UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-04847
ECLIPSE FUNDS
(Exact name of Registrant as specified in charter)
51 Madison Avenue, New York, NY 10010
(Address of principal executive offices) (Zip code)
Marguerite E. H. Morrison, Esq.
169 Lackawanna Avenue
Parsippany, New Jersey 07054
(Name and address of agent for service)
Registrant's telephone number, including area code: (973) 394-4437
Date of fiscal year end: October 31
Date of reporting period: 11/1/03-10/31/04
ITEM 1. REPORTS TO STOCKHOLDERS.
MAINSTAY(R) FUNDS
Annual Report
October 31, 2004
(MAINSTAY LOGO)
EQUITY FUNDS
MainStay All Cap Growth Fund
MainStay All Cap Value Fund
MainStay Mid Cap Opportunity Fund
MainStay S&P 500 Index Fund
MainStay Small Cap Opportunity Fund
INCOME FUNDS
MainStay Cash Reserves Fund
MainStay Floating Rate Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Short Term Bond Fund
BLENDED FUNDS
MainStay Asset Manager Fund
MainStay Balanced Fund
MESSAGE FROM
THE PRESIDENT
During the 12 months ended October 31, 2004, the U.S. stock market advanced, but
its pace and direction were by no means steady. Small- and mid-capitalization
stocks tended to outperform large-cap issues, and value stocks generally
outperformed growth stocks.
Economic activity, as measured by gross domestic product, increased from 4.2% in
the fourth quarter of 2003 to 4.5% in the first quarter of 2004. The pace of
economic growth slowed to 3.3% in the second quar-
ter of 2004, and according to preliminary estimates from the Bureau of Economic
Analysis, gross domestic product grew at a seasonally adjusted annual rate of
3.9% in the third quarter of 2004.
Interest rates began the reporting period at a low 1.00%. In June 2004, the
Federal Open Market Committee responded to expanding output and improved labor
markets by raising the targeted federal funds rate by 25 basis points. Similar
moves in August and September brought the targeted federal funds rate to 1.75%.
In its September 2004 release, the Federal Open Market Committee affirmed its
belief that monetary policy remained accommodative.
Despite rising interest rates, bond markets generally advanced. High-yield bonds
and emerging-market debt were particularly strong. The U.S. dollar declined
relative to most other currencies, which helped U.S. exporters.
In pursuing its investment objective, each MainStay Fund consistently seeks to
apply a well-defined investment process in all market environments. We believe
that a consistent, disciplined investment approach can help investors make more
prudent and practical decisions regarding their investments.
In the reports that follow, you'll find additional information about the market
forces, investment decisions, and individual securities that affected your
MainStay Fund(s) during the 12 months ended October 31, 2004. We thank you for
investing with us, and we look forward to many years of continued service in
your behalf.
Sincerely,
/s/ GARY E. WENDLANDT
Gary E. Wendlandt
President
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<Table>
Message from the President 1
- ---------------------------------------------------
EQUITY FUNDS
MainStay All Cap Growth Fund 2
- ---------------------------------------------------
MainStay All Cap Value Fund 16
- ---------------------------------------------------
MainStay Mid Cap Opportunity Fund 30
- ---------------------------------------------------
MainStay S&P 500 Index Fund 45
- ---------------------------------------------------
MainStay Small Cap Opportunity Fund 64
- ---------------------------------------------------
INCOME FUNDS
MainStay Cash Reserves Fund 81
- ---------------------------------------------------
MainStay Floating Rate Fund 94
- ---------------------------------------------------
MainStay Indexed Bond Fund 110
- ---------------------------------------------------
MainStay Intermediate Term Bond Fund 132
MainStay Short Term Bond Fund 151
- ---------------------------------------------------
BLENDED FUNDS
MainStay Asset Manager Fund 164
- ---------------------------------------------------
MainStay Balanced Fund 199
- ---------------------------------------------------
Notes to Financial Statements 219
- ---------------------------------------------------
Report of Independent Registered Public
Accounting Firm 234
- ---------------------------------------------------
Board Members and Officers 235
- ---------------------------------------------------
Federal Income Tax Information 237
- ---------------------------------------------------
Proxy Voting Policies and Procedures 237
- ---------------------------------------------------
Shareholder Reports and Quarterly Portfolio
Disclosure 237
</Table>
www.mainstayfunds.com 1
MAINSTAY ALL CAP GROWTH FUND
INVESTMENT AND PERFORMANCE COMPARISON
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY, CURRENT PERFORMANCE MAY
BE LESS OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. FOR CURRENT TO THE MOST RECENT MONTH-END PERFORMANCE
INFORMATION, PLEASE CONTACT 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM.
