384 | ||||||
1.00%, due 12/31/11 | 6,200,000 | 6,209,441 | ||||||
1.00%, due 3/31/12 | 1,375,000 | 1,379,356 | ||||||
1.00%, due 4/30/12 | 1,225,000 | 1,229,574 | ||||||
16,903,654 | ||||||||
Treasury Repurchase Agreements 9.4% | ||||||||
Bank of America N.A. 0.08%, dated 10/31/11 due 11/1/11 Proceeds at Maturity $4,443,010 (Collateralized by a United States Treasury Bond with a rate of 4.50% and a maturity date of 8/15/39, with a Principal Amount of $3,698,000 and a Market Value of $4,531,920) | 4,443,000 | 4,443,000 | ||||||
Deutsche Bank Securities, Inc. 0.09%, dated 10/31/11 due 11/1/11 Proceeds at Maturity $4,442,011 (Collateralized by a United States Treasury Note with a rate of 1.375% and a maturity date of 9/30/18, with a Principal Amount of $4,628,900 and a Market Value of $4,530,863) | 4,442,000 | 4,442,000 | ||||||
8,885,000 | ||||||||
Total Short-Term Investments (Amortized Cost $94,439,538) (d) | 100.0 | % | 94,439,538 | |||||
Other Assets, Less Liabilities | 0.0 | ‡ | 11,478 | |||||
Net Assets | 100.0 | % | $ | 94,451,016 | ||||
‡ | Less than one-tenth of a percent. | |
(a) | Interest rate presented is yield to maturity. | |
(b) | May be sold to institutional investors only under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended. | |
(c) | Floating rate—Rate shown is the rate in effect at October 31, 2011. | |
(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. | mainstayinvestments.com 13 |
Table of Contents
Portfolio of Investments October 31, 2011 (continued)
The following is a summary of the fair valuations according to the inputs used as of October 31, 2011, for valuing the Fund’s assets.
Asset Valuation Inputs
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Short-Term Investments | ||||||||||||||||
Asset-Backed Commercial Paper | $ | — | $ | 613,959 | $ | — | $ | 613,959 | ||||||||
Certificates of Deposit | — | 5,755,000 | — | 5,755,000 | ||||||||||||
Financial Company Commercial Paper | — | 5,909,579 | — | 5,909,579 | ||||||||||||
Government Agency Debt | — | 7,084,785 | — | 7,084,785 | ||||||||||||
Other Commercial Paper | — | 40,851,244 | — | 40,851,244 | ||||||||||||
Other Notes | — | 8,436,317 | — | 8,436,317 | ||||||||||||
Treasury Debt | — | 16,903,654 | — | 16,903,654 | ||||||||||||
Treasury Repurchase Agreements | — | 8,885,000 | — | 8,885,000 | ||||||||||||
Total Investments in Securities | $ | — | $ | 94,439,538 | $ | — | $ | 94,439,538 | ||||||||
(a) | For a complete listing of investments, see the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended October 31, 2011, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
At October 31, 2011, 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,
14 MainStay Principal Preservation Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
The table below sets forth the diversification of MainStay Principal Preservation Fund investments by industry.
Industry Diversification (Unaudited)
Amortized | ||||||||
Cost | Percent † | |||||||
Automobile ABS | $ | 1,475,007 | 1.6 | % | ||||
Banks | 2,289,986 | 2.4 | ||||||
Beverages | 4,144,814 | 4.4 | ||||||
Certificate of Deposit | 5,755,000 | 6.1 | ||||||
Chemicals | 694,885 | 0.7 | ||||||
Computers | 2,664,554 | 2.8 | ||||||
Cosmetics & Personal Care | 934,727 | 1.0 | ||||||
Electric | 753,915 | 0.8 | ||||||
Electrical Components & Equipment | 2,064,968 | 2.2 | ||||||
Finance—Auto Loans | 1,949,886 | 2.1 | ||||||
Finance—Other Services | 4,149,659 | 4.4 | ||||||
Food | 2,834,456 | 3.0 | ||||||
Health Care—Products | 2,569,863 | 2.7 | ||||||
Health Care—Services | 954,965 | 1.0 | ||||||
Internet | 2,074,936 | 2.2 | ||||||
Media | 1,484,915 | 1.6 | ||||||
Mining | 249,986 | 0.3 | ||||||
Miscellaneous—Manufacturing | 7,294,588 | 7.7 | ||||||
Multi-National | 875,000 | 0.9 | ||||||
Oil & Gas | 2,324,953 | 2.5 | ||||||
Other ABS | 1,476,310 | 1.6 | ||||||
Pharmaceuticals | 4,929,935 | 5.2 | ||||||
Repurchase Agreements | 8,885,000 | 9.4 | ||||||
Retail | 4,264,870 | 4.5 | ||||||
Sovereign | 614,977 | 0.6 | ||||||
Special Purpose Entity | 1,563,944 | 1.7 | ||||||
U.S. Government & Agency | 23,988,439 | 25.4 | ||||||
Whole Loan Collateral Collateralized Mortgage Obligation | 1,175,000 | 1.2 | ||||||
94,439,538 | 100.0 | |||||||
Other Assets, Less Liabilities | 11,478 | 0.0 | ‡ | |||||
Net Assets | $ | 94,451,016 | 100.0 | % | ||||
† | Percentages indicated are based on Fund net assets. | |
‡ | Less than one-tenth of a percent. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 15 |
Table of Contents
Statement of Assets and Liabilities as of October 31, 2011
Assets | ||||
Investment in securities, at value (amortized cost $94,439,538) | $ | 94,439,538 | ||
Cash | 895 | |||
Receivables: | ||||
Interest | 39,975 | |||
Fund shares sold | 12,177 | |||
Other assets | 15,166 | |||
Total assets | 94,507,751 | |||
Liabilities | ||||
Payables: | ||||
Fund shares redeemed | 22,050 | |||
Shareholder communication | 11,750 | |||
Professional fees | 11,154 | |||
Manager (See Note 3) | 4,137 | |||
Transfer agent (See Note 3) | 2,475 | |||
Custodian | 1,663 | |||
Trustees | 394 | |||
Accrued expenses | 3,112 | |||
Total liabilities | 56,735 | |||
Net assets | $ | 94,451,016 | ||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 944,677 | ||
Additional paid-in capital | 93,505,736 | |||
94,450,413 | ||||
Accumulated net realized gain (loss) on investments | 603 | |||
Net assets | $ | 94,451,016 | ||
Class I | ||||
Net assets applicable to outstanding shares | $ | 94,451,016 | ||
Shares of beneficial interest outstanding | 94,467,659 | |||
Net asset value and offering price per share outstanding | $ | 1.00 | ||
The notes to the financial statements are an integral part of,
16 MainStay Principal Preservation Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statement of Operations for the year ended October 31, 2011
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 199,160 | ||
Expenses | ||||
Manager (See Note 3) | 299,708 | |||
Professional fees | 47,644 | |||
Registration | 29,930 | |||
Shareholder communication | 25,489 | |||
Custodian | 25,078 | |||
Transfer agent (See Note 3) | 19,632 | |||
Trustees | 2,808 | |||
Miscellaneous | 8,332 | |||
Total expenses before waiver/reimbursement | 458,621 | |||
Expense waiver/reimbursement from Manager (See Note 3) | (271,169 | ) | ||
Net expenses | 187,452 | |||
Net investment income (loss) | 11,708 | |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments | 603 | |||
Net increase (decrease) in net assets resulting from operations | $ | 12,311 | ||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 17 |
Table of Contents
Statements of Changes in Net Assets
for the years ended October 31, 2011 and October 31, 2010
2011 | 2010 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 11,708 | $ | 14,498 | ||||
Net realized gain (loss) on investments | 603 | 3,165 | ||||||
Net increase (decrease) in net assets resulting from operations | 12,311 | 17,663 | ||||||
Dividends and distributions to shareholders: | ||||||||
From net investment income: | ||||||||
Class I | (14,884 | ) | (14,459 | ) | ||||
From net realized gain on investments: | ||||||||
Class I | — | (63,057 | ) | |||||
Total dividends and distributions to shareholders | (14,884 | ) | (77,516 | ) | ||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 41,273,258 | 55,452,389 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 14,678 | 77,180 | ||||||
Cost of shares redeemed | (70,824,072 | ) | (99,861,840 | ) | ||||
Increase (decrease) in net assets derived from capital share transactions | (29,536,136 | ) | (44,332,271 | ) | ||||
Net increase (decrease) in net assets | (29,538,709 | ) | (44,392,124 | ) | ||||
Net Assets | ||||||||
Beginning of year | 123,989,725 | 168,381,849 | ||||||
End of year | $ | 94,451,016 | $ | 123,989,725 | ||||
Undistributed net investment income at end of year | $ | — | $ | 3,176 | ||||
The notes to the financial statements are an integral part of,
18 MainStay Principal Preservation Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class I | ||||||||||||||||||||||||
July 1, | ||||||||||||||||||||||||
2007*** | ||||||||||||||||||||||||
through | Year ended | |||||||||||||||||||||||
Year ended October 31, | October 31, | June 30, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 (a) | 2007 | 2007 | |||||||||||||||||||
Net asset value at beginning of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||
Net investment income (loss) | 0.00 | ‡ | 0.00 | ‡ | 0.01 | 0.03 | 0.02 | 0.05 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.00 | ‡ | 0.00 | ‡ | — | 0.00 | ‡ | (0.00 | )‡ | 0.00 | ‡ | |||||||||||||
Total from investment operations | 0.00 | ‡ | 0.00 | ‡ | 0.01 | 0.03 | 0.02 | 0.05 | ||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||
From net investment income | (0.00 | )‡ | (0.00 | )‡ | (0.01 | ) | (0.03 | ) | (0.02 | ) | (0.05 | ) | ||||||||||||
From net realized gain on investments | — | (0.00 | )‡ | — | — | — | — | |||||||||||||||||
Return of capital | — | — | — | — | (0.00 | )‡ | — | |||||||||||||||||
Total dividends and distributions | (0.00 | )‡ | (0.00 | )‡ | (0.01 | ) | (0.03 | ) | (0.02 | ) | (0.05 | ) | ||||||||||||
Net asset value at end of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||
Total investment return | 0.01 | % | 0.05 | % | 0.93 | % | 2.94 | % | 1.69 | %(b) | 5.20 | %(c) | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||||
Net investment income (loss) | 0.01 | % | 0.01 | % | 0.92 | % | 2.91 | % | 4.97 | %†† | 5.08 | % | ||||||||||||
Net expenses | 0.18 | % | 0.25 | % | 0.34 | % | 0.30 | % | 0.30 | %†† | 0.30 | % | ||||||||||||
Expenses (before reimbursement/waiver) | 0.44 | % | 0.43 | % | 0.49 | % | 0.39 | % | 0.49 | %†† | 0.46 | % | ||||||||||||
Net assets at end of period (in 000’s) | $ | 94,451 | $ | 123,990 | $ | 168,382 | $ | 199,284 | $ | 198,672 | $ | 182,080 |
†† | Annualized. | |
‡ | Less than one cent per share. | |
*** | The McMorgan Principal Preservation Fund changed its fiscal year end from June 30 to October 31. | |
(a) | Effective November 27, 2007, shareholders of the McMorgan Principal Preservation Fund Class McMorgan shares became owners of Class I shares of the MainStay Principal Preservation Fund. Additionally, the accounting and performance history of the McMorgan Principal Preservation Fund was redesignated as that of Class I shares of MainStay Principal Preservation Fund. | |
(b) | Total investment return is not annualized. | |
(c) | The loss resulting from a compliance violation did not have an effect on total return. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 19 |
Table of Contents
Notes to Financial Statements
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of fourteen funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay Principal Preservation Fund (the “Fund”), a diversified fund.
The Fund currently offers one class of shares, Class I shares, which commenced operations (under a former designation known as “McMorgan Class” shares) on July 13, 1994. The Fund’s McMorgan Class shares were redesignated as Class I shares on November 27, 2007. Class I shares are offered at net asset value (“NAV”) without imposition of a front-end sales charge or a contingent deferred sales charge (“CDSC”).
The Fund’s investment objective is to seek to maximize current income consistent with maintaining liquidity and preserving capital.
The financial statements of the Fund reflect the historical information of McMorgan Principal Preservation Fund, a series of McMorgan Funds (the “McMorgan Trust”), prior to its reorganization. Upon the completion of the reorganization on November 27, 2007, the Class I shares of the Fund assumed the performance, financial and other historical information of the McMorgan Principal Preservation Fund.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Valuation of Fund Shares. The Fund seeks to maintain a NAV of $1.00 per share, although there is no assurance that it will be able to do so on a continuous basis, and it has adopted certain investment, portfolio and dividend and distribution policies designed to enable it to do as such. The Fund’s NAV is generally calculated as of the close of regular trading (usually 4:00 pm Eastern time) on the New York Stock Exchange (“Exchange”) every day the Exchange is open. The Fund also calculates its NAV at 1:00 pm Eastern time every day the Exchange is open. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
(B) Securities Valuation. Securities are valued at their amortized cost per the requirements of Rule 2a-7 under the 1940 Act. 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.
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are determined within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish 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 developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in determining the fair value of investments) |
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may utilize some of the following fair value techniques: multi-dimensional relational pricing models and option adjusted spread pricing. For the year ended October 31, 2011, there have been no changes to the fair value methodologies.
Securities valued at amortized cost are not obtained from a quoted price in an active market and are generally categorized as Level 2 in the hierarchy. The aggregate value by input level, as of October 31, 2011, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
(C) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provision is required.
Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provision for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(D) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund declares
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dividends of net investment income daily and pays them monthly and declares and pays distribution of net realized capital gains, if any, 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.
(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. 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 (as defined in Note 3(A)) to be creditworthy, pursuant to guidelines established by the Fund’s Board. Repurchase agreements are considered under the 1940 Act to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in such repurchase agreements. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default of 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, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(I) Concentration of Risk. The Fund’s investments may include securities such as variable rate master demand notes, floating-rate notes and mortgage-related and asset-backed securities. If expectations about changes in interest rates, or assessments of an issuer’s credit worthiness or market conditions are incorrect, these types of investments could lose money.
The Fund may also invest in U.S. dollar denominated securities of foreign issuers, which carry certain risks in addition to the usual risks inherent in domestic instruments. These risks include those resulting from future adverse political or economic developments and possible imposition of foreign governmental laws or restrictions. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic or political developments in a specific country, industry or region.