CLASS A SHARES -- MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges -4.67% -9.28% 6.65%
Excluding sales charges 0.88 -8.25 7.26
</Table>
(LINE GRAPH FOR CLASS A SHARES)
<Table>
<Caption>
MAINSTAY ALL CAP RUSSELL 1000 GROWTH RUSSELL 3000 GROWTH
GROWTH FUND S&P 500 INDEX INDEX LG CAP
---------------- ------------- ------------------- -------------------
10/31/94 9450.00 10000.00 10000.00 10000.00
12253.00 12644.00 12921.00 12835.00
14854.00 15691.00 15770.00 15549.00
18458.00 20729.00 20575.00 20157.00
22168.00 25288.00 25646.00 24268.00
29283.00 31779.00 34429.00 32495.00
32834.00 33715.00 37642.00 35681.00
20248.00 25319.00 22605.00 21645.00
16246.00 21494.00 18171.00 17376.00
18876.00 25965.00 22135.00 21435.00
10/31/04 19042.00 28411.00 22883.00 22193.00
</Table>
<Table>
-- MainStay All Cap Growth Fund -- S&P 500 Index
- - Russell 1000 Growth Index -- Russell 3000 Growth Index
</Table>
CLASS B SHARES -- MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges -4.83% -9.32% 6.29%
Excluding sales charges 0.17 -9.03 6.29
</Table>
(LINE GRAPH FOR CLASS B SHARES)
<Table>
<Caption>
MAINSTAY ALL CAP RUSSELL 1000 GROWTH RUSSELL 3000 GROWTH
GROWTH FUND S&P 500 INDEX INDEX LG CAP
---------------- ------------- ------------------- -------------------
10/31/94 10000.00 10000.00 10000.00 10000.00
12845.00 12644.00 12921.00 12835.00
15455.00 15691.00 15770.00 15549.00
19023.00 20729.00 20575.00 20157.00
22602.00 25288.00 25646.00 24268.00
29553.00 31779.00 34429.00 32495.00
32809.00 33715.00 37642.00 35681.00
20015.00 25319.00 22605.00 21645.00
15942.00 21494.00 18171.00 17376.00
18378.00 25965.00 22135.00 21435.00
10/31/04 18408.00 28411.00 22883.00 22193.00
</Table>
<Table>
-- MainStay All Cap Growth Fund -- S&P 500 Index
- - Russell 1000 Growth Index -- Russell 3000 Growth Index
</Table>
CLASS C SHARES -- MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges -0.78% -9.02% 6.30%
Excluding sales charges 0.22 -9.02 6.30
</Table>
(LINE GRAPH FOR CLASS C SHARES)
<Table>
<Caption>
MAINSTAY ALL CAP RUSSELL 1000 GROWTH RUSSELL 3000 GROWTH
GROWTH FUND S&P 500 INDEX INDEX INDEX
---------------- ------------- ------------------- -------------------
10/31/94 10000.00 10000.00 10000.00 10000.00
12845.00 12644.00 12921.00 12835.00
15455.00 15691.00 15770.00 15549.00
19023.00 20729.00 20575.00 20157.00
22602.00 25288.00 25646.00 24268.00
29553.00 31779.00 34429.00 32495.00
32809.00 33715.00 37642.00 35681.00
20015.00 25319.00 22605.00 21645.00
15942.00 21494.00 18171.00 17376.00
18378.00 25965.00 22135.00 21435.00
10/31/04 18418.00 28411.00 22883.00 22193.00
</Table>
<Table>
-- MainStay All Cap Growth Fund -- S&P 500 Index
- - Russell 1000 Growth Index -- Russell 3000 Growth Index
</Table>
Performance tables and graphs do not reflect the deduction of taxes that a
shareholder would pay on distributions or Fund-share redemptions. Total returns
reflect change in share price, reinvestment of dividend and capital-gain
distributions, and maximum applicable sales charges explained in this paragraph.
The graphs assume an initial investment of $10,000 and reflect the deduction of
all sales charges that would have applied for the period of investment. Class A
shares are sold with a maximum initial sales charge of 5.5% and an annual 12b-1
fee of .25%. Class B shares are sold with no initial sales charge, are subject
to a contingent deferred sales charge (CDSC) of up to 5% if redeemed within the
first six years of purchase, and have an annual 12b-1 fee of 1.00%. Class C
shares are sold with no initial sales charge, are subject to a CDSC of 1% if
redeemed within one year of purchase, and have an annual 12b-1 fee of 1.00%.
Class I shares are sold with no initial sales charge or CDSC, have no annual
12b-1 fee, and are generally available to corporate and institutional investors
with a minimum initial investment of $5 million. Performance figures reflect
certain fee waivers and/or expense limitations, without which total returns may
have been lower. The fee waivers and/or expense limitations are voluntary and
may be discontinued at any time. Performance for Class A, B, and C shares, first
offered 1/2/04, includes the historical performance of Class I shares from
inception (1/2/91) through 12/31/03 adjusted to reflect the applicable sales
charge (or CDSC) and fees and expenses for Class A, B, and C shares.
THE DISCLOSURE AND FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THESE
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
2 MainStay All Cap Growth Fund
CLASS I SHARES -- NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
1.29% -8.07% 7.47%
</Table>
(LINE GRAPH FOR CLASS I SHARES)
<Table>
<Caption>
MAINSTAY ALL CAP RUSSELL 1000 GROWTH RUSSELL 3000 GROWTH
GROWTH FUND S&P 500 INDEX INDEX INDEX
---------------- ------------- ------------------- -------------------
10/31/94 10000 10000 10000 10000
12995 12644 12921 12835
15789 15691 15770 15549
19663 20729 20575 20157
23654 25288 25646 24268
31291 31779 34429 32495
35122 33715 37642 35681
21656 25319 22605 21645
17416 21494 18171 17376
20286 25965 22135 21435
10/31/04 20547 28411 22883 22193
</Table>
<Table>
-- MainStay All Cap Growth Fund -- S&P 500 Index
- - Russell 1000 Growth Index -- Russell 3000 Growth Index
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
S&P 500(R) Index(1) 9.42% -2.22% 11.01%
Russell 1000(R) Growth Index(2) 3.38 -7.85 8.63
Russell 3000(R) Growth Index(3) 3.54 -7.34 8.30
Average Lipper large-cap growth
fund(4) 2.67 -6.49 7.31
</Table>
1. "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500(R)
is an unmanaged index and is widely regarded as the standard for measuring
large-cap U.S. stock-market performance. Results assume reinvestment of all
income and capital gains. An investment cannot be made directly into an
index.
2. The Russell 1000(R) Growth Index is an unmanaged index that measures the
performance of those Russell 1000(R) companies with higher price-to-book
ratios and higher forecasted growth values. The Russell 1000(R) Index is an
unmanaged index that measures the performance of the 1,000 largest U.S.
companies based on total market capitalization. Results assume reinvestment
of all income and capital gains. An investment cannot be made directly into
an index.
3. MainStay All Cap Growth Fund, going forward, will measure its performance
against the Russell 3000(R) Growth Index. The Russell 3000(R) Growth Index is
an unmanaged index that measures the performance of those Russell 3000(R)
Index companies with higher price-to-book ratios and higher forecasted growth
values. The Russell 3000(R) Index measures the performance of the 3,000
largest U.S. companies based on total market capitalization. Total returns
assume reinvestment of all dividends and capital gains. The Russell 3000(R)
Growth Index is considered to be the Fund's broad-based securities-market
index for comparison purposes. An investment cannot be made directly into an
index.
4. Lipper Inc. is an independent fund performance monitor. Results are based on
total returns with all dividend and capital-gain distributions reinvested.
THE DISCLOSURE AND FOOTNOTES ON THE PRECEDING PAGE ARE AN INTEGRAL PART OF THESE
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
www.mainstayfunds.com 3
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY ALL CAP GROWTH FUND
Expenses shown in the table are meant to highlight your ongoing costs only and
do not reflect any transactional costs, such as sales charges (loads),
redemption fees, or exchange fees. Therefore, the third data column of the table
is 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 had been included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT ENDING ACCOUNT
VALUE (BASED VALUE (BASED
BEGINNING ON ACTUAL EXPENSES ON HYPOTHETICAL EXPENSES
ACCOUNT RETURNS AND PAID 5% ANNUALIZED PAID
VALUE EXPENSES) DURING RETURN AND DURING
SHARE CLASS(1) 5/1/04 10/31/04 PERIOD ACTUAL EXPENSES) PERIOD
CLASS A SHARES $1,000.00 $982.25 $ 6.53 $1,018.45 $ 6.65
- ------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $977.90 $10.24 $1,014.70 $10.43
- ------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $977.90 $10.24 $1,014.70 $10.43
- ------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $984.85 $ 4.64 $1,020.35 $ 4.72
- ------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio multiplied by the
average account value over the period, divided by 366, multiplied by 184 (to
reflect the one-half year period).
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2004
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
<Caption>
SHORT-TERM INVESTMENTS
(COLLATERAL FROM SECURITIES LIABILITIES IN EXCESS OF CASH AND
COMMON STOCK LENDING IS 2.5%) OTHER ASSETS
- ------------ --------------------------- ---------------------------------
94.7 8.0 -2.7
</Table>
See Portfolio of Investments on page 7 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2004 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. UnitedHealth Group, Inc.
2. Danaher Corp.
3. FedEx Corp.
4. Symantec Corp.
5. Illinois Tool Works, Inc.
6. Target Corp.
7. Praxair, Inc.
8. Capital One Financial Corp.
9. Kohl's Corp.
10. Lowe's Cos., Inc.
</Table>
4 MainStay All Cap Growth Fund
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio managers John Butler, Rudolph C. Carryl, Robert
Centrella, Denise Higgins, Helena Openshaw, and Edmund C. Spelman of MacKay
Shields LLC
HOW HAS THE FUND'S PORTFOLIO MANAGEMENT MANDATE CHANGED?
Prior to January 2004, the Fund was known as Eclipse Growth Equity Fund, and it
invested primarily in large-cap growth stocks. As its new name implies, MainStay
All Cap Growth Fund has the flexibility to diversify its portfolio without
capitalization restrictions. We have repositioned the portfolio to reflect this
added flexibility. MainStay All Cap Growth Fund, going forward, will measure its
performance against the Russell 3000(R) Growth Index.(1)
CAN YOU BRIEFLY DESCRIBE THE FUND'S INVESTMENT APPROACH?
The Fund normally invests in securities that have growth characteristics and
that span the entire range of market capitalizations as described by the Russell
3000(R) Growth Index. The Fund normally invests at least 80% of its assets in
equity securities. In implementing this strategy, the Fund normally invests in
securities of companies with investment characteristics such as: participation
in expanding product or service markets; increasing unit sales volume; growth in
revenues and earnings per share superior to that of the average of common stocks
comprising indices such as the S&P 500(R) Index;(2) and increasing return on
investment. The Fund maintains a flexible approach and may invest in various
types of companies and securities. We look for companies and securities that we
feel are ready for a rise in price or may experience acceleration in growth of
earnings, possibly as a result of changes in management, products, consumer
demand, or the economy. We may sell a security if we no longer believe it will
contribute to meeting the Fund's investment objective.
WHAT KEY FACTORS INFLUENCED THE EQUITY MARKETS DURING THE 12 MONTHS ENDED
OCTOBER 31, 2004?
Arguably the biggest factor was the 78% rise in the price of crude oil, since it
stoked inflation fears and put a damper on consumer spending. Middle Eastern
tensions, news from Iraq, and concerns about another domestic terrorist attack
all had an impact on the markets. Uncertainty over the 2004 presidential
election also weighed on investors' minds.
WHAT DECISIONS HAD THE BIGGEST INFLUENCE ON THE FUND'S PERFORMANCE?
Individual security selection in the consumer discretionary, information
technology, and consumer staples sectors was largely responsible for the Fund's
underperformance during the reporting period. Sector weightings in the Fund are
largely a result of our bottom-up stock-selection process and our focus on
individual security selection. On this basis, the Fund held an underweighted
position relative to its benchmark in information technology. The Fund's
information technology holdings had a negative impact on relative performance.