(J) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
Note 3–Fees and Related Party Transactions
(A) Manager. New York Life Investment Management LLC (“New York Life Investments” or “Manager”), 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, including a portion of the total compensation of the Chief Compliance Officer (“CCO”) of the Fund which is the responsibility of all investment companies for which the CCO serves, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. New York Life Investments is responsible for the day-to-day portfolio management of the Fund directly, without a subadvisor.
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of 0.25% of the Fund’s average daily net assets, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. The effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.29% for the year ended October 31, 2011, inclusive of a fee for fund accounting services of 0.04% of the Fund’s average daily net assets.
The Manager has contractually agreed to waive fees and/or reimburse expenses so that Total Annual Fund Operating Expenses for Class I shares do not exceed 0.30% of its average daily net assets. This agreement expires on February 28, 2012 and may only be amended or terminated prior to that date by action of the Board. Total Annual Fund Operating Expenses excludes taxes, interest, litigation, extraordinary expenses, brokerage and other transaction expenses relating to the purchase or sale of portfolio investments, and acquired (underlying) fund fees and expenses.
From time to time, the Manager 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 because of low interest rates. This expense limitation policy is voluntary and in addition to any
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Notes to Financial Statements (continued)
contractual arrangements that may be in place with respect to the Fund and described in the Fund’s prospectus. It may be revised or terminated by the Manager at any time without notice.
For the year ended October 31, 2011, New York Life Investments earned fees from the Fund in the amount of $299,708 and waived its fees and/or reimbursed expenses in the amount of $271,169.
State Street Bank and Trust Company (“State Street”), 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAV of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s NAV, 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) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2011, were as follows:
Class I | $ | 19,632 | ||
(C) Other. Pursuant to a Legal Services Agreement, a portion of the cost of legal services provided to the Fund by the Office of the General Counsel of New York Life Investments was payable directly by the Fund through March 17, 2011. For the year ended October 31, 2011, these fees, which are included in professional fees shown on the Statement of Operations, were $1,719. Effective March 18, 2011, the Legal Services Agreement expired and was not renewed. Therefore, the Fund is no longer directly responsible for any portion of the cost of legal services.
Note 4–Federal Income Tax
As of October 31, 2011, the components of accumulated gain (loss) on a tax basis were as follows:
Accumulated | ||||||||||||||||||
Capital | Other | Unrealized | Total | |||||||||||||||
Ordinary | and Other | Temporary | Appreciation | Accumulated | ||||||||||||||
Income | Gain (Loss) | Differences | (Depreciation) | Gain (Loss) | ||||||||||||||
$ | 603 | $ | — | $ | — | $ | — | $ | 603 | |||||||||
The following table discloses the current year reclassifications between undistributed net investment income, accumulated net realized income (loss) on investments, and additional paid-in capital arising from permanent differences; net assets at October 31, 2011 were not affected.
Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 shown in the Statements of Changes in Net Assets was as follows:
2011 | 2010 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 14,884 | $ | 77,516 | ||||
Note 5–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 6–Capital Share Transactions
Class I (at $1 per share) | Shares | |||
Year ended October 31, 2011: | ||||
Shares sold | 41,273,258 | |||
Shares issued to shareholders in reinvestment of dividends | 14,678 | |||
Shares redeemed | (70,824,072 | ) | ||
Net increase (decrease) | (29,536,136 | ) | ||
Year ended October 31, 2010: | ||||
Shares sold | 55,452,389 | |||
Shares issued to shareholders in reinvestment of dividends and distributions | 77,180 | |||
Shares redeemed | (99,861,840 | ) | ||
Net increase (decrease) | (44,332,271 | ) | ||
Note 7–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2011, events and transactions subsequent to October 31, 2011 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.
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Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Principal Preservation Fund (“the Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and financial highlights for each of the years in the four-year period ended October 31, 2011. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the years or periods presented through October 31, 2007, were audited by other auditors, whose report dated December 17, 2007, expressed an unqualified opinion thereon.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Principal Preservation Fund of The MainStay Funds as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the four-year period ended October 31, 2011, in conformity with U.S. generally accepted accounting principles.
-s- KPMG LLP
Philadelphia, Pennsylvania
December 22, 2011
December 22, 2011
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Federal Income Tax Information (Unaudited)
In February 2012, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2011. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q and every month on Form N-MFP. In addition, the Fund will make available its complete schedule of portfolio holdings on its website at www.mainstayinvestments.com, five days after month-end. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). Form N-MFP will be made available to the public by the SEC 60 days after the month to which the information pertains, and a link to each of the most recent 12 months of filings on Form N-MFP will be provided on the Fund’s website. You can also obtain and review copies of Forms N-Q and N-MFP by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
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Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, Eclipse Funds, Eclipse Funds Inc., MainStay Funds Trust, and MainStay VP Funds Trust) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s). Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation upon reaching age 72. A Board Member reaching the age of 72 may continue for additional one-year periods with the approval of the Board’s Nominating and Governance Committee.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Interested Board Member* | ||||||||
John Y. Kim 9/24/60 | Indefinite; Eclipse Funds: Trustee since 2008 (2 funds); Eclipse Funds Inc.: Director since 2008 (1 fund); The MainStay Funds: Trustee since 2008 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc. since 2008 (21 portfolios). | Member of the Board of Managers (since 2011) of New York Life Enterprises LLC; Chairman (since 2011), Member of the Board of Managers, Chief Executive Officer and President (since 2008) of New York Life Investment Management LLC and New York Life Investment Management Holdings LLC; Executive Vice President (since 2011) of New York Life Foundation; Member of the Board of Managers and Chairman of the Board of Private Advisors, L.L.C. (since 2010); Executive Vice President, New York Life Insurance Company (since 2008); Chairman of the Board (2008-2010) and Member of the Boards of Managers (since 2008) of MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, Madison Square Investors LLC, NYLCAP Manager LLC and McMorgan & Company LLC; Chairman of the Board and Chief Executive Officer, NYLIFE Distributors LLC (2008-2010); Executive Vice President of NYLIFE Insurance Company of Arizona and New York Life Insurance and Annuity Corporation (since 2008); President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 66 | None | ||||
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Susan B. Kerley 8/12/51 | Indefinite; Eclipse Funds: Chairman since 2005, and Trustee since 2000 (2 funds); Eclipse Funds Inc.: Chairman since 2005 and Director since 1990 (1 fund); The MainStay Funds: Chairman and Board Member since 2007 (14 funds); MainStay Funds Trust: Chairman and Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Chairman and Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | President, Strategic Management Advisors LLC (since 1990) | 66 | Trustee, Legg Mason Partners Funds, since 1991 (58 portfolios) | ||||
Alan R. Latshaw 3/27/51 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2006 (14 funds); MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 66 | Trustee, State Farm Associates Funds Trusts since 2005 (4 portfolios); Trustee, State Farm Mutual Fund Trust since 2005 (15 portfolios); Trustee, State Farm Variable Product Trust since 2005 (9 portfolios) | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Peter Meenan 12/5/41 | Indefinite; Eclipse Funds: Trustee since 2002 (2 funds); Eclipse Funds Inc.: Director since 2002 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Independent Consultant; President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 66 | None | ||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2006 (21 portfolios). | Managing Director, ICC Capital Management; President—Shields/Alliance, Alliance Capital Management (1994 to 2004) | 66 | None | ||||
Richard S. Trutanic 2/13/52 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 1994 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 66 | None | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Roman L. Weil 5/22/40 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1994 and Audit Committee Financial Expert since 2003 (21 portfolios). | Visiting Professor, NYU Stem School of Business, New York University (since 2011); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School of Business, University of Chicago (1965-2008) | 66 | None | ||||
John A. Weisser 10/22/41 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1997 (21 portfolios). | Retired. Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 66 | Trustee, Direxion Funds since 2007 (27 portfolios); Direxion Insurance Trust since 2007 (1 portfolio); Trustee, Direxion Shares ETF Trust, since 2008 (50 portfolios) | ||||
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The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.
Positions(s) Held | ||||
Name and | with the Funds | Principal Occupation(s) | ||
Date of Birth | and Length of Service | During Past Five Years | ||
Officers | ||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007); Vice President, Prudential Investments (2000 to 2007); Assistant Treasurer, JennisonDryden Family of Funds, Target Portfolio Trust, The Prudential Series Fund and American Skandia Trust (2006 to 2007); Treasurer and Principal Financial Officer, The Greater China Fund (2007) | ||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance (since 2009), Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Assistant Secretary NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2009); Assistant Secretary, The MainStay Funds and ICAP Funds, Inc. (2006 to 2008); Assistant Secretary, Eclipse Funds, Eclipse Funds, Inc. and MainStay VP Series Fund, Inc. (2005 to 2008) | ||
Stephen P. Fisher 2/22/59 | President, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Director, Senior Vice President, New York Life Insurance and Annuity Corporation (since 2011); Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2007); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007) | ||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2010); Director and Counsel of Credit Suisse, Chief Legal Officer and Secretary of Credit Suisse Asset Management, LLC and Credit Suisse Funds (2003 to 2010) | ||
Scott T. Harrington 2/8/59 | Vice President — Administration, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Director (since 2009), New York Life Trust Company FSB; Vice President—Administration, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2005) | ||
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one-year term. |
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay offerings is listed here, with information about the manager, subadvisors, legal counsel, and independent registered public accounting firm.
Equity Funds
MainStay 130/30 Core Fund
MainStay Common Stock Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Fund
MainStay Equity Index Fund1
MainStay Growth Equity Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Small Cap Fund
Income Funds
MainStay Flexible Bond Opportunities Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Municipal Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Money Market Fund
MainStay Principal Preservation Fund
MainStay Short Term Bond Fund
MainStay Tax Free Bond Fund
Blended Funds
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
International Funds
MainStay 130/30 International Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay Global High Income Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
Asset Allocation Funds
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
Retirement Funds
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC2
Chicago, Illinois
MacKay Shields LLC2
New York, New York
Madison Square Investors LLC2
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management, Inc.
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firm
KPMG LLP
1. | Closed to new investors and new purchases as of January 1, 2002. |
2. | An affiliate of New York Life Investment Management LLC. |
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mainstayinvestments.com
The MainStay Funds are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors is a Member FINRA/SIPC.
MainStay Investments is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
© 2012 by NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency | ||||||||
NYLIM-24855 MS284-11 | MSPP11-12/11 |
ND2
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MainStay Tax Free Bond Fund
Message from the President and Annual Report
October 31, 2011
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Message from the President
Volatility was the keynote of the 12 months ended October 31, 2011. U.S. stocks generally advanced, but a variety of domestic and international forces influenced the market.
Early in November 2010, the Federal Open Market Committee (FOMC) announced its intention to extend quantitative easing by purchasing additional longer-term Treasury securities. The stock market reacted positively to this news—and to the midterm elections—and stocks generally advanced through mid-February.
Beginning in December 2010, a wave of protests and civil unrest across North Africa and the Middle East led to a substantial rise in the price of oil. By mid-February, stock prices started to decline. In March, a major earthquake and tsunami in Japan caused manufacturing supply-line interruptions and further setbacks for equity investors. After a sharp decline and a rapid recovery, stocks reached their high point for the 12-month period at the end of April 2011.
Pressed by a weak economy, lackluster employment and widespread concerns about European sovereign debt, the stock market faced wide fluctuations in the coming months. The volatility included a precipitous decline at the end of July into early August. Shortly thereafter, the FOMC expressed its expectation that economic conditions were “likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
After several unsuccessful attempts to recover from their dramatic drop, U.S. stocks reached their low point for the reporting period in early October. Then, buoyed by positive economic data and progress in the European debt situation, the U.S. stock market advanced rapidly in October, to close the reporting period with its best monthly performance in nearly a decade.
International stocks suffered from the turmoil in the Middle East and North Africa, the natural disasters in Japan, the sovereign debt concerns in Europe and the added threat of an economic slowdown in China. For the 12-month period, international stocks declined overall, with particular weakness in Europe.
The bond markets felt the impact of the European debt crisis, and several European nations suffered downgrades. In July, the United States faced a congressional deadlock on raising the debt ceiling and reducing deficit spending. In early August, Standard & Poor’s downgraded the debt of the United States of America to AA+.
Slow progress in resolving the European debt situation led to a flight to quality (or a movement toward securities perceived to carry lower risk). Amid strong demand, U.S. Treasury securities saw prices rise and yields decline, despite the downgrade by Standard & Poor’s. High-grade corporate
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
bonds also benefited; and among high-yield credits, higher-rated issues advanced relative to lower-rated issues, which generally carry higher levels of risk. Toward the end of the reporting period, the high-yield market as a whole recovered as the stock market rose.
Throughout the 12-month reporting period, our portfolio managers took note of shifting market forces. But their primary focus was on the investment objectives of their respective Funds and the long-term strategies they were pursuing to achieve them. Some may have sought to capitalize on day-to-day market inefficiencies, but all remained focused on the long-term interests of our shareholders. They sought to apply time-tested investment principles consistently throughout the reporting period.
The information that follows provides specifics about the securities, decisions and market forces that affected your MainStay Fund(s) during the 12 months ended October 31, 2011. Behind the details, we hope you’ll recognize the professionalism and discipline that guided our portfolio managers during this volatile period.
We thank you for investing with MainStay and look forward to serving you for many years to come.
Sincerely,
Stephen P. Fisher
President
President
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Table of Contents
Annual Report | ||
Investment and Performance Comparison | 5 | |
Portfolio Management Discussion and Analysis | 9 | |
Portfolio of Investments | 11 | |
Financial Statements | 18 | |
Notes to Financial Statements | 24 | |
Report of Independent Registered Public Accounting Firm | 31 | |
Federal Income Tax Information | 32 | |
Proxy Voting Policies and Procedures and Proxy Voting Record | 32 | |
Shareholder Reports and Quarterly Portfolio Disclosure | 32 | |
Board Members and Officers | 33 | |
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
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Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2011
Gross | ||||||||||||||||||||
Expense | ||||||||||||||||||||
Class | Sales Charge | One Year | Five Years | Ten Years | Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 4.5% Initial Sales Charge | With sales charges | –1 | .70% | 2 | .35% | 3 | .03% | 1 | .03% | ||||||||||
Excluding sales charges | 2 | .93 | 3 | .30 | 3 | .51 | 1 | .03 | ||||||||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges | –1 | .71 | 2 | .40 | 3 | .06 | 0 | .92 | ||||||||||
Excluding sales charges | 2 | .93 | 3 | .35 | 3 | .54 | 0 | .92 | ||||||||||||
Class B Shares | Maximum 5% CDSC | With sales charges | –2 | .32 | 2 | .68 | 3 | .24 | 1 | .28 | ||||||||||
if Redeemed Within the First Six Years of Purchase | Excluding sales charges | 2 | .58 | 3 | .02 | 3 | .24 | 1 | .28 | |||||||||||
Class C Shares | Maximum 1% CDSC | With sales charges | 1 | .71 | 3 | .04 | 3 | .25 | 1 | .28 | ||||||||||
if Redeemed Within One Year of Purchase | Excluding sales charges | 2 | .69 | 3 | .04 | 3 | .25 | 1 | .28 | |||||||||||
Class I Shares4 | No Sales Charge | 3 | .29 | 3 | .59 | 3 | .78 | 0 | .67 | |||||||||||
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, change in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Investor Class shares might have been lower. |
4. | Performance figures for Class I shares, first offered on December 21, 2009, include the historical performance of Class B shares through December 20, 2009, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Class I shares might have been lower. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com 5
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One | Five | Ten | ||||||||||
Benchmark Performance | Year | Years | Years | |||||||||
Barclays Capital Municipal Bond Index5 | 3 | .78% | 4 | .80% | 4 | .93% | ||||||
Average Lipper General Municipal Debt Fund6 | 2 | .83 | 3 | .31 | 3 | .90 | ||||||
5. | The Barclays Capital Municipal Bond Index includes approximately 15,000 municipal bonds, rated Baa or better by Moody’s, with a maturity of at least two years. Bonds subject to the Alternative Minimum Tax or with floating or zero coupons are excluded. The Barclays Capital Municipal Bond Index is the Fund’s broad-based securities market index for comparison purposes. Total returns assume the reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
6. | The average Lipper general municipal debt fund is representative of funds that invest primarily in municipal debt issues in the top four credit ratings. 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
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Cost in Dollars of a $1,000 Investment in MainStay Tax Free Bond Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2011, to October 31, 2011, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2011, to October 31, 2011.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2011. 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.
Ending Account | ||||||||||||||||||||||
Ending Account | Value (Based | |||||||||||||||||||||
Value (Based | on Hypothetical | |||||||||||||||||||||
Beginning | on Actual | Expenses | 5% Annualized | Expenses | ||||||||||||||||||
Account | Returns and | Paid | Return and | Paid | ||||||||||||||||||
Value | Expenses) | During | Actual Expenses) | During | ||||||||||||||||||
Share Class | 5/1/11 | 10/31/11 | Period1 | 10/31/11 | Period1 | |||||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,065.50 | $ | 4.69 | $ | 1,020.70 | $ | 4.58 | ||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,065.00 | $ | 4.27 | $ | 1,021.10 | $ | 4.18 | ||||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,063.30 | $ | 5.98 | $ | 1,019.40 | $ | 5.85 | ||||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,063.20 | $ | 5.98 | $ | 1,019.40 | $ | 5.85 | ||||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,066.30 | $ | 2.97 | $ | 1,022.30 | $ | 2.91 | ||||||||||||
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (0.90% for Investor Class, 0.82% for Class A, 1.15% for Class B and Class C and 0.57% for Class I) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the one-half year period). The table above represents the actual expenses incurred during the one-half year period. |
mainstayinvestments.com 7
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State Composition as of October 31, 2011 (Unaudited)
California | 19.3 | % | ||
New Jersey | 9.7 | |||
Texas | 9.7 | |||
Louisiana | 7.3 | |||
Michigan | 5.5 | |||
Massachusetts | 4.4 | |||
Illinois | 4.3 | |||
Florida | 4.0 | |||
Puerto Rico | 4.0 | |||
Ohio | 3.4 | |||
Pennsylvania | 3.4 | |||
New York | 3.2 | |||
Colorado | 2.4 | |||
Georgia | 2.4 | |||
Tennessee | 1.9 | |||
Indiana | 1.6 | |||
South Carolina | 1.6 | |||
U.S. Virgin Islands | 1.6 | |||
Alabama | 1.2 | |||
Nevada | 1.2 | |||
North Carolina | 1.1 | |||
Arizona | 1.0 | |||
Mississippi | 1.0 | |||
Wisconsin | 1.0 | |||
Hawaii | 0.8 | |||
North Dakota | 0.7 | |||
Rhode Island | 0.5 | |||
Washington | 0.5 | |||
Utah | 0.3 | |||
Wyoming | 0.3 | |||
Vermont | 0.2 | |||
Other Assets, Less Liabilities | 0.5 | |||
100.0 | % | |||
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
Top Ten Issuers Held as of October 31, 2011 (excluding short-term investment)
1. | Texas Private Activity Bond Surface Transportation Corp. Revenue, 6.875%–7.50%, due 6/30/32–6/30/40 | |
2. | California State, 6.00%–6.50%, due 4/1/33–11/1/35 | |
3. | Detroit, Michigan Sewer Disposal System Revenue, 5.25%–7.50%, due 7/1/20–7/1/33 | |
4. | Massachusetts State Health & Educational Facilities Authority Revenue, Suffolk University, 6.00%–6.25%, due 7/1/24–7/1/30 | |
5. | Louisiana State Citizens Property Insurance Corp. Revenue, 6.125%, due 6/1/25 | |
6. | Jefferson Parish, Louisiana Hospital Service District No. 1, West Jefferson Medical Center Revenue, 6.00%, due 1/1/39 | |
7. | Houston Higher Education Finance Corp., 6.50%–6.875%, due 5/15/31–5/15/41 | |
8. | New Jersey Economic Development Authority Revenue, Cigarette Tax, 5.50%–5.75%, due 6/15/29–6/15/31 | |
9. | Puerto Rico Industrial Tourist Educational Medical & Environmental, Control Facility Financing Authority, 6.00%, due 7/1/33 | |
10. | E-470 Public Highway Authority Colorado Revenue, 0.00%–5.50%, due 9/1/24–9/1/27 |
8 MainStay Tax Free Bond Fund
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Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers John Loffredo, CFA, Robert DiMella, CFA, and Michael Petty of MacKay Shields LLC, the Fund’s Subadvisor.
How did MainStay Tax Free Bond Fund perform relative to its peers and its benchmark during the 12 months ended October 31, 2011?
Excluding all sales charges, MainStay Tax Free Bond Fund returned 2.93% for Investor Class shares and Class A shares, 2.58% for Class B shares and 2.69% for Class C shares for the 12 months ended October 31, 2011. Over the same period, Class I shares returned 3.29%. Investor Class, Class A and Class I shares outperformed—and Class B and Class C shares underperformed—the 2.83% return of the average Lipper1 general municipal debt fund. All share classes underperformed the 3.78% return of the Barclays Capital Municipal Bond Index2 for the 12 months ended October 31, 2011. The Barclays Capital Municipal Bond Index is the Fund’s broad-based securities-market index. See page 5 for Fund returns with sales charges.
What factors affected the Fund’s relative performance during the reporting period?
The Fund underperformed the Barclays Capital Municipal Bond Index during the reporting period because of an overweight position in securities with maturities greater than 15 years and an overweight position in securities rated BBB.3 These securities underperformed intermediate (10 year) bonds and higher- grade (AAA and AA)4 bonds as investors sought the perceived safety of stronger credit quality and shorter maturities in a period marked by uncertainty over municipal finances and increased interest-rate volatility.
During the reporting period, how was the Fund’s performance materially affected by investments in derivatives?
During the reporting period, we utilized U.S. Treasury futures to shorten the duration of the Fund and mute price volatility. This strategy enabled the Fund to maintain its exposure to what we felt were the most attractive segments of the municipal market, specifically municipal bonds with maturities of 15 years or more and municipal bonds rated A5 and BBB.
What was the Fund’s duration6 strategy during the reporting period?
Overall, our strategy is to keep the Fund’s duration close to that of the Barclays Capital Municipal Bond Index. At times, depending on conditions in the municipal market, seasonal technicals (supply & demand) and our outlook for what lies ahead, we may adjust the Fund’s duration modestly shorter or longer. During the reporting period, the Fund’s duration was longer than that of the benchmark because of our views regarding the attractiveness of the market in general as well as the relative value of securities with maturities of 15 years or more.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
The Fund benefited from the volatility in the municipal market during the reporting period. Unlike most of the Morningstar7 Muni National Long peer funds, the Fund was cash-flow positive during the majority of the 12 months ended October 31, 2011. This allowed the Fund to continue purchasing securities that we felt were attractively priced in a volatile rate environment, which helped increase the Fund’s distribution rate. In addition, during the first half of the reporting period, concerns about the ability of municipalities to meet their obligations caused certain municipal market sectors to trade at significantly wide spreads.8 As new cash flowed into the Fund, we concentrated investments in those sectors on the belief that these investments might benefit shareholders in the future.
1. See footnote on page 6 for more information on Lipper Inc.
2. See footnote on page 6 for more information on the Barclays Capital Municipal Bond Index.
3. An obligation rated ‘BBB’ by Standard & Poor’s (“S&P”) is deemed by S&P to exhibit adequate protection parameters. It is the opinion of S&P, however, that adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. When applied to Fund holdings, ratings are based solely on the creditworthiness of the bonds in the portfolio and are not meant to represent the security or safety of the Fund.
4. An obligation rated ‘AAA’ has the highest rating assigned by Standard & Poor’s (‘‘S&P’’), and, in the opinion of S&P, the obligor’s capacity to meet its financial commitment on the obligation is extremely strong. An obligation rated ‘AA’ by S&P is deemed by S&P to differ from the highest-rated obligations only to a small degree. In the opinion of S&P, the obligor’s capacity to meet its financial commitment on the obligation is very 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.
5. An obligation rated ‘A’ by Standard & Poor’s (“S&P”) is deemed by S&P to be somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. In the opinion of S&P, however, the obligor’s capacity to meet its financial commitment on the obligation is still strong. 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. Morningstar Muni National Long portfolios invest in bonds issued by various state and local governments to fund public projects. The income from these bonds is generally free from federal taxes. To lower risk, these portfolios spread their assets across many states and sectors. These portfolios have durations of more than seven years (or, if duration is unavailable, average maturities of more than 12 years).
8. The terms “spread” and “yield spread” may refer to the difference in yield between a security or type of security and comparable U.S. Treasury issues. The terms may also refer to the difference in yield between two specific securities or types of securities at a given time.
mainstayinvestments.com 9
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During the reporting period, which market segments were the strongest positive contributors to the Fund’s performance and which market segments were particularly weak?
On an absolute basis, the most significant positive contribution to the Fund’s performance came from an increase in general obligation debt, specifically state of California bonds. (Contributions take weightings and total returns into account.) California bonds started trading at wide spreads in January 2011, at which time the Fund increased its exposure to those securities. They were subsequently some of the best-performing bonds in the market, and we took advantage of the spread tightening by selling those bonds into that market strength. The Fund’s exposure to shorter duration (or currently callable) bonds also made a positive contribution. These securities held up very well despite the market volatility during the reporting period.
During the reporting period, the Fund’s exposure to longer-dated securities detracted from absolute performance as concerns over the direction of interest rates and the threat of higher inflation weighed on this part of the municipal market. Also detracting from performance were a few of the Fund’s legacy tobacco positions. Although they are short-average-life bonds, they came under pressure from increased selling during the reporting period.
Did the Fund make any significant purchases or sales during the reporting period?
Because the Fund was cash flow positive during most of the reporting period, we were consistently buying securities on behalf of the Fund. In addition to the increase in California general obligation debt, the Fund took advantage of new issues that came into the primary market. Most of the deals that came to market were, in our opinion, priced at attractive levels, with considerable concessions because of market concerns about municipal credits and the general direction of interest rates.
How did the Fund’s sector weightings change during the reporting period?
As previously mentioned, we increased the Fund’s exposure to general obligation debt, specifically state of California debt, during the reporting period. We also increased the Fund’s exposure to the health care sector as spreads for hospital bonds began trading at extremely wide levels by historical measures. We reduced the Fund’s overweight position in water/sewer bonds as their spreads tightened during the reporting period.
How was the Fund positioned at the end of the report-ing period?
As of October 31, 2011, the Fund was overweight relative to the Barclays Capital Municipal Bond Index in bonds with maturities of 15 years or longer. The Fund was also overweight relative to the benchmark in credits rated A and BBB and in the health care sector.
On the same date, the Fund held an underweight position relative to the benchmark in securities rated AA and higher and in bonds with maturities of less than 10 years. We felt that these sectors could have a higher correlation to inflation and potentially higher interest rates than the rest of the municipal market. As of October 31, 2011, the Fund continued to have a longer duration than the Barclays Capital Municipal Bond Index.