Our individual security-selection decisions also resulted in overweighted
positions in the consumer discretionary, materials, industrials, and energy
sectors and an underweighted position in consumer staples and health care, all
of which helped the performance of the Fund relative to its benchmark.
WHICH INDIVIDUAL SECURITIES HAD THE GREATEST POSITIVE IMPACT ON THE FUND'S
PERFORMANCE DURING THE REPORTING PERIOD?
Symantec, a leading provider of Internet-security software, showed consistently
strong earnings growth and made a significant contribution to the Fund's
performance. UnitedHealth Group's earnings and top-line growth benefited from a
recent alliance with top-tier regional health plans and plan administrators that
led to network savings and accelerated membership growth. Danaher benefited from
a realignment strategy that focused on enhancing earnings growth through
strategic acquisitions. Earnings-per-share growth rose from 3% in 2002 to 20% in
2003 and is projected to rise to 39% for 2004. Illinois Tool Works benefited
from the economic recovery and the accompanying increase in business capital
investment. Accelerating growth in earnings has helped propel the company's
stock price higher. Harley-Davidson, the motorcycle company, managed to
outperform analysts' earnings estimates by maintaining strong sales and
expanding margins.
WHICH STOCKS DETRACTED FROM THE FUND'S PERFORMANCE?
VERITAS Software is a leading vendor of enterprise storage management products.
After achieving a 52-week high in mid-January of this year, the stock fell on
concerns about accounting irregularities,
Mid-capitalization companies are generally less established and their stocks may
be more volatile and less liquid than the securities of larger companies. Stocks
of small companies may be subject to greater price volatility, significantly
lower trading volumes, and greater spreads between bid and ask prices than
stocks of larger companies. Small companies may be more vulnerable to adverse
business or market developments than mid- or large-capitalization companies.
1. See footnote on page 3 for more information on the Russell 3000(R) Growth
Index.
2. See footnote on page 3 for more information on the S&P 500(R) Index.
www.mainstayfunds.com 5
failure to meet analysts' top-line expectations in early July, and competitive
issues. Despite recent improvements, the stock hurt performance.
New York Community Bancorp (the holding company for New York Community Bank)
suffered from concerns that rising interest rates might affect the bank's
variable-rate debt, possibly creating a margin squeeze. In response to this
situation, we sold the holding company's stock in October.
Intel, Applied Materials, and Texas Instruments were all affected by a slowdown
in semiconductor orders. Although all three stocks have begun to recover, they
all detracted from the Fund's performance during the reporting period.
WERE THERE ANY SIGNIFICANT PURCHASES DURING THE 12 MONTHS ENDED OCTOBER 31,
2004?
The Fund purchased coal producer Peabody Energy, which is poised to benefit as
high oil prices in-
creased demand for coal. We also purchased shares of Harmon International, the
leader in high-end automotive audio systems. The company is expected to enjoy
increasing market share and strong growth in sales and earnings. We purchased
shares of Brunswick for the Fund to take advantage of a strong rebound in demand
for the company's boats. We purchased Doral Financial, the leading mortgage bank
in Puerto Rico, as strong local housing demand began to fuel significant
earnings gains. We also purchased shares of Roper Industries, a diversified
manufacturer that saw increased demand for its products as manufacturing
activity increased. All of these holdings had a positive impact on performance
for the portion of the reporting period they were held in the Fund.
WHICH SECURITIES DID YOU SELL DURING THE REPORTING PERIOD?
We sold our position in insurance broker Marsh & McLennan on concerns over
slowing growth. The sale proved positive for the Fund when the stock
subsequently declined more than 35% because of an investigation into the
company's insurance sales practices. We sold Baxter International after the
company was unable to effect a turnaround and establish growth in a major
product line. The stock had done well for the Fund and closed the reporting
period not far from our sale price. When demand for Coke products slowed and
margins declined, we sold the Fund's Coca-Cola shares about 25% above the share
price at the end of the reporting period. Broadcast services company Clear
Channel Communications had seen a decline in advertising revenues, and we
eliminated the position from the Fund, with a neutral impact for the reporting
period.
HOW DID THE FUND'S SECTOR WEIGHTINGS CHANGE OVER THE 12-MONTH REPORTING PERIOD?
Any changes in the Fund's sector weightings reflect our decisions about
individual securities, based on bottom-up stock selection and careful sell
disciplines. Although we do not engage in top-down sector evaluations, our
bottom-up stock selection process led to an increase in the Fund's weighting in
consumer discretionary stocks from 18.2% at the beginning of the reporting
period to 26.9% at the end. The Fund's energy holdings, which stood at 1.6% of
net assets on October 31, 2003, increased to 4.8% of net assets on October 31,
2004. Industrials holdings increased from 11.5% at the beginning of the
reporting period to 17.0% at the end.
We trimmed the Fund's consumer staples weighting from 8.4% at the beginning of
the reporting period to 1.3% at the end. Over the same period, financials moved
from 10.5% to 8.1%, health care from 19.6% to 18.2%, and information technology
from 26.9% to 17.8% of net assets.
HOW DID THIS COMPARE WITH THE RUSSELL 3000(R) GROWTH INDEX?
As of October 31, 2004, the Fund was overweighted relative to the Russell
3000(R) Growth Index in the consumer discretionary, energy, industrials, and
materials sectors. On the same date, the Fund was underweighted relative to the
Index in consumer staples, financials, health care, and information technology.
The Fund had no holdings in the telecommunication services or utilities sectors.
WHAT IS YOUR OUTLOOK FOR THE FUND IN THE COMING MONTHS?
With the uncertainty of the presidential election now behind us, we expect
investors to refocus their attention on market fundamentals. Although high
energy prices and the threat of terrorism remain risk factors, we believe that a
combination of a low interest-rate environment and moderate economic growth may
support decent stock price action going forward.
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.
INFORMATION ABOUT MAINSTAY ALL CAP GROWTH FUND ON THIS PAGE AND THE PRECEDING
PAGES HAS NOT BEEN AUDITED.
6 MainStay All Cap Growth Fund
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (94.7%)+
- -----------------------------------------------------------------------------
AEROSPACE & DEFENSE (2.8%)
L-3 Communications
Holdings, Inc. 45,900 $ 3,026,187
United Technologies Corp. 49,900 4,631,718
------------
7,657,905
------------
AIR FREIGHT & LOGISTICS (2.3%)
VFedEx Corp. 69,600 6,341,952
------------
AUTOMOBILES (2.3%)
Harley-Davidson, Inc. 78,900 4,542,273
Winnebago Industries, Inc. 56,500 1,774,100
------------
6,316,373
------------
BIOTECHNOLOGY (2.9%)
Amgen, Inc. (a) 60,200 3,419,360
Genentech, Inc. (a) 32,900 1,497,937
Gilead Sciences, Inc. (a)(c) 79,600 2,756,548
------------
7,673,845
------------
CAPITAL MARKETS (1.4%)
Morgan Stanley 75,900 3,877,731
------------
CHEMICALS (2.0%)
VPraxair, Inc. 130,100 5,490,220
------------
COMMERCIAL SERVICES & SUPPLIES (1.6%)
Cendant Corp. 208,800 4,299,192
------------
COMMUNICATIONS EQUIPMENT (1.0%)
Avaya, Inc. (a) 193,500 2,786,400
------------
COMPUTERS & PERIPHERALS (1.8%)
Dell, Inc. (a) 106,200 3,723,372
Hewlett-Packard Co. 65,800 1,227,828
------------
4,951,200
------------
CONSTRUCTION MATERIALS (0.9%)
Eagle Materials, Inc. 33,742 2,331,910
------------
CONSUMER FINANCE (3.0%)
American Express Co. 54,000 2,865,780
VCapital One Financial Corp. 69,600 5,133,696
------------
7,999,476
------------
DIVERSIFIED FINANCIAL SERVICES (1.3%)
Citigroup, Inc. 79,293 3,518,230
------------
ELECTRICAL EQUIPMENT (1.0%)
Roper Industries, Inc. 42,900 2,645,214
------------
</Table>
<Table>
<Caption>
SHARES VALUE
ELECTRONIC EQUIPMENT & INSTRUMENTS (2.1%)
Agilent Technologies, Inc. (a) 90,500 $ 2,267,930
Amphenol Corp. Class A (a) 101,100 3,470,763
------------
5,738,693
------------
ENERGY EQUIPMENT & SERVICES (3.6%)
Baker Hughes, Inc. 75,400 3,229,382
BJ Services Co. 62,000 3,162,000
Weatherford International Ltd. (a) 64,600 3,375,996
------------
9,767,378
------------
FOOD & STAPLES RETAILING (1.3%)
Walgreen Co. 94,900 3,405,961
------------
HEALTH CARE EQUIPMENT & SUPPLIES (5.8%)
Boston Scientific Corp. (a) 119,200 4,207,760
Cooper Cos., Inc. 31,900 2,244,165
Fisher Scientific
International, Inc. (a) 75,600 4,336,416
Medtronic, Inc. 92,600 4,732,786
------------
15,521,127
------------
HEALTH CARE PROVIDERS & SERVICES (7.2%)
Caremark Rx, Inc. (a) 117,400 3,518,478
PacifiCare Health Systems, Inc. (a) 75,000 2,671,500
VUnitedHealth Group, Inc. 99,452 7,200,325
WellChoice, Inc. (a) 30,000 1,252,800
WellPoint Health Networks, Inc. (a) 49,400 4,824,404
------------
19,467,507
------------
HOUSEHOLD DURABLES (9.0%)
Centex Corp. 82,500 4,285,050
Harman International
Industries, Inc. 21,600 2,595,888
Hovnanian Enterprises, Inc. Class A (a) 84,600 3,175,884
Lennar Corp. 89,600 4,030,208
Mohawk Industries, Inc. (a) 42,800 3,641,424
Toro Co. (The) 39,700 2,709,525
WCI Communities, Inc. (a) 169,000 3,988,400
------------
24,426,379
------------
IT SERVICES (1.0%)
First Data Corp. 67,700 2,794,656
------------
LEISURE EQUIPMENT & PRODUCTS (1.1%)
Brunswick Corp. 63,000 2,955,960
------------
+ Percentages indicated are based on Fund net assets.
V Among the Fund's 10 largest holdings, excluding short-term investments. May
be subject to change daily.