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
10 MainStay Tax Free Bond Fund
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Portfolio of Investments††† October 31, 2011
Principal | ||||||||
Amount | Value | |||||||
Municipal Bonds 97.7%† | ||||||||
Alabama 1.2% | ||||||||
Alabama Water Pollution Control Authority Refunding, Revolving Fund Loan Series B, Insured: AMBAC 4.125%, due 2/15/14 | $ | 1,550,000 | $ | 1,436,183 | ||||
Bessemer, Alabama Medical Clinic Board Revenue, Bessemer Carraway Medical Center Series A, Insured: NATL-RE 5.875%, due 5/15/26 | 1,000,000 | 1,000,280 | ||||||
Jefferson County, Alabama Limited Obligation School Warrant Insured: AGM 5.50%, due 1/1/21 | 2,380,000 | 2,361,246 | ||||||
4,797,709 | ||||||||
Arizona 1.0% | ||||||||
Pima County Industrial Development Authority Lease Revenue, Metro Police Facility Series A 6.00%, due 7/1/41 | 4,000,000 | 4,263,640 | ||||||
California 19.3% | ||||||||
Abag, California Finance Authority for Nonprofit Corporations 0.26%, due 7/1/38 (a) | 4,000,000 | 4,000,000 | ||||||
Anaheim, California, School District, General Obligation Insured: AGM 6.25%, due 8/1/40 | 2,700,000 | 3,095,793 | ||||||
California Educational Facilities Authority Revenue 6.125%, due 10/1/30 | 1,375,000 | 1,530,554 | ||||||
California Health Facilities Financing Authority Revenue | ||||||||
Series A 5.50%, due 11/15/40 | 2,800,000 | 2,974,132 | ||||||
Series A 6.25%, due 2/1/26 | 500,000 | 538,685 | ||||||
California Health Facilities Financing Authority Revenue, Catholic Healthcare Series A 6.00%, due 7/1/34 | 3,000,000 | 3,235,380 | ||||||
California Infrastructure & Economic Development Bank Revenue, California Independent System Operator Corp. Series A 5.50%, due 2/1/30 | 5,400,000 | 5,682,042 | ||||||
X California State | ||||||||
6.00%, due 11/1/35 | 2,500,000 | 2,795,000 | ||||||
6.25%, due 11/1/34 | 5,000,000 | 5,677,650 | ||||||
6.50%, due 4/1/33 | 2,530,000 | 2,957,115 | ||||||
California State Public Works Revenue, Various Capital Project Series G1 5.75%, due 10/1/30 | 1,400,000 | 1,473,024 | ||||||
California Statewide Communities Development Authority Revenue 5.25%, due 11/1/30 | 1,475,000 | 1,515,990 | ||||||
California Statewide Communities Development Authority Revenue, Aspire Public School 6.375%, due 7/1/45 | 3,000,000 | 3,011,640 | ||||||
Dublin-San Ramon Services District, California, Refunding Water Revenue 5.50%, due 8/1/36 | 4,035,000 | 4,307,362 | ||||||
Fresno, California Unified School District Election, General Obligation Series G (zero coupon), due 8/1/28 | 1,025,000 | 352,477 | ||||||
Golden State Tobacco Securitization Corp. Series A-1 4.50%, due 6/1/27 | 4,595,000 | 3,718,274 | ||||||
Hayward, California Unified School District, Capital Appreciation Election Series A, Insured: AGM (zero coupon), due 8/1/36 | 12,500,000 | 2,278,250 | ||||||
Series A, Insured: AGM (zero coupon), due 8/1/37 | 7,000,000 | 1,187,340 | ||||||
March Joint Powers Redevelopment Agency Tax Allocation, Air Force Base Redevelopment Project Series B 7.50%, due 8/1/41 | 3,000,000 | 3,302,520 | ||||||
Morongo, California Unified School District Election Series B, Insured: GTY 5.25%, due 8/1/38 | 3,600,000 | 3,724,164 |
† | Percentages indicated are based on Fund net assets. |
X | Among the Fund’s 10 largest issuers held, as of October 31, 2011, excluding short-term investment. May be subject to change daily. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 11 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
California (continued) | ||||||||
Mountain House Public Financing Authority, California Utility System Revenue 5.75%, due 12/1/35 | $ | 1,750,000 | $ | 1,797,233 | ||||
National City Community Development Commission Tax Allocation, National City Redevelopment Project 7.00%, due 8/1/32 | 3,500,000 | 3,821,265 | ||||||
Perris Union High School District Insured: AGM 3.85%, due 9/1/33 (a) | 3,500,000 | 3,500,000 | ||||||
Sacramento, California Unified School District Election Series C, Insured: NATL-RE 5.125%, due 7/1/31 | 1,945,000 | 1,994,442 | ||||||
San Jose, California Airport Revenue Series A 6.25%, due 3/1/34 (b) | 4,250,000 | 4,600,837 | ||||||
San Ysidro, California School District, General Obligation Series F, Insured: AGM (zero coupon), due 8/1/47 | 24,860,000 | 1,815,774 | ||||||
Series F, Insured AGM (zero coupon), due 8/1/48 | 26,105,000 | 1,759,738 | ||||||
Series F, Insured AGM (zero coupon), due 8/1/50 | 26,780,000 | 1,525,389 | ||||||
78,172,070 | ||||||||
Colorado 2.4% | ||||||||
X E-470 Public Highway Authority Colorado Revenue Series A, Insured: NATL-RE (zero coupon), due 9/1/27 | 6,250,000 | 2,216,687 | ||||||
Series B-1, Insured: NATL-RE 5.50%, due 9/1/24 | 4,145,000 | 4,122,037 | ||||||
Series D-1, Insured: NATL-RE 5.50%, due 9/1/24 | 1,500,000 | 1,491,690 | ||||||
Park Creek Metropolitan District Revenue Series A, Insured: AGM 6.125%, due 12/1/41 | 1,850,000 | 2,012,338 | ||||||
9,842,752 | ||||||||
Florida 4.0% | ||||||||
Bay County Florida Educational Facilities Revenue Series A 6.00%, due 9/1/40 | 1,150,000 | 1,068,373 | ||||||
Citizens Property Insurance Corp. Revenue Series A-1 5.25%, due 6/1/17 | 3,500,000 | 3,830,925 | ||||||
Lee County Florida School Board Series A, Insured: AGM 4.75%, due 8/1/18 | 4,000,000 | 4,197,560 | ||||||
Miami-Dade County Florida Solid Waste System Revenue Insured: NATL-RE 5.00%, due 10/1/19 | 1,735,000 | 1,861,082 | ||||||
Miami-Dade County Florida Special Obligation Revenue Series A, Insured: NATL-RE (zero coupon), due 10/1/38 | 245,000 | 40,555 | ||||||
Orlando & Orange County Florida Expressway Authority Revenue Series B, Insured: AMBAC 5.00%, due 7/1/30 | 5,000,000 | 5,059,050 | ||||||
16,057,545 | ||||||||
Georgia 2.4% | ||||||||
Atlanta, Georgia Airport Passenger Facility Charge Revenue Series J, Insured: AGM 5.00%, due 1/1/34 | 3,500,000 | 3,579,415 | ||||||
Atlanta, Georgia Water & Wastewater Revenue Series A 6.25%, due 11/1/39 | 4,125,000 | 4,586,464 | ||||||
Fulton County Georgia Development Authority Revenue, Piedmont Healthcare, Inc. Series A 5.00%, due 6/15/32 | 1,700,000 | 1,736,091 | ||||||
9,901,970 | ||||||||
Hawaii 0.8% | ||||||||
Hawaii State Department of Budget and Finance Revenue, Hawaiian Electric Co. 6.50%, due 7/1/39 | 3,000,000 | 3,209,910 | ||||||
Illinois 4.3% | ||||||||
Chicago, Illinois Board of Education, General Obligation Series A 5.50%, due 12/1/39 | 5,000,000 | 5,307,750 | ||||||
Chicago, Illinois Housing Authority Capital Program Revenue Insured: AGM 5.00%, due 7/1/23 | 4,000,000 | 4,204,160 | ||||||
Gilberts, Illinois Special Service Area No. 9 Special Tax Insured: GTY 4.75%, due 3/1/30 | 3,865,000 | 3,676,118 | ||||||
Illinois Finance Authority Revenue, Chicago Charter School Project 5.00%, due 12/1/36 | 2,500,000 | 2,204,250 |
The notes to the financial statements are an integral part of,
12 MainStay Tax Free Bond Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Illinois (continued) | ||||||||
Knox & Warren Counties, Illinois Community Unit School District No. 205 Galesburg General Obligation | ||||||||
Series A 4.25%, due 1/1/19 | $ | 240,000 | $ | 256,253 | ||||
Series A 5.00%, due 1/1/20 | 205,000 | 228,132 | ||||||
Series A | ||||||||
5.00%, due 1/1/21 | 100,000 | 110,474 | ||||||
Series A 5.00%, due 1/1/22 | 360,000 | 392,720 | ||||||
Series A 5.125%, due 1/1/23 | 250,000 | 272,695 | ||||||
Series A 5.50%, due 1/1/24 | 380,000 | 418,912 | ||||||
Series A 5.50%, due 1/1/25 | 455,000 | 495,076 | ||||||
17,566,540 | ||||||||
Indiana 1.6% | ||||||||
Indiana Finance Authority Hospital Revenue, King’s Daughter Hospital 5.50%, due 8/15/40 | 5,590,000 | 5,169,073 | ||||||
Indianapolis, Indiana Public Improvement Bond Bank Series A, Insured: GTY 5.50%, due 1/1/38 | 1,100,000 | 1,185,877 | ||||||
6,354,950 | ||||||||
Louisiana 7.3% | ||||||||
X Jefferson Parish, Louisiana Hospital Service District No. 1, West Jefferson Medical Center Revenue Series A, Insured: AGM 6.00%, due 1/1/39 | 7,800,000 | 8,188,830 | ||||||
Louisiana Local Government Environmental Facilities & Community Development Authority Revenue Series A, Insured: AMBAC 5.625%, due 10/1/16 | 1,425,000 | 1,425,869 | ||||||
Louisiana Public Facilities Authority Hospital Revenue, Franciscan Mission Aries 6.75%, due 7/1/39 | 3,000,000 | 3,285,690 | ||||||
Louisiana Public Facilities Authority Revenue, Ochsner Clinic 6.25%, due 5/15/31 | 5,690,000 | 6,057,631 | ||||||
Louisiana State Citizens Property Insurance Corp. Assessment Revenue Series B, Insured: AMBAC 5.00%, due 6/1/20 | 2,340,000 | 2,410,060 | ||||||
X Louisiana State Citizens Property Insurance Corp. Revenue Series C-3, Insured: GTY 6.125%, due 6/1/25 | 7,455,000 | 8,314,785 | ||||||
29,682,865 | ||||||||
Massachusetts 4.4% | ||||||||
Massachusetts Educational Financing Authority Revenue | ||||||||
Series B 5.70%, due 1/1/31 (b) | 2,740,000 | 2,794,389 | ||||||
Series I 6.00%, due 1/1/28 | 3,655,000 | 3,998,533 | ||||||
X Massachusetts State Health & Educational Facilities Authority Revenue, Suffolk University | ||||||||
Series A 6.00%, due 7/1/24 | 2,000,000 | 2,164,260 | ||||||
Series A 6.25%, due 7/1/30 | 6,450,000 | 6,927,945 | ||||||
Metropolitan Boston Transit Parking Corp. 5.25%, due 7/1/36 | 2,000,000 | 2,117,200 | ||||||
18,002,327 | ||||||||
Michigan 3.7% | ||||||||
X Detroit, Michigan Sewer Disposal System Revenue | ||||||||
Series A, Insured: NATL-RE 5.25%, due 7/1/20 | 2,000,000 | 2,119,280 | ||||||
Series C-1, Insured: AGM 7.00%, due 7/1/27 | 2,500,000 | 2,930,450 | ||||||
Series B, Insured: AGM 7.50%, due 7/1/33 | 3,900,000 | 4,630,353 | ||||||
Michigan Finance Authority Revenue 5.50%, due 6/1/21 | 5,000,000 | 5,246,550 | ||||||
Michigan Tobacco Settlement Finance Authority Series A 6.00%, due 6/1/34 | 250,000 | 188,473 | ||||||
15,115,106 | ||||||||
Mississippi 1.0% | ||||||||
Mississippi Business Finance Corp. Pollution Control Revenue, System Energy Resources 5.875%, due 4/1/22 | 4,000,000 | 4,020,000 | ||||||
Nevada 1.2% | ||||||||
Clark County Nevada Passenger Facility Charge Revenue, Las Vegas-McCarran International Airport Series A-2, Insured: AMBAC 5.00%, due 7/1/26 | 2,000,000 | 2,098,860 |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 13 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Nevada (continued) | ||||||||
Las Vegas Convention and Visitors Authority Revenue Series E, Insured: AGM 5.50%, due 7/1/40 | $ | 2,450,000 | $ | 2,590,728 | ||||
4,689,588 | ||||||||
New Jersey 9.7% | ||||||||
Camden County, New Jersey Improvement Authority Revenue Series A 5.75%, due 2/15/34 | 3,500,000 | 3,365,845 | ||||||
X New Jersey Economic Development Authority Revenue, Cigarette Tax | ||||||||
5.50%, due 6/15/31 | 3,420,000 | 3,190,518 | ||||||
5.75%, due 6/15/29 | 4,925,000 | 4,817,980 | ||||||
New Jersey Economic Development Authority Revenue, MSU Student Housing Project 5.875%, due 6/1/42 | 1,000,000 | 1,010,340 | ||||||
New Jersey Economic Development Authority Revenue, MSU Student Housing Project-Provident Group-Montclair LLC 5.375%, due 6/1/25 | 4,500,000 | 4,547,565 | ||||||
New Jersey Health Care Facilities Financing Authority Revenue 6.00%, due 7/1/26 | 7,050,000 | 7,207,497 | ||||||
New Jersey Health Care Facilities Financing Authority Revenue, Hackensack University Medical Center Insured: GTY 5.25%, due 1/1/31 | 2,760,000 | 2,863,445 | ||||||
New Jersey State Higher Education Assistance Authority Revenue, Student Loan Series A, Insured: GTY 6.125%, due 6/1/30 (b) | 4,000,000 | 4,175,520 | ||||||
Newark, New Jersey Housing Authority Revenue, South Ward Police Facility Insured: GTY 6.75%, due 12/1/38 | 4,000,000 | 4,670,440 | ||||||
Tobacco Settlement Financing Corp., New Jersey Series 1A 4.50%, due 6/1/23 | 3,745,000 | 3,412,107 | ||||||
39,261,257 | ||||||||
New York 3.2% | ||||||||
New York Liberty Development Corp. Revenue Refunding, Second Priority Bank of America 6.375%, due 7/15/49 | 5,000,000 | 5,201,600 | ||||||
New York State Dormitory Authority Revenue 5.50%, due 7/1/40 | 540,000 | 572,989 | ||||||
New York State Mortgage Agency | ||||||||
Series 150 3.50%, due 10/1/37 (a)(b) | 700,000 | 700,000 | ||||||
Series 142 3.50%, due 10/1/37 (a)(b) | 6,150,000 | 6,150,000 | ||||||
New York, General Obligation 0.55%, due 1/1/36 (a) | 500,000 | 500,000 | ||||||
13,124,589 | ||||||||
North Carolina 1.1% | ||||||||
North Carolina Turnpike Authority Series A, Insured: GTY 5.75%, due 1/1/39 | 4,000,000 | 4,309,480 | ||||||
North Dakota 0.7% | ||||||||
Mclean County North Dakota Solid Waste Facilities Revenue Series A 4.875%, due 7/1/26 | 2,700,000 | 2,777,706 | ||||||
Ohio 3.4% | ||||||||
Cleveland-Cuyahoga County Ohio Port Authority Revenue 6.00%, due 11/15/25 | 1,980,000 | 2,190,019 | ||||||
Lucas County Ohio Hospital Revenue, Promedica Healthcare Obligated Group Insured: AMBAC 5.375%, due 11/15/29 | 2,830,000 | 2,831,557 | ||||||
Toledo-Lucas County Port Authority Development Revenue | ||||||||
Series A 5.10%, due 5/15/12 | 220,000 | 219,575 | ||||||
Series B 6.25%, due 5/15/24 (b) | 1,030,000 | 1,031,009 | ||||||
Toledo-Lucas County Port Authority Special Assessment Revenue, Crocker Park Public Improvement Project 5.375%, due 12/1/35 | 3,830,000 | 3,389,358 | ||||||
University of Cincinnati, Ohio, Receipts Series A, Insured: AMBAC 5.00%, due 6/1/31 | 4,090,000 | 4,243,048 | ||||||
13,904,566 | ||||||||
Pennsylvania 3.4% | ||||||||
Montgomery County Industrial Development Authority 5.25%, due 8/1/33 | 175,000 | 181,129 |
The notes to the financial statements are an integral part of,
14 MainStay Tax Free Bond Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Pennsylvania (continued) | ||||||||
Montgomery County, Pennsylvania, Industrial Development Authority Revenue, Acts Retirement Communities Series A 4.50%, due 11/15/36 | $ | 2,500,000 | $ | 2,021,325 | ||||
Pennsylvania State Turnpike Commission Revenue Series B 5.75%, due 6/1/39 | 4,000,000 | 4,269,080 | ||||||
Philadelphia, PA 6.50%, due 8/1/41 | 5,125,000 | 5,829,380 | ||||||
W. Shore Pennsylvania Area Authority Hospital Revenue Series B 5.625%, due 1/1/32 | 1,500,000 | 1,490,925 | ||||||
13,791,839 | ||||||||
Puerto Rico 4.0% | ||||||||
Puerto Rico Commonwealth Series C 6.50%, due 7/1/40 | 2,500,000 | 2,766,300 | ||||||