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com 7
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------
MACHINERY (7.4%)
VDanaher Corp. 117,600 $ 6,483,288
Dover Corp. 126,700 4,975,509
VIllinois Tool Works, Inc. 61,600 5,684,448
Terex Corp. (a) 75,000 2,850,000
------------
19,993,245
------------
MEDIA (1.1%)
Omnicom Group, Inc. 37,800 2,982,420
------------
METALS & MINING (2.6%)
Arch Coal, Inc. 98,700 3,209,724
Peabody Energy Corp. 61,000 3,890,580
------------
7,100,304
------------
MULTILINE RETAIL (3.9%)
VKohl's Corp. (a) 99,500 5,050,620
VTarget Corp. 111,000 5,552,220
------------
10,602,840
------------
OIL & GAS (1.0%)
Newfield Exploration Co. (a) 45,000 2,619,000
------------
PHARMACEUTICALS (1.5%)
Pfizer, Inc. 66,600 1,928,070
Teva Pharmaceutical
Industries Ltd. ADR (b) 83,900 2,181,400
------------
4,109,470
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (5.1%)
Analog Devices, Inc. 66,200 2,665,212
Applied Materials, Inc. (a) 135,600 2,183,160
Intel Corp. 85,200 1,896,552
KLA-Tencor Corp. (a) 55,300 2,517,809
Maxim Integrated Products, Inc. 44,700 1,966,353
Texas Instruments, Inc. 101,900 2,491,455
------------
13,720,541
------------
SOFTWARE (5.7%)
Electronic Arts, Inc. (a) 59,700 2,681,724
FactSet Research Systems, Inc. 65,700 3,274,488
Microsoft Corp. 57,400 1,606,626
VSymantec Corp. (a) 101,900 5,802,186
VERITAS Software Corp. (a) 98,400 2,152,992
------------
15,518,016
------------
</Table>
<Table>
<Caption>
SHARES VALUE
SPECIALTY RETAIL (7.7%)
Advanced Auto Parts, Inc. (a) 46,200 $ 1,807,344
Bed Bath & Beyond, Inc. (a) 112,600 4,592,954
Best Buy Co., Inc. 24,100 1,427,202
Chico's FAS, Inc. (a)(c) 76,500 3,062,295
VLowe's Cos., Inc. 89,300 5,025,804
TJX Cos., Inc. (The) 204,500 4,903,910
------------
20,819,509
------------
TEXTILES, APPAREL & LUXURY GOODS (1.3%)
Coach, Inc. (a) 76,700 3,576,521
------------
THRIFTS & MORTGAGE FINANCE (2.0%)
Doral Financial Corp. (c) 61,600 2,585,968
IndyMac Bancorp, Inc. 86,400 2,787,264
------------
5,373,232
------------
Total Common Stocks
(Cost $215,703,655) 256,382,407
------------
<Caption>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS (8.0%)
- -----------------------------------------------------------------------------
COMMERCIAL PAPER (5.5%)
American Express Credit Corp.
1.80%, due 11/18/04 $1,190,000 1,188,988
Morgan Stanley Dean Witter & Co.
1.81%, due 11/9/04 6,635,000 6,632,331
UBS Finance (Delaware) LLC
1.84%, due 11/1/04 7,000,000 7,000,000
------------
Total Commercial Paper
(Cost $14,821,319) 14,821,319
------------
SHARES
INVESTMENT COMPANY (0.2%)
AIM Institutional Funds Group (d) 424,050 424,050
------------
Total Investment Company
(Cost $424,050) 424,050
------------
PRINCIPAL
AMOUNT
MASTER NOTE (0.3%)
Banc of America Securities LLC
1.955%, due 11/1/04 (d) $1,000,000 1,000,000
------------
Total Master Note
(Cost $1,000,000) 1,000,000
------------
</Table>
8 MainStay All Cap Growth Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONTINUED)
- -----------------------------------------------------------------------------
REPURCHASE AGREEMENTS (2.0%)
Credit Suisse First Boston LLC 1.925%, dated
10/29/04
due 11/1/04
Proceeds at Maturity $500,080 (d)
(Collateralized by Various Bonds with a
Principal Amount of $501,406 and a Market Value
of $510,026) $ 500,000 $ 500,000
Lehman Brothers, Inc.
1.925%, dated 10/29/04
due 11/1/04
Proceeds at Maturity $3,480,558 (d)
(Collateralized by Various Bonds with a
Principal Amount of $6,933,987 and a Market
Value of $3,589,301) 3,480,000 3,480,000
Merrill Lynch Pierce Fenner & Smith, Inc.
1.955%, dated 10/29/04
due 11/1/04
Proceeds at Maturity $1,500,244 (d)
(Collateralized by Various Bonds with a
Principal Amount of $1,483,332 and a Market
Value of $1,575,025) 1,500,000 1,500,000
------------
Total Repurchase Agreements
(Cost $5,480,000) 5,480,000
------------
Total Short-Term Investments
(Cost $21,725,369) 21,725,369
------------
Total Investments
(Cost $237,429,024) (e) 102.7% 278,107,776(f)
Liabilities in Excess of
Cash and Other Assets (2.7) (7,439,459)
---------- ------------
Net Assets 100.0% $270,668,317
========== ============
</Table>
<Table>
(a) Non-income producing security.
(b) ADR-American Depositary Receipt.
(c) Represents securities out on loan or a portion which is
out on loan.
(d) Represents a security or a portion thereof, purchased
with cash collateral received for securities on loan.
(e) The cost for federal income tax purposes is
$238,118,936.
(f) At October 31, 2004 net unrealized appreciation was
$39,988,840, based on cost for federal income tax
purposes. This consisted of aggregate gross unrealized
appreciation for all investments on which there was an
excess of market value over cost of $45,559,907 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $5,571,067.