Puerto Rico Commonwealth, Refunding, Public Improvement Series B 6.50%, due 7/1/37 | 3,500,000 | 3,814,370 | ||||||
X Puerto Rico Industrial Tourist Educational Medical & Environmental, Control Facility Financing Authority Series A 6.00%, due 7/1/33 | 7,545,000 | 7,977,857 | ||||||
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue Series A 6.375%, due 8/1/39 | 1,500,000 | 1,666,635 | ||||||
16,225,162 | ||||||||
Rhode Island 0.5% | ||||||||
Providence Public Buildings Authority Revenue Series A, Insured: AGM 5.875%, due 6/15/26 | 2,000,000 | 2,128,320 | ||||||
South Carolina 1.6% | ||||||||
Piedmont Municipal Power Agency Electric Revenue Series C, Insured: GTY 5.75%, due 1/1/34 | 5,895,000 | 6,435,630 | ||||||
Tennessee 1.9% | ||||||||
Chattanooga Health Educational & Housing Facility Board Revenue Series A 5.125%, due 10/1/35 | 1,000,000 | 896,580 | ||||||
Johnson City Tennessee Health And Educational Facilities Board Hospital Revenue Series A 6.50%, due 7/1/38 | 6,500,000 | 6,982,105 | ||||||
7,878,685 | ||||||||
Texas 9.7% | ||||||||
Central Texas Regional Mobility Authority Revenue 5.75%, due 1/1/31 | 4,100,000 | 4,143,255 | ||||||
Clifton Texas Higher Education Finance Corp. Revenue Series A 6.125%, due 12/1/40 | 2,250,000 | 2,286,653 | ||||||
Dallas-Fort Worth, Texas International Airport Facilities Improvement Revenue Series A, Insured: NATL-RE 6.00%, due 11/1/28 (b) | 1,370,000 | 1,372,151 | ||||||
Harris County-Houston, Texas Sports Authority Revenue Series G, Insured: NATL-RE 5.25%, due 11/15/30 | 500,000 | 467,990 | ||||||
X Houston Higher Education Finance Corp. | ||||||||
Series A 6.50%, due 5/15/31 | 1,050,000 | 1,118,271 | ||||||
Series A 6.875%, due 5/15/41 | 6,450,000 | 6,927,880 | ||||||
Houston Texas Hotel Occupancy Tax & Special Revenue Series B 5.00%, due 9/1/31 | 2,000,000 | 2,014,800 | ||||||
North Texas Throughway Authority Revenue Series F 5.75%, due 1/1/38 | 1,800,000 | 1,855,818 | ||||||
San Juan, Texas Higher Education Finance Authority Revenue, Idea Public Schools Series A 6.70%, due 8/15/40 | 1,275,000 | 1,337,258 | ||||||
X Texas Private Activity Bond Surface Transportation Corp. Revenue | ||||||||
6.875%, due 12/31/39 | 2,000,000 | 2,139,420 | ||||||
7.00%, due 6/30/40 | 2,640,000 | 2,845,682 | ||||||
Series Lien-LBG 7.50%, due 6/30/32 | 4,095,000 | 4,620,020 | ||||||
7.50%, due 6/30/33 | 6,500,000 | 7,274,215 |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 15 |
Table of Contents
Portfolio of Investments††† October 31, 2011 (continued)
Principal | ||||||||
Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Texas (continued) | ||||||||
Texas State, Public Finance Authority, Charter School Finance Corp. Revenue Series A 6.20%, due 2/15/40 | $ | 1,000,000 | $ | 1,019,990 | ||||
39,423,403 | ||||||||
U.S. Virgin Islands 1.6% | ||||||||
Virgin Islands Public Finance Authority Series A 6.75%, due 10/1/37 | 6,000,000 | 6,441,960 | ||||||
Utah 0.3% | ||||||||
Herriman Utah Special Assessment 5.00%, due 11/1/24 | 575,000 | 596,148 | ||||||
5.00%, due 11/1/29 | 425,000 | 436,097 | ||||||
1,032,245 | ||||||||
Vermont 0.2% | ||||||||
Burlington, Vermont Electric Revenue Series A 5.375%, due 7/1/27 | 610,000 | 615,905 | ||||||
Washington 0.5% | ||||||||
Everett Public Facilities District Project Revenue 3.00%, due 4/1/36 (a) | 500,000 | 500,000 | ||||||
FYI Properties Wash Lease Revenue 5.50%, due 6/1/39 | 1,500,000 | 1,599,870 | ||||||
2,099,870 | ||||||||
Wisconsin 1.0% | ||||||||
Wisconsin State Health & Educational Facilities Authority Revenue 5.00%, due 7/1/20 | 1,785,000 | 1,821,700 | ||||||
5.00%, due 7/1/25 | 2,270,000 | 2,275,879 | ||||||
4,097,579 | ||||||||
Wyoming 0.3% | ||||||||
West Park Hospital District Revenue Series A 6.375%, due 6/1/26 | 1,000,000 | 1,066,360 | ||||||
Total Municipal Bonds (Cost $383,202,282) | 396,291,528 | |||||||
Short-Term Investment 1.8% | ||||||||
Municipal Bond 1.8% | ||||||||
Michigan 1.8% | ||||||||
Michigan Finance Authority Revenue Series A-1 6.45%, due 2/20/12 | 7,400,000 | 7,494,202 | ||||||
Total Short-Term Investment (Cost $7,400,000) | 7,494,202 | |||||||
Total Investments (Cost $390,602,282) (e) | 99.5 | % | 403,785,730 | |||||
Other Assets, Less Liabilities | 0.5 | 1,883,112 | ||||||
Net Assets | 100.0 | % | $ | 405,668,842 | ||||
Unrealized | ||||||||
Contracts | Appreciation | |||||||
Short | (Depreciation) (c) | |||||||
Futures Contracts 0.1% | ||||||||
United States Treasury Notes December 2011 (10 Year) (d) | (450 | ) | $ | 590,513 | ||||
Total Futures Contracts (Settlement Value $58,078,125) | $ | 590,513 | ||||||
††† | On a daily basis New York Life Investments confirms that the value of the Fund’s liquid assets (liquid portfolio securities and cash) is sufficient to cover its potential senior securities (e.g., futures, swaps, options). | |
(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 at October 31, 2011. | |
(b) | Interest on these securities is subject to alternative minimum tax. | |
(c) | Represents the difference between the value of the contracts at the time they were opened and the value at October 31, 2011. | |
(d) | At October 31, 2011, cash in the amount of $720,000 is on deposit with the broker for futures transactions. | |
(e) | At October 31, 2011, cost is $390,602,282 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 13,820,078 | ||
Gross unrealized depreciation | (636,630 | ) | ||
Net unrealized appreciation | $ | 13,183,448 | ||
The following abbreviations are used in the above portfolio:
AGM—Assured Guaranty Municipal Corp.
AMBAC—Ambac Assurance Corp.
GTY—Assured Guaranty Corp.
NATL-RE—National Public Finance Guarantee Corp.
The notes to the financial statements are an integral part of,
16 MainStay Tax Free Bond Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
The following is a summary of the fair valuations according to the inputs used as of October 31, 2011, for valuing the Fund’s assets.
Asset Valuation Inputs
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Municipal Bonds | $ | — | $ | 396,291,528 | $ | — | $ | 396,291,528 | ||||||||
Short-Term Investment | ||||||||||||||||
Municipal Bond | — | 7,494,202 | — | 7,494,202 | ||||||||||||
Total Investments in Securities | — | 403,785,730 | — | 403,785,730 | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts Short (b) | 590,513 | — | — | 590,513 | ||||||||||||
Total Investments in Securities and Other Financial Instruments | $ | 590,513 | $ | 403,785,730 | $ | — | $ | 404,376,243 | ||||||||
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The value listed for these securities reflects unrealized appreciation (depreciation) as shown on the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended October 31, 2011, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
At October 31, 2011, the Fund did not hold any investments with significant unobservable inputs (Level 3). (See Note 2)
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 17 |
Table of Contents
Statement of Assets and Liabilities as of October 31, 2011
Assets | ||||
Investment in securities, at value (identified cost $390,602,282) | $ | 403,785,730 | ||
Cash collateral on deposit at broker | 720,000 | |||
Cash | 249,366 | |||
Receivables: | ||||
Interest | 6,849,240 | |||
Investment securities sold | 3,556,870 | |||
Fund shares sold | 2,153,710 | |||
Other assets | 41,955 | |||
Total assets | 417,356,871 | |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 10,113,928 | |||
Variation margin on futures contracts | 435,938 | |||
Manager (See Note 3) | 160,632 | |||
Fund shares redeemed | 144,559 | |||
NYLIFE Distributors (See Note 3) | 96,646 | |||
Transfer agent (See Note 3) | 40,251 | |||
Shareholder communication | 26,944 | |||
Professional fees | 16,642 | |||
Trustees | 1,367 | |||
Custodian | 945 | |||
Accrued expenses | 4,884 | |||
Dividend payable | 645,293 | |||
Total liabilities | 11,688,029 | |||
Net assets | $ | 405,668,842 | ||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 437,705 | ||
Additional paid-in capital | 409,155,301 | |||
409,593,006 | ||||
Distributions in excess of net investment income | (524,675 | ) | ||
Accumulated net realized gain (loss) on investments and futures transactions | (17,173,450 | ) | ||
Net unrealized appreciation (depreciation) on investments and futures contracts | 13,773,961 | |||
Net assets | $ | 405,668,842 | ||
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 21,546,732 | ||
Shares of beneficial interest outstanding | 2,314,912 | |||
Net asset value per share outstanding | $ | 9.31 | ||
Maximum sales charge (4.50% of offering price) | 0.44 | |||
Maximum offering price per share outstanding | $ | 9.75 | ||
Class A | ||||
Net assets applicable to outstanding shares | $ | 258,891,918 | ||
Shares of beneficial interest outstanding | 27,944,108 | |||
Net asset value per share outstanding | $ | 9.26 | ||
Maximum sales charge (4.50% of offering price) | 0.44 | |||
Maximum offering price per share outstanding | $ | 9.70 | ||
Class B | ||||
Net assets applicable to outstanding shares | $ | 9,462,513 | ||
Shares of beneficial interest outstanding | 1,021,607 | |||
Net asset value and offering price per share outstanding | $ | 9.26 | ||
Class C | ||||
Net assets applicable to outstanding shares | $ | 81,880,105 | ||
Shares of beneficial interest outstanding | 8,833,605 | |||
Net asset value and offering price per share outstanding | $ | 9.27 | ||
Class I | ||||
Net assets applicable to outstanding shares | $ | 33,887,574 | ||
Shares of beneficial interest outstanding | 3,656,298 | |||
Net asset value and offering price per share outstanding | $ | 9.27 | ||
The notes to the financial statements are an integral part of,
18 MainStay Tax Free Bond Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Statement of Operations for the year ended October 31, 2011
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 19,941,925 | ||
Expenses | ||||
Manager (See Note 3) | 1,851,607 | |||
Distribution/Service—Investor Class (See Note 3) | 52,457 | |||
Distribution/Service—Class A (See Note 3) | 594,170 | |||
Distribution/Service—Class B (See Note 3) | 52,690 | |||
Distribution/Service—Class C (See Note 3) | 342,300 | |||
Transfer agent (See Note 3) | 236,434 | |||
Registration | 126,902 | |||
Professional fees | 65,226 | |||
Shareholder communication | 51,745 | |||
Custodian | 15,694 | |||
Trustees | 9,815 | |||
Miscellaneous | 16,694 | |||
Total expenses before waiver/reimbursement | 3,415,734 | |||
Expense waiver/reimbursement from Manager (See Note 3) | (265,594 | ) | ||
Net expenses | 3,150,140 | |||
Net investment income (loss) | 16,791,785 | |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on: | ||||
Security transactions | 4,745,973 | |||
Futures transactions | (7,472,225 | ) | ||
Net realized gain (loss) on investments and futures transactions | (2,726,252 | ) | ||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (4,015,196 | ) | ||
Futures contracts | 590,513 | |||
Net change in unrealized appreciation (depreciation) on investments and futures contracts | (3,424,683 | ) | ||
Net realized and unrealized gain (loss) on investments and futures transactions | (6,150,935 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | 10,640,850 | ||
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 19 |
Table of Contents
Statements of Changes in Net Assets
for the years ended October 31, 2011 and October 31, 2010
2011 | 2010 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 16,791,785 | $ | 12,313,940 | ||||
Net realized gain (loss) on investments and futures transactions | (2,726,252 | ) | 4,970,773 | |||||
Net change in unrealized appreciation (depreciation) on investments and futures contracts | (3,424,683 | ) | 8,204,118 | |||||
Net increase (decrease) in net assets resulting from operations | 10,640,850 | 25,488,831 | ||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (986,044 | ) | (966,893 | ) | ||||
Class A | (11,463,796 | ) | (9,075,767 | ) | ||||
Class B | (465,160 | ) | (653,552 | ) | ||||
Class C | (3,080,412 | ) | (1,804,556 | ) | ||||
Class I | (1,034,192 | ) | (376,448 | ) | ||||
Total dividends to shareholders | (17,029,604 | ) | (12,877,216 | ) | ||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 140,346,273 | 156,464,595 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 9,884,672 | 7,665,296 | ||||||
Cost of shares redeemed | (100,280,148 | ) | (40,000,749 | ) | ||||
Increase (decrease) in net assets derived from capital share transactions | 49,950,797 | 124,129,142 | ||||||
Net increase (decrease) in net assets | 43,562,043 | 136,740,757 | ||||||
Net Assets | ||||||||
Beginning of year | 362,106,799 | 225,366,042 | ||||||
End of year | $ | 405,668,842 | $ | 362,106,799 | ||||
Distributions in excess of net investment income at end of year | $ | (524,675 | ) | $ | (286,856 | ) | ||
The notes to the financial statements are an integral part of,
20 MainStay Tax Free Bond Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Investor Class | ||||||||||||||||||
February 28, | ||||||||||||||||||
2008** | ||||||||||||||||||
through | ||||||||||||||||||
Year ended October 31, | October 31, | |||||||||||||||||
2011 | 2010 | 2009 | 2008 | |||||||||||||||
Net asset value at beginning of period | $ | 9.48 | $ | 9.08 | $ | 8.48 | $ | 9.07 | ||||||||||
Net investment income (loss) | 0.42 | (a) | 0.39 | (a) | 0.34 | (a) | 0.25 | |||||||||||
Net realized and unrealized gain (loss) on investments | (0.16 | ) | 0.41 | 0.63 | (0.60 | ) | ||||||||||||
Total from investment operations | 0.26 | 0.80 | 0.97 | (0.35 | ) | |||||||||||||
Less dividends: | ||||||||||||||||||
From net investment income | (0.43 | ) | (0.40 | ) | (0.37 | ) | (0.24 | ) | ||||||||||
Net asset value at end of period | $ | 9.31 | $ | 9.48 | $ | 9.08 | $ | 8.48 | ||||||||||
Total investment return (b) | 2.93 | % | 9.08 | % | 11.67 | % | (4.03 | %)(c) | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||
Net investment income (loss) | 4.67 | % | 4.24 | % | 3.93 | % | 3.92 | % †† | ||||||||||
Net expenses | 0.90 | % | 0.93 | % | 1.02 | % | 0.99 | % †† | ||||||||||
Expenses (before waiver/reimbursement) | 0.98 | % | 1.03 | % | 1.25 | % | 1.21 | % †† | ||||||||||