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com 9
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2004
<Table>
ASSETS:
Investment in securities, at value (identified
cost $237,429,024) including $6,637,296
market value of securities loaned $278,107,776
Cash 3,398
Receivables:
Fund shares sold 244,152
Dividends and interest 52,079
Other assets 17,110
------------
Total assets 278,424,515
------------
LIABILITIES:
Securities lending collateral 6,904,050
Payables:
Fund shares redeemed 557,754
Manager 200,426
Professional 34,055
Transfer agent 28,018
Custodian 5,894
NYLIFE Distributors 5,659
Directors 3,172
Accrued expenses 17,170
------------
Total liabilities 7,756,198
------------
Net assets $270,668,317
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
1 billion shares authorized:
Class A $ 694
Class B 190
Class C 29
Class I 13,440
Additional paid-in capital 283,500,048
Accumulated net realized loss on investments (53,524,836)
Net unrealized appreciation on investments 40,678,752
------------
Net assets $270,668,317
============
CLASS A
Net assets applicable to outstanding shares $ 12,715,642
============
Shares of capital stock outstanding 694,016
============
Net asset value per share outstanding $ 18.32
Maximum sales charge (5.50% of offering price) 1.07
------------
Maximum offering price per share outstanding $ 19.39
============
CLASS B
Net assets applicable to outstanding shares $ 3,453,198
============
Shares of capital stock outstanding 189,621
============
Net asset value and offering price per share
outstanding $ 18.21
============
CLASS C
Net assets applicable to outstanding shares $ 531,807
============
Shares of capital stock outstanding 29,189
============
Net asset value and offering price per share
outstanding $ 18.22
============
CLASS I
Net assets applicable to outstanding shares $253,967,670
============
Shares of capital stock outstanding 13,440,418
============
Net asset value and offering price per share
outstanding $ 18.90
============
</Table>
10 MainStay All Cap Growth Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2004
<Table>
INVESTMENT INCOME:
INCOME:
Dividends (a) $ 2,238,252
Interest 34,847
Income from securities loaned -- net 8,290
-----------
Total income 2,281,389
-----------
EXPENSES:
Manager 2,753,532
Professional 97,554
Directors 36,470
Shareholder communication 36,381
Custodian 33,168
Registration 30,138
Transfer agent -- Classes A, B and C 24,715
Transfer agent -- Class I 177,311
Service -- Class A 24,539
Service -- Class B 3,278
Service -- Class C 524
Service -- Service Class 4,875
Distribution -- Class B 9,834
Distribution -- Class C 1,572
Miscellaneous 34,779
-----------
Total expenses before reimbursement 3,268,670
Expense reimbursement from Manager (194,726)
-----------
Net expenses 3,073,944
-----------
Net investment loss (792,555)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (8,874,030)
Net change in unrealized appreciation on
investments 16,270,396
-----------
Net realized and unrealized gain on investments 7,396,366
-----------
Net increase in net assets resulting from
operations $ 6,603,811
===========
</Table>
(a) Dividends recorded net of foreign withholding taxes in the amount of $6,521.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
11
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003
<Table>
<Caption>
2004 2003
INCREASE (DECREASE)
IN NET ASSETS:
Operations:
Net investment loss $ (792,555) $ (142,962)
Net realized loss on investments
and
written option transactions (8,874,030) (2,856,949)
Net change in unrealized
appreciation (depreciation) on
investments and written option
transactions 16,270,396 53,772,257
----------------------------
Net increase in net assets
resulting from operations 6,603,811 50,772,346
----------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 14,849,376 --
Class B 3,689,513 --
Class C 581,639 --
Class I 33,439,885 49,738,142
Service Class 375,349 3,583,519
----------------------------
52,935,762 53,321,661
Cost of shares redeemed:
Class A (1,698,238) --
Class B (159,295) --
Class C (37,859) --
Class I (128,896,797) (76,228,177)
Service Class (11,412,859) (4,891,991)
----------------------------
(142,205,048) (81,120,168)
----------------------------
Decrease in net assets derived
from capital share
transactions (89,269,286) (27,798,507)
----------------------------
Net increase (decrease) in net
assets (82,665,475) 22,973,839
NET ASSETS:
Beginning of year 353,333,792 330,359,953
----------------------------
End of year $ 270,668,317 $353,333,792
============================
</Table>
12 MainStay All Cap Growth Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
This page intentionally left blank
13
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A CLASS B CLASS C
----------- ----------- -----------
JANUARY 2, JANUARY 2, JANUARY 2,
2004* 2004* 2004*
THROUGH THROUGH THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31,
2004 2004 2004
Net asset value at beginning of period $ 18.99 $18.99 $18.99
------- ------ ------
Net investment loss (a) (0.10) (0.22) (0.23)
Net realized and unrealized gain (loss) on
investments (0.57) (0.56) (0.54)
------- ------ ------
Total from investment operations (0.67) (0.78) (0.77)
------- ------ ------
Less distributions:
From net realized gain on investments -- -- --
------- ------ ------
Net asset value at end of period $ 18.32 $18.21 $18.22
======= ====== ======
Total investment return (b) (3.53%)(c) (4.11%)(c) (4.05%)(c)
Ratios (to average net
assets)/Supplemental Data:
Net investment loss (0.61%)+ (1.36%)+ (1.36%)+
Net expenses 1.31%+ 2.06%+ 2.06%+
Expenses (before reimbursement) 1.37%+ 2.12%+ 2.12%+
Portfolio turnover rate 44% 44% 44%
Net assets at end of period (in 000's) $12,716 $3,453 $ 532
</Table>
<Table>
<Caption>
SERVICE CLASS++
-------------------------------------------------------
NOVEMBER 1,
2003
THROUGH
JANUARY 9, YEAR ENDED OCTOBER 31,
2004 2003 2002 2001 2000
Net asset value at beginning
of period $18.16 $ 15.63 $ 19.49 $ 36.88 $ 35.99
------ ------- ------- ------- -------
Net investment loss (a) (0.01) (0.05) (0.09) (0.14) (0.29)
Net realized and unrealized
gain (loss) on investments 0.97 2.58 (3.77) (12.55) 4.59
------ ------- ------- ------- -------
Total from investment
operations 0.96 2.53 (3.86) (12.69) 4.30
------ ------- ------- ------- -------
Less distributions:
From net realized gain on
investments -- -- -- (4.70) (3.41)
------ ------- ------- ------- -------
Net asset value at end of
period $19.12 $ 18.16 $ 15.63 $ 19.49 $ 36.88
====== ======= ======= ======= =======
Total investment return (b) 5.29%(c) 16.19% (19.81%) (38.49%) 11.93%
Ratios (to average net
assets)/Supplemental Data:
Net investment loss (0.26%)+ (0.29%) (0.47%) (0.57%) (0.77%)
Net expenses 1.18%+ 1.18% 1.18% 1.18% 1.18%
Expenses (before
reimbursement) 1.26%+ 1.27% 1.27% 1.23% 1.18%
Portfolio turnover rate 44% 35% 63% 35% 48%
Net assets at end of period
(in 000's) $ 0 $10,573 $10,301 $14,732 $24,732
</Table>
<Table>
* Commencement of Operations.