Portfolio turnover rate | 138 | % | 97 | % | 94 | % | 90 | % | ||||||||||
Net assets at end of period (in 000’s) | $ | 21,547 | $ | 22,220 | $ | 21,683 | $ | 21,450 |
** | 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. | |
(c) | Total investment return is not annualized. |
Class A | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 9.44 | $ | 9.04 | $ | 8.45 | $ | 9.48 | $ | 9.75 | ||||||||||||
Net investment income (loss) | 0.43 | (a) | 0.40 | (a) | 0.35 | (a) | 0.36 | 0.38 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.18 | ) | 0.42 | 0.62 | (1.02 | ) | (0.27 | ) | ||||||||||||||
Total from investment operations | 0.25 | 0.82 | 0.97 | (0.66 | ) | 0.11 | ||||||||||||||||
Less dividends: | ||||||||||||||||||||||
From net investment income | (0.43 | ) | (0.42 | ) | (0.38 | ) | (0.37 | ) | (0.38 | ) | ||||||||||||
Net asset value at end of year | $ | 9.26 | $ | 9.44 | $ | 9.04 | $ | 8.45 | $ | 9.48 | ||||||||||||
Total investment return (b) | 2.93 | % | 9.25 | % | 11.72 | % | (7.17 | %) | 1.12 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 4.76 | % | 4.36 | % | 4.04 | % | 3.94 | % | 3.88 | % | ||||||||||||
Net expenses | 0.81 | % | 0.82 | % | 0.90 | % | 0.88 | % | 0.89 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 0.89 | % | 0.92 | % | 1.08 | % | 1.04 | % | 1.06 | % | ||||||||||||
Portfolio turnover rate | 138 | % | 97 | % | 94 | % | 90 | % | 59 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 258,892 | $ | 242,891 | $ | 162,921 | $ | 136,781 | $ | 189,210 |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 21 |
Table of Contents
Financial Highlights selected per share data and ratios
Class B | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 9.44 | $ | 9.04 | $ | 8.44 | $ | 9.48 | $ | 9.75 | ||||||||||||
Net investment income (loss) | 0.40 | (a) | 0.37 | (a) | 0.32 | (a) | 0.33 | 0.34 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.18 | ) | 0.41 | 0.63 | (1.03 | ) | (0.26 | ) | ||||||||||||||
Total from investment operations | 0.22 | 0.78 | 0.95 | (0.70 | ) | 0.08 | ||||||||||||||||
Less dividends: | ||||||||||||||||||||||
From net investment income | (0.40 | ) | (0.38 | ) | (0.35 | ) | (0.34 | ) | (0.35 | ) | ||||||||||||
Net asset value at end of year | $ | 9.26 | $ | 9.44 | $ | 9.04 | $ | 8.44 | $ | 9.48 | ||||||||||||
Total investment return (b) | 2.58 | % | 8.85 | % | 11.32 | % | (7.46 | %) | 0.86 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 4.42 | % | 3.99 | % | 3.68 | % | 3.63 | % | 3.63 | % | ||||||||||||
Net expenses | 1.15 | % | 1.18 | % | 1.26 | % | 1.20 | % | 1.14 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.23 | % | 1.28 | % | 1.50 | % | 1.40 | % | 1.31 | % | ||||||||||||
Portfolio turnover rate | 138 | % | 97 | % | 94 | % | 90 | % | 59 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 9,463 | $ | 13,907 | $ | 18,219 | $ | 23,935 | $ | 31,921 |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
Class C | ||||||||||||||||||||||
Year ended October 31, | ||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
Net asset value at beginning of year | $ | 9.44 | $ | 9.04 | $ | 8.45 | $ | 9.48 | $ | 9.75 | ||||||||||||
Net investment income (loss) | 0.40 | (a) | 0.37 | (a) | 0.32 | (a) | 0.34 | 0.35 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.17 | ) | 0.41 | 0.61 | (1.03 | ) | (0.27 | ) | ||||||||||||||
Total from investment operations | 0.23 | 0.78 | 0.93 | (0.69 | ) | 0.08 | ||||||||||||||||
Less dividends: | ||||||||||||||||||||||
From net investment income | (0.40 | ) | (0.38 | ) | (0.34 | ) | (0.34 | ) | (0.35 | ) | ||||||||||||
Net asset value at end of year | $ | 9.27 | $ | 9.44 | $ | 9.04 | $ | 8.45 | $ | 9.48 | ||||||||||||
Total investment return (b) | 2.69 | % | 8.85 | % | 11.31 | % | (7.46 | %) | 0.86 | % | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||||
Net investment income (loss) | 4.42 | % | 3.99 | % | 3.68 | % | 3.64 | % | 3.63 | % | ||||||||||||
Net expenses | 1.15 | % | 1.18 | % | 1.28 | % | 1.20 | % | 1.14 | % | ||||||||||||
Expenses (before waiver/reimbursement) | 1.23 | % | 1.28 | % | 1.51 | % | 1.40 | % | 1.31 | % | ||||||||||||
Portfolio turnover rate | 138 | % | 97 | % | 94 | % | 90 | % | 59 | % | ||||||||||||
Net assets at end of year (in 000’s) | $ | 81,880 | $ | 65,695 | $ | 22,544 | $ | 7,425 | $ | 6,752 |
(a) | Per share data based on average shares outstanding during the year. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of,
22 MainStay Tax Free Bond Fund | and should be read in conjunction with, the financial statements. |
Table of Contents
Financial Highlights selected per share data and ratios
Class I | ||||||||||
December 21, | ||||||||||
Year | 2009** | |||||||||
ended | through | |||||||||
October 31, | October 31, | |||||||||
2011 | 2010 | |||||||||
Net asset value at beginning of period | $ | 9.44 | $ | 9.07 | ||||||
Net investment income (loss) (a) | 0.45 | 0.38 | ||||||||
Net realized and unrealized gain (loss) on investments | (0.16 | ) | 0.35 | |||||||
Total from investment operations | 0.29 | 0.73 | ||||||||
Less dividends: | ||||||||||
From net investment income | (0.46 | ) | (0.36 | ) | ||||||
Net asset value at end of period | $ | 9.27 | $ | 9.44 | ||||||
Total investment return (b) | 3.29 | % | 8.25 | % (c) | ||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||
Net investment income (loss) | 4.99 | % | 4.64 | %†† | ||||||
Net expenses | 0.56 | % | 0.57 | %†† | ||||||
Expenses (before reimbursement/waiver) | 0.64 | % | 0.67 | %†† | ||||||
Portfolio turnover rate | 138 | % | 97 | % | ||||||
Net assets at end of period (in 000’s) | $ | 33,888 | $ | 17,394 |
** | Commencement of operations. | |
†† | Annualized. | |
(a) | Per share data based on average shares outstanding during the period. | |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. | |
(c) | Total investment return is not annualized. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements. | mainstayinvestments.com 23 |
Table of Contents
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 fourteen funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay Tax Free Bond Fund (the “Fund”), a diversified fund.
The Fund currently offers five classes of shares. Class A shares commenced operations on January 3, 1995. Class B shares commenced operations on May 1, 1986. Class C shares commenced operations on September 1, 1998. Investor Class shares commenced operations on February 28, 2008. Class I shares commenced operations on December 21, 2009. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies on investments of $500,000 or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The five classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class and Class A shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I shares are not subject to a distribution and/or service fee.
The Fund’s investment objective is to seek to provide a high level of current income free from regular federal income tax, consistent with the preservation of capital.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (usually 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are determined within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish 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 developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in determining the fair value of investments) |
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may utilize some of the following fair value techniques: multi-dimensional relational pricing models, option adjusted spread pricing and estimating the price that would have prevailed in a liquid market for an international equity security given information available at the time of evaluation, when there are significant events after the close of local foreign markets.
The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2011, there have been no changes to the fair value methodologies.
The aggregate value by input level, as of October 31, 2011, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
Futures contracts are valued at the last posted settlement price on the market where such futures are primarily traded. Investments in other mutual funds are valued at their NAVs as of the close of the Exchange
24 MainStay Tax Free Bond Fund
Table of Contents
on the valuation date. These securities are generally categorized as Level 1 in the hierarchy.
Debt securities are valued at the evaluated mean prices supplied by a pricing agent or brokers selected by the Fund’s Manager (as defined in Note 3(A)) in consultation with the Fund’s Subadvisor (as defined in Note 3(A)) whose prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Fund’s Manager, in consultation with the Fund’s Subadvisor, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities, including corporate bonds, U.S. government & federal agency bonds, municipal bonds, foreign bonds, Yankee bonds, convertible bonds, asset-backed securities, and mortgage-backed securities, are generally categorized as Level 2 in the hierarchy.
Temporary cash investments acquired over 60 days prior to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of the difference between such cost and the value on maturity date. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not obtained from a quoted price in an active market. These securities are all generally categorized as Level 2 in the hierarchy.
Securities for which market quotations are not readily available are valued by methods deemed in good faith by the Fund’s Board to represent fair value. Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security the trading for which 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 the market price of which is not available from an independent pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor reflect the security’s market value; and (vi) a security where the trading on that security’s principal market is temporarily closed at a time when, under normal conditions, it would be open. These securities are generally categorized as Level 3 in the hierarchy. At October 31, 2011, the Fund did not hold any securities that were fair valued in such a manner.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provision is required. Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provision for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income monthly and distributions of net realized capital and currency gains, if any, annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(D) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Interest income is accrued as earned using the effective interest rate method. Discounts and premiums on securities purchased, other than Short-Term Investments, for the Fund are accreted and amortized, respectively, on the effective interest rate method over the life of the respective securities or, in the case of a callable security, over the period to the first date of call. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
(E) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(F) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(G) Futures Contracts. A futures contract is an agreement to purchase or sell a specified quantity of an underlying instrument at a specified future date and price, or to make or receive a cash payment based on the value of a financial instrument (e.g., foreign currency, interest rate, security, or securities index). The Fund is subject to equity price risk and interest rate risk in the normal course of investing in these transactions. During the period the futures contract is open,
mainstayinvestments.com 25
Table of Contents
Notes to Financial Statements (unaudited) (continued)
changes in the value of the contract are recognized as unrealized gains or losses by “marking to market” such contract on a daily basis to reflect the market value of the contract at the end of each day’s trading. The Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as “variation margin.” When the futures contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract.
The use of futures contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract or notional amounts and variation margin reflect the extent of the Fund’s involvement in open futures positions. Risks arise from the possible imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets, and the possible inability of counterparties to meet the terms of their contracts. However, the Fund’s activities in futures contracts have minimal counterparty risk as they are conducted through regulated exchanges that guarantee the futures against default by the counterparty. In the event of a bankruptcy or insolvency of a broker that holds margin on behalf of the Fund, the Fund may not be entitled to the return of all of the margin owed to the Fund, potentially resulting in a loss. The Fund’s investment in futures contracts and other derivatives may increase the volatility of the Fund’s NAV and may result in a loss to the Fund.
(H) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act, and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund’s cash collateral in accordance with the Lending Agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. The Fund may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should the borrower of the securities experience financial difficulty. The Fund may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue to receive interest and dividends on the securities loaned and any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the account of the Fund.
Although the Fund and New York Life Investments (as defined in Note 3(A)) have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund had no portfolio securities on loan as of October 31, 2011.
(I) Concentration of Risk. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic or political developments in a specific country, industry or region.
(J) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
(K) Quantitative Disclosure of Derivative Holdings. The following tables show additional disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial positions, performance and cash flows. These derivatives are not accounted for as hedging instruments.
Fair value of derivatives as of October 31, 2011:
Asset Derivatives
Interest | ||||||||||
Statement of | Rate | |||||||||
Assets and | Contracts | |||||||||
Liabilities | Risk | Total | ||||||||
Futures Contracts (a) | Net Assets— Net unrealized appreciation (depreciation) on investments and futures contracts | $ | 590,513 | $ | 590,513 | |||||
Total Fair Value | $ | 590,513 | $ | 590,513 | ||||||
(a) | Includes cumulative appreciation (depreciation) of futures contracts as reported in the Portfolio of Investments. Only the current day’s variation margin is reported within the Statement of Assets & Liabilities. |
The effect of derivative instruments on the Statement of Operations for the year ended October 31, 2011:
Realized Gain (Loss)
Interest | ||||||||||
Statement of | Rate | |||||||||
Operations | Contracts | |||||||||
Location | Risk | Total | ||||||||
Futures Contracts | Net realized gain (loss) on futures transactions | $ | (7,472,225 | ) | $ | (7,472,225 | ) | |||
Total Realized Gain (Loss) | $ | (7,472,225 | ) | $ | (7,472,225 | ) | ||||
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Change in Unrealized Appreciation (Depreciation)
Interest | ||||||||||
Statement of | Rate | |||||||||
Operations | Contracts | |||||||||
Location | Risk | Total | ||||||||
Futures Contracts | Net change in unrealized appreciation (depreciation) on investments and futures transactions | $ | 590,513 | $ | 590,513 | |||||
Total Change in Appreciation (Depreciation) | $ | 590,513 | $ | 590,513 | ||||||
Number of Contracts, Notional Amounts or Shares/Units (1)
Interest | ||||||
Rate | ||||||
Contracts | ||||||
Risk | Total | |||||
Futures Contracts Short (2) | (559) | (559 | ) | |||
(1) | Amount disclosed represents the weighted average held during the year ended October 31, 2011. |
(2) | Amount(s) represent(s) number of contracts or number of shares/units. |
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), 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, including a portion of the total compensation of the Chief Compliance Officer (“CCO”) of the Fund which is the responsibility of all investment companies for which the CCO serves, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. MacKay Shields LLC (“MacKay Shields” or the “Subadvisor”), a registered investment advisor and an indirect, wholly owned subsidiary of New York Life, serves as Subadvisor 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 MacKay Shields, New York Life Investments pays for the services of the Subadvisor.
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows; 0.50% up to $500 million; 0.475% from $500 million to $1 billion; and 0.45% in excess of $1 billion, plus a fee for fund accounting services, previously provided by New York Life Investments under a separate fund accounting agreement, furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. The Manager has contractually agreed to waive a portion of its management fee so that the management fee does not exceed 0.45% up to $500 million; 0.425% from $500 million to $1 billion; and 0.40% in excess of $1 billion. This agreement may only be amended or terminated by action of the Board. The effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.52% for the year ended October 31, 2011, inclusive of a fee for fund accounting service of 0.02% of the Fund’s average daily net assets.
Prior to March 1, 2011, the Manager had contractually agreed to waive a portion of its management fee so that the management fee did not exceed 0.40% up to $500 million; 0.375% from $500 million to $1 billion; and 0.35% in excess of $1 billion. This agreement expired on February 28, 2011.
The Manager has contractually agreed to waive fees and/or reimburse expenses on Class A shares so that Total Annual Fund Operating Expenses do not exceed 0.82% of its average daily net assets. The Manager will apply an equivalent waiver or reimbursement, in an equal number of basis points, to the other share classes. This agreement expires on February 28, 2012, and may only be amended or terminated prior to that date by action of the Board. Total Annual operating expenses excludes taxes, interest, litigation, extraordinary expenses, brokerage and other transaction expenses relating to the purchase or sale of portfolio investments, and acquired (underlying) fund fees and expenses.
Prior to March 1, 2011, the Manager had contractually agreed to waive fees and/or reimburse expenses so that total ordinary operating expenses for the Fund’s Class A shares did not exceed 0.94% of its average daily net assets. The Manager agreed to apply an equivalent waiver or reimbursement, in an equal number of basis points, to the other share classes of the Fund. This agreement expired on February 28, 2011.
For the year ended October 31, 2011, New York Life Investments earned fees from the Fund in the amount of $1,851,607 and waived its fees and/or reimbursed expenses in the amount of $265,594.
State Street Bank and Trust Company (“State Street”), 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution and Service Fees. The Trust, on behalf of the Fund, has entered into a Distribution Agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class and Class A Plans, the Distributor receives a monthly distribution fee from the Investor Class and Class A shares at an annual rate of 0.25% of the average daily net assets of the Investor Class and Class A shares for distribution or service activities as designated by the Distributor. Pursuant to the Class B and
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Notes to Financial Statements (unaudited) (continued)
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 or service fee.
The Plans provide that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund’s shares and service activities.
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $7,589 and $87,827, respectively, for the year ended October 31, 2011. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $3, $7,499, $15,754 and $20,977, respectively, for the year ended October 31, 2011.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2011, were as follows:
Investor Class | $ | 27,224 | ||
Class A | 98,401 | |||
Class B | 13,731 | |||
Class C | 88,667 | |||
Class I | 8,411 | |||
(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. At October 31, 2011, New York Life and its affiliates beneficially held shares of the Fund with the following values and percentages of net assets as follows:
Class A | $ | 61,596 | 0.0 | %‡ | ||||
Class C | 123 | 0.0 | ‡ | |||||
Class I | 27,841 | 0.1 | ||||||
‡ Less than one-tenth of a percent.
(G) Other. Pursuant to a Legal Services Agreement, a portion of the cost of legal services provided to the Fund by the Office of the General Counsel of New York Life Investments was payable directly by the Fund through March 17, 2011. For the year ended October 31, 2011, these fees, which are included in professional fees shown on the Statement of Operations, were $5,281. Effective March 18, 2011, the Legal Services Agreement expired and was not renewed. Therefore, the Fund is no longer directly responsible for any portion of the cost of legal services.
Note 4–Federal Income Tax
As of October 31, 2011, the components of accumulated gain (loss) on a tax basis were as follows:
Accumulated | ||||||||||||||||||||||
Undistributed | Capital | Other | Unrealized | Total | ||||||||||||||||||
Ordinary | Tax Exempt | and Other | Temporary | Appreciation | Accumulated | |||||||||||||||||
Income | Income | Gain (Loss) | Differences | (Depreciation) | Gain (Loss) | |||||||||||||||||
$ | — | $ | 120,618 | $ | (16,582,937 | ) | $ | (645,293 | ) | $ | 13,183,448 | $ | (3,924,164 | ) | ||||||||
The difference between book-basis and tax basis unrealized appreciation (depreciation) is primarily due to marking to market of futures contracts.
The other temporary differences are primarily due to dividends payable.
The following table discloses the current year reclassifications between undistributed net investment income, accumulated net realized gain (loss) on investments, and additional paid-in capital arising from permanent differences; net assets at October 31, 2011 were not affected.
Accumulated | ||||||||||
Undistributed | Net Realized | Additional | ||||||||
Net Investment | Gain (Loss) | Paid-In | ||||||||
Income Loss) | on Investments | Capital | ||||||||
$ | — | $ | 3,146,182 | $ | (3,146,182 | ) | ||||
The reclassifications for the Fund are primarily due to the expiration of a portion of the capital loss carryforward.
Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
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At October 31, 2011, for federal income tax purposes, capital loss carryforwards of $16,582,937 were available as shown in the table below, to the extent provided by the regulations to offset future realized gains of the Fund through the years indicated. To the extent that these capital loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to shareholders. No capital gain distributions shall be made until any capital loss carryforwards have been fully utilized or expired.
Capital Loss | Capital Loss | |||||
Available Through | Amounts (000’s) | |||||
2012 | $ | 478 | ||||
2016 | 1,647 | |||||
2017 | 12,322 | |||||
2019 | 2,136 | |||||
Total | $ | 16,583 | ||||
The Fund had $3,146,182 of capital loss carryforwards that expired during the year ended October 31, 2011.
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 shown in the Statements of Changes in Net Assets was as follows:
2011 | 2010 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 336,245 | $ | 50,732 | ||||
Exempt Interest Dividends | 16,693,359 | 12,826,484 | ||||||
Total | $ | 17,029,604 | $ | 12,877,216 | ||||
Note 5–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 6–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 31, 2011, under an amended credit agreement, the aggregate commitment amount is $125,000,000 with an optional maximum amount of $175,000,000. The commitment rate is an annual rate of 0.08% of the average commitment amount, payable quarterly, regardless of usage, to The Bank of New York Mellon, which serves as the agent to the syndicate. The commitment fee is allocated among certain MainStay Funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The amended credit agreement expires on August 29, 2012, although the MainStay Funds and the syndicate of banks may renew the amended credit agreement for an additional year on the same or different terms. Prior to August 31, 2011, the commitment rate was an annual rate of 0.10% of the average commitment amount, plus a 0.02% up-front payment. There were no borrowings made or outstanding with respect to the Fund on the amended credit agreement during the year ended October 31, 2011.
Note 7–Purchases and Sales of Securities
(in 000’s)
(in 000’s)
During the year ended October 31, 2011, purchases and sales of securities, other than short-term securities, were $521,858 and $488,676, respectively.
Note 8–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 207,728 | $ | 1,893,698 | |||||
Shares issued to shareholders in reinvestment of dividends | 93,473 | 847,262 | ||||||
Shares redeemed | (305,859 | ) | (2,772,636 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | (4,658 | ) | (31,676 | ) | ||||
Shares converted into Investor Class (See Note 1) | 191,814 | 1,747,687 | ||||||
Shares converted from Investor Class (See Note 1) | (215,776 | ) | (1,962,032 | ) | ||||
Net increase (decrease) | (28,620 | ) | $ | (246,021 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 220,062 | $ | 2,042,969 | |||||
Shares issued to shareholders in reinvestment of dividends | 88,874 | 822,591 | ||||||
Shares redeemed | (282,871 | ) | (2,622,286 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 26,065 | 243,274 | ||||||
Shares converted into Investor Class (See Note 1) | 170,508 | 1,585,079 | ||||||
Shares converted from Investor Class (See Note 1) | (241,144 | ) | (2,255,419 | ) | ||||
Net increase (decrease) | (44,571 | ) | $ | (427,066 | ) | |||
Class A | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 7,914,265 | $ | 71,592,911 | |||||
Shares issued to shareholders in reinvestment of dividends | 766,360 | 6,915,977 | ||||||
Shares redeemed | (6,967,809 | ) | (62,785,852 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 1,712,816 | 15,723,036 | ||||||
Shares converted into Class A (See Note 1) | 599,952 | 5,411,743 | ||||||
Shares converted from Class A (See Note 1) | (99,626 | ) | (904,882 | ) | ||||
Net increase (decrease) | 2,213,142 | $ | 20,229,897 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 10,196,940 | $ | 94,144,661 | |||||
Shares issued to shareholders in reinvestment of dividends | 598,616 | 5,525,110 | ||||||
Shares redeemed | (3,026,006 | ) | (27,960,275 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 7,769,550 | 71,709,496 | ||||||
Shares converted into Class A (See Note 1) | 759,834 | 7,030,745 | ||||||
Shares converted from Class A (See Note 1) | (78,133 | ) | (726,760 | ) | ||||
Shares converted from Class A (a) | (739,946 | ) | (6,763,103 | ) | ||||
Net increase (decrease) | 7,711,305 | $ | 71,250,378 | |||||
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Notes to Financial Statements (unaudited) (continued)
Class B | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 256,367 | $ | 2,333,781 | |||||
Shares issued to shareholders in reinvestment of dividends | 39,803 | 358,511 | ||||||
Shares redeemed | (271,830 | ) | (2,439,328 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 24,340 | 252,964 | ||||||
Shares converted from Class B (See Note 1) | (476,368 | ) | (4,292,516 | ) | ||||
Net increase (decrease) | (452,028 | ) | $ | (4,039,552 | ) | |||
Year ended October 31, 2010: | ||||||||
Shares sold | 295,839 | $ | 2,740,723 | |||||
Shares issued to shareholders in reinvestment of dividends | 51,171 | 470,784 | ||||||
Shares redeemed | (277,988 | ) | (2,554,239 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 69,022 | 657,268 | ||||||
Shares converted from Class B (See Note 1) | (610,842 | ) | (5,633,645 | ) | ||||
Net increase (decrease) | (541,820 | ) | $ | (4,976,377 | ) | |||
Class C | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 3,781,769 | $ | 34,308,352 | |||||
Shares issued to shareholders in reinvestment of dividends | 164,851 | 1,489,950 | ||||||
Shares redeemed | (2,070,656 | ) | (18,568,999 | ) | ||||
Net increase (decrease) | 1,875,964 | $ | 17,229,303 | |||||
Year ended October 31, 2010: | ||||||||
Shares sold | 4,778,747 | $ | 44,173,733 | |||||
Shares issued to shareholders in reinvestment of dividends | 88,900 | 822,965 | ||||||
Shares redeemed | (402,689 | ) | (3,753,300 | ) | ||||
Net increase (decrease) | 4,464,958 | $ | 41,243,398 | |||||
Class I | Shares | Amount | ||||||
Year ended October 31, 2011: | ||||||||
Shares sold | 3,315,807 | $ | 30,217,531 | |||||
Shares issued to shareholders in reinvestment of dividends | 29,900 | 272,972 | ||||||
Shares redeemed | (1,531,533 | ) | (13,713,333 | ) | ||||
Net increase (decrease) | 1,814,174 | $ | 16,777,170 | |||||
Period ended October 31, 2010 (b): | ||||||||
Shares sold | 1,434,882 | $ | 13,362,509 | |||||
Shares issued to shareholders in reinvestment of dividends | 2,548 | 23,846 | ||||||
Shares redeemed | (335,252 | ) | (3,110,649 | ) | ||||
Net increase (decrease) in shares outstanding before conversion | 1,102,178 | 10,275,706 | ||||||
Shares converted into Class I (a) | 739,946 | 6,763,103 | ||||||
Net increase (decrease) | 1,842,124 | $ | 17,038,809 | |||||
(a) | In addition to any automatic conversion features described above in Note 1 with respect to Investor Class, Class A and Class B shares, investors generally may also elect to convert their shares on a voluntary basis into another share class of the same MainStay Fund subject to satisfying the eligibility requirements of the new share class, if any. However, the following limitations apply: |
• | Investor Class, Class A and Class C shares that remain subject to a CDSC are ineligible for a voluntary conversion; and | |
• | All Class B shares are ineligible for a voluntary conversion. |
These limitations do not impact any automatic conversion features described elsewhere in Note 1 with respect to Investor Class, Class A and Class B shares. | |
An investor or an investor’s financial intermediary may contact the MainStay Funds to request a voluntary conversion between share classes of the same MainStay Fund. Investors may be required to provide sufficient information to establish eligibility to convert to the new share class. All permissible conversions will be made on the basis of the relevant NAVs of the two classes without the imposition of any sales load, fee or other charge. If an investor fails to remain eligible for the new share class, they may be converted automatically back to their original share class, or into another share class, if appropriate. Although the MainStay Funds expect that a conversion between share classes of the same MainStay Fund should not result in the recognition of a gain or loss for tax purposes, shareholders should consult with their own tax adviser with respect to the tax treatment of their investment in a MainStay Fund. The MainStay Funds may change, suspend or terminate this conversion feature at any time. | |
(b) | Class I shares were first offered on December 21, 2009. |
Note 9–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2011, events and transactions subsequent to October 31, 2011 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.
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Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Tax Free Bond Fund (“the Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Tax Free Bond Fund of The MainStay Funds as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 22, 2011
December 22, 2011
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Federal Income Tax Information (Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders within 60 days of the Fund’s fiscal year end (October 31, 2011) as to the federal tax status of dividends paid by the Fund during such fiscal years.
For individual federal income tax purposes, the Fund designated 98.0% of the ordinary income dividends paid during the fiscal year ended October 31, 2011 as attributable to interest income from tax exempt municipal bonds. Such dividends are currently exempt from federal income taxes under Section 103 (a) of the Internal Revenue Code.
In February 2012, shareholders will receive an IRS. Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2011. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2011.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
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Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, Eclipse Funds, Eclipse Funds Inc., MainStay Funds Trust, and MainStay VP Funds Trust) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s). Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation upon reaching age 72. A Board Member reaching the age of 72 may continue for additional one-year periods with the approval of the Board’s Nominating and Governance Committee.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Interested Board Member* | ||||||||
John Y. Kim 9/24/60 | Indefinite; Eclipse Funds: Trustee since 2008 (2 funds); Eclipse Funds Inc.: Director since 2008 (1 fund); The MainStay Funds: Trustee since 2008 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc. since 2008 (21 portfolios). | Member of the Board of Managers (since 2011) of New York Life Enterprises LLC; Chairman (since 2011), Member of the Board of Managers, Chief Executive Officer and President (since 2008) of New York Life Investment Management LLC and New York Life Investment Management Holdings LLC; Executive Vice President (since 2011) of New York Life Foundation; Member of the Board of Managers and Chairman of the Board of Private Advisors, L.L.C. (since 2010); Executive Vice President, New York Life Insurance Company (since 2008); Chairman of the Board (2008-2010) and Member of the Boards of Managers (since 2008) of MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, Madison Square Investors LLC, NYLCAP Manager LLC and McMorgan & Company LLC; Chairman of the Board and Chief Executive Officer, NYLIFE Distributors LLC (2008-2010); Executive Vice President of NYLIFE Insurance Company of Arizona and New York Life Insurance and Annuity Corporation (since 2008); President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 66 | None | ||||
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Susan B. Kerley 8/12/51 | Indefinite; Eclipse Funds: Chairman since 2005, and Trustee since 2000 (2 funds); Eclipse Funds Inc.: Chairman since 2005 and Director since 1990 (1 fund); The MainStay Funds: Chairman and Board Member since 2007 (14 funds); MainStay Funds Trust: Chairman and Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Chairman and Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | President, Strategic Management Advisors LLC (since 1990) | 66 | Trustee, Legg Mason Partners Funds, since 1991 (58 portfolios) | ||||
Alan R. Latshaw 3/27/51 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2006 (14 funds); MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 66 | Trustee, State Farm Associates Funds Trusts since 2005 (4 portfolios); Trustee, State Farm Mutual Fund Trust since 2005 (15 portfolios); Trustee, State Farm Variable Product Trust since 2005 (9 portfolios) | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Peter Meenan 12/5/41 | Indefinite; Eclipse Funds: Trustee since 2002 (2 funds); Eclipse Funds Inc.: Director since 2002 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Independent Consultant; President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 66 | None | ||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2006 (21 portfolios). | Managing Director, ICC Capital Management; President—Shields/Alliance, Alliance Capital Management (1994 to 2004) | 66 | None | ||||
Richard S. Trutanic 2/13/52 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 1994 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 2007 (21 portfolios). | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 66 | None | ||||
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Term of Office, | Number of | |||||||
Position(s) Held | Funds in Fund | Other | ||||||
with the Fund | Complex | Directorships | ||||||
Name and | Complex and | Principal Occupation(s) | Overseen by | Held by | ||||
Date of Birth | Length of Service | During Past Five Years | Board Member | Board Member | ||||
Non-Interested Board Members | ||||||||
Roman L. Weil 5/22/40 | Indefinite; Eclipse Funds: Trustee and Audit Committee Financial Expert since 2007 (2 funds); Eclipse Funds Inc.: Director and Audit Committee Financial Expert since 2007 (1 fund); The MainStay Funds: Trustee and Audit Committee Financial Expert since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director and Audit Committee Financial Expert since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1994 and Audit Committee Financial Expert since 2003 (21 portfolios). | Visiting Professor, NYU Stem School of Business, New York University (since 2011); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School of Business, University of Chicago (1965-2008) | 66 | None | ||||
John A. Weisser 10/22/41 | Indefinite; Eclipse Funds: Trustee since 2007 (2 funds); Eclipse Funds Inc.: Director since 2007 (1 fund); The MainStay Funds: Trustee since 2007 (14 funds); MainStay Funds Trust: Trustee since 2009 (28 funds); and MainStay VP Funds Trust: Director since 2011 and its predecessor, MainStay VP Series Fund, Inc., since 1997 (21 portfolios). | Retired. Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 66 | Trustee, Direxion Funds since 2007 (27 portfolios); Direxion Insurance Trust since 2007 (1 portfolio); Trustee, Direxion Shares ETF Trust, since 2008 (50 portfolios) | ||||
36 MainStay Tax Free Bond Fund
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The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.
Positions(s) Held | ||||
Name and | with the Funds | Principal Occupation(s) | ||
Date of Birth | and Length of Service | During Past Five Years | ||
Officers | ||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007); Vice President, Prudential Investments (2000 to 2007); Assistant Treasurer, JennisonDryden Family of Funds, Target Portfolio Trust, The Prudential Series Fund and American Skandia Trust (2006 to 2007); Treasurer and Principal Financial Officer, The Greater China Fund (2007) | ||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance (since 2009), Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Assistant Secretary NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2009); Assistant Secretary, The MainStay Funds and ICAP Funds, Inc. (2006 to 2008); Assistant Secretary, Eclipse Funds, Eclipse Funds, Inc. and MainStay VP Series Fund, Inc. (2005 to 2008) | ||
Stephen P. Fisher 2/22/59 | President, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Director, Senior Vice President, New York Life Insurance and Annuity Corporation (since 2011); Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2007); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2007) | ||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, Eclipse Funds, Eclipse Funds, Inc., The MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2010); Director and Counsel of Credit Suisse, Chief Legal Officer and Secretary of Credit Suisse Asset Management, LLC and Credit Suisse Funds (2003 to 2010) | ||
Scott T. Harrington 2/8/59 | Vice President — Administration, Eclipse Funds, Eclipse Funds, Inc. and The MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Director (since 2009), New York Life Trust Company FSB; Vice President—Administration, MainStay VP Funds Trust and its predecessor, MainStay VP Series Fund, Inc. (since 2005) | ||
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Madison Square Investors LLC, MacKay Shields LLC, Institutional Capital LLC, Epoch Investment Partners, Inc., Markston International, LLC, Winslow Capital Management, Inc., NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one-year term. |
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay offerings is listed here, with information about the manager, subadvisors, legal counsel, and independent registered public accounting firm.
Equity Funds
MainStay 130/30 Core Fund
MainStay Common Stock Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Fund
MainStay Equity Index Fund1
MainStay Growth Equity Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Small Cap Fund
Income Funds
MainStay Flexible Bond Opportunities Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Municipal Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Money Market Fund
MainStay Principal Preservation Fund
MainStay Short Term Bond Fund
MainStay Tax Free Bond Fund
Blended Funds
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
International Funds
MainStay 130/30 International Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay Global High Income Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
Asset Allocation Funds
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
Retirement Funds
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC2
Chicago, Illinois
MacKay Shields LLC2
New York, New York
Madison Square Investors LLC2
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management, Inc.
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firm
KPMG LLP
1. | Closed to new investors and new purchases as of January 1, 2002. |
2. | An affiliate of New York Life Investment Management LLC. |
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mainstayinvestments.com
The MainStay Funds are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC,
169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company.
NYLIFE Distributors is a Member FINRA/SIPC.
MainStay Investments is a registered service mark and name under which New York Life Investment Management LLC does business.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment
advisory products and services.
MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment
advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
© 2012 by NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency | ||||||||
NYLIM-24994 MS284-11 | MST11-12/11 |
N13
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Item 2. Code of Ethics.
As of the end of the period covered by this report, the Registrant has adopted a code of ethics (the “Code”) that applies to the Registrant’s principal executive officer (“PEO”) and principal financial officer (“PFO”). A copy of the Code is filed herewith. The Registrant did not grant any waivers, including implicit waivers, from any provisions of the Code to the PEO or PFO during the period covered by this report.
Item 3. Audit Committee Financial Expert.
The Board of Trustees has determined that the Registrant has two audit committee financial experts serving on its Audit Committee. The Audit Committee financial experts are Alan R. Latshaw and Roman L. Weil. Messrs. Latshaw and Weil are “independent” within the meaning of that term under the Investment Company Act of 1940.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees
The aggregate fees billed for the fiscal year ended October 31, 2011 for professional services rendered by KPMG LLP (“KPMG”) for the audit of the Registrant’s annual financial statements or services that are normally provided by KPMG in connection with statutory and regulatory filings or engagements for that fiscal year were $613,305.
The aggregate fees billed for the fiscal year ended October 31, 2010 for professional services rendered by KPMG for the audit of the Registrant’s annual financial statements or services that are normally provided by KPMG in connection with statutory and regulatory filings or engagements for that fiscal year were $578,705.
(b) Audit-Related Fees
The aggregate fees billed for assurance and related services by KPMG that are reasonably related to the performance of the audit of the Registrant’s financial statements and are not reported under paragraph (a) of this Item were: (i) $0 for the fiscal year ended October 31, 2011, and (ii) $11,500 for the fiscal year ended October 31, 2010. These audit-related services include review of financial highlights for Registrant’s registration statements and issuance of consents to use the auditor’s reports.
(c) Tax Fees
The aggregate fees billed for professional services rendered by KPMG for tax compliance, tax advice, and tax planning were: (i) $63,810 during the fiscal year ended October 31, 2011, and (ii) $90,800 during the fiscal year ended October 31, 2010. These services primarily included preparation of federal, state and local income tax returns and excise tax returns, as well as services relating to excise tax distribution requirements.
(d) All Other Fees
The aggregate fees billed for products and services provided by KPMG, other than the services reported in paragraphs (a) through (c) of this Item were: (i) $0 during the fiscal year ended October 31, 2011, and (ii) $0 during the fiscal year ended October 31, 2010.
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(e) Pre-Approval Policies and Procedures
(1) | The Registrant’s Audit and Compliance Committee has adopted pre-approval policies and procedures (the “Procedures”) to govern the Committee’s pre-approval of (i) all audit services and permissible non-audit services to be provided to the Registrant by its independent accountant, and (ii) all permissible non-audit services to be provided by such independent accountant to the Registrant’s investment adviser and to any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Registrant (collectively, the “Service Affiliates”) if the services directly relate to the Registrant’s operations and financial reporting. In accordance with the Procedures, the Audit and Compliance Committee is responsible for the engagement of the independent accountant to certify the Registrant’s financial statements for each fiscal year. With respect to the pre-approval of non-audit services provided to the Registrant and its Service Affiliates, the Procedures provide that the Audit and Compliance Committee may annually pre-approve a list of the types of services that may be provided to the Registrant or its Service Affiliates, or the Audit and Compliance Committee may pre-approve such services on a project-by-project basis as they arise. Unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit and Compliance Committee if it is to be provided by the independent accountant. The Procedures also permit the Audit and Compliance Committee to delegate authority to one or more of its members to pre-approve any proposed non-audit services that have not been previously pre-approved by the Audit and Compliance Committee, subject to the ratification by the full Audit and Compliance Committee no later than its next scheduled meeting. To date, the Audit and Compliance Committee has not delegated such authority. | ||
(2) | With respect to the services described in paragraphs (b) through (d) of this Item 4, no amount was approved by the Audit and Compliance Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. |
(f) There were no hours expended on KPMG’s engagement to audit the Registrant’s financial statements for the most recent fiscal year attributable to work performed by persons other than KPMG’s full-time, permanent employees.
(g) All non-audit fees billed by KPMG for services rendered to the Registrant for the fiscal years ended October 31, 2011 and October 31, 2010 are disclosed in 4(b)-(d) above.
The aggregate non-audit fees billed by KPMG for services rendered to the Registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the Registrant were approximately: (i) $0 for the fiscal year ended October 31, 2011, and (ii) $0 for the fiscal year ended October 31, 2010.
(h) The Registrant’s Audit and Compliance Committee has determined that the non-audit services rendered by KPMG for the fiscal year ended October 31, 2011 to the Registrant’s investment adviser and any entity controlling, controlled by, or under common control with the Registrant’s investment adviser that provides ongoing services to the Registrant that were not required to be pre-approved by the Audit and Compliance Committee because they did not relate directly to the operations and financial reporting of the registrant were compatible with maintaining the respective independence of KPMG during the relevant time period.
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Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. Schedule of Investments
The Schedule of Investments is included as part of Item 1 of this report.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not Applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Since the Registrant’s last response to this Item, there have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees.
Item 11. Controls and Procedures.
(a) Based on an evaluation of the Registrant’s Disclosure Controls and Procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) (the “Disclosure Controls”), as of a date within 90 days prior to the filing date (the “Filing Date”) of this Form N-CSR (the “Report”), the Registrant’s principal executive officer and principal financial officer have concluded that the Disclosure Controls are reasonably designed to ensure that information required to be disclosed by the Registrant in the Report is recorded, processed, summarized and reported by the Filing Date, including ensuring that information required to be disclosed in the Report is accumulated and communicated to the Registrant’s management, including the Registrant’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d)) under the Investment Company Act of 1940 that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Code of Ethics
(a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2 under the Investment Company Act of 1940.
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(b) Certifications of principal executive officer and principal financial officer as required by Section 906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE MAINSTAY FUNDS
By: | /s/ Stephen P. Fisher | |||
Stephen P. Fisher | ||||
President and Principal Executive Officer | ||||
Date: | January 9, 2012 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: | /s/ Stephen P. Fisher | |||
Stephen P. Fisher | ||||
President and Principal Executive Officer | ||||
Date: | January 9, 2012 | |||
By: | /s/ Jack R. Benintende | |||
Jack R. Benintende | ||||
Treasurer and Principal Financial and Accounting Officer | ||||
Date: | January 9, 2012 |
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EXHIBIT INDEX
(a)(1) | Code of Ethics | |
(a)(2) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2 under the Investment Company Act of 1940. | |
(b) | Certification of principal executive officer and principal financial officer as required by Section 906 of the Sarbanes-Oxley Act of 2002. |