** The Fund changed its fiscal year end from December 31 to
October 31.
+ Annualized.
++ Service Class shares ceased operations on January 9, 2004.
(a) Per share data based on average shares outstanding during
the period.
(b) Total return is calculated exclusive of sales charges. Class
I and Service Class are not subject to sales charges.
(c) Total return is not annualized.
</Table>
14 MainStay All Cap Growth Fund The notes to the financial statements are
an integral part of, and should be read in conjunction with, the financial
statements.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS I
- -----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2004 2003 2002 2001 2000
$ 18.66 $ 16.02 $ 19.92 $ 37.50 $ 36.45
-------- -------- -------- -------- ----------
(0.04) (0.01) (0.04) (0.09) (0.20)
0.28 2.65 (3.86) (12.79) 4.66
-------- -------- -------- -------- ----------
0.24 2.64 (3.90) (12.88) 4.46
-------- -------- -------- -------- ----------
-- -- -- (4.70) (3.41)
-------- -------- -------- -------- ----------
$ 18.90 $ 18.66 $ 16.02 $ 19.92 $ 37.50
======== ======== ======== ======== ==========
1.29% 16.48% (19.58%) (38.34%) 12.24%
(0.23%) (0.04%) (0.22%) (0.32%) (0.52%)
0.93% 0.93% 0.93% 0.93% 0.93%
0.99% 1.02% 1.02% 0.98% 0.93%
44% 35% 63% 35% 48%
$253,968 $342,761 $320,059 $436,898 $1,197,216
</Table>
<Table>
<Caption>
SERVICE CLASS++
--------------------------
JANUARY 1,
1999
THROUGH YEAR ENDED
OCTOBER 31, DECEMBER 31,
1999** 1998
$ 33.13 $ 25.24
------- -------
(0.21) (0.16)
3.41 10.26
------- -------
3.20 10.10
------- -------
(0.34) (2.21)
------- -------
$ 35.99 $ 33.13
======= =======
9.74%(c) 40.18%
(0.74%)+ (0.56%)
1.18%+ 1.19%
1.18%+ 1.19%
27% 29%
$25,987 $15,814
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
15
MAINSTAY ALL CAP VALUE FUND
INVESTMENT AND PERFORMANCE COMPARISON
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY, CURRENT PERFORMANCE MAY
BE LESS OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. FOR CURRENT TO THE MOST RECENT MONTH-END PERFORMANCE
INFORMATION, PLEASE CONTACT 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM.
CLASS A SHARES -- MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 5.43% 1.79% 7.21%
Excluding sales charges 11.57 2.95 7.82
</Table>
(LINE GRAPH FOR CLASS A SHARES)
<Table>
<Caption>
CLASS A S&P 500 RUSSELL 1000 VALUE RUSSELL 3000 VALUE
------- ------- ------------------ ------------------
10/31/94 9450 10000 10000 10000
10962 12644 12471 12378
13427 15691 15431 15260
16546 20729 20552 20384
16333 25288 23599 22952
17343 31779 27500 26458
19254 33715 29017 28128
17806 25319 25575 25149
14841 21494 23012 22774
17976 25965 28276 28254
10/31/04 20056 28411 32646 32672
</Table>
<Table>
-- MainStay All Cap Value Fund -- S&P 500 Index
- - Russell 1000 Value Index -- Russell 3000 Value Index
</Table>
CLASS B SHARES -- MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 5.83% 1.86% 7.07%
Excluding sales charges 10.83 2.22 7.07
</Table>
(LINE GRAPH FOR CLASS B SHARES)
<Table>
<Caption>
MAINSTAY ALL CAP RUSSELL 1000 VALUE RUSSELL 3000 VALUE
VALUE FUND S&P 500 INDEX INDEX INDEX
---------------- ------------- ------------------ ------------------
10/31/94 10000.00 10000.00 10000.00 10000.00
11522.00 12644.00 12471.00 12378.00
14001.00 15691.00 15431.00 15260.00
17147.00 20729.00 20552.00 20384.00
16809.00 25288.00 23599.00 22952.00
17733.00 31779.00 27500.00 26458.00
19546.00 33715.00 29017.00 28128.00
17943.00 25319.00 25575.00 25149.00
14856.00 21494.00 23012.00 22774.00
17859.00 25965.00 28276.00 28254.00
10/31/04 19793.00 28411.00 32646.00 32672.00
</Table>
<Table>
-- MainStay All Cap Value Fund -- S&P 500 Index
- - Russell 1000 Value Index -- Russell 3000 Value Index
</Table>
CLASS C SHARES -- MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 9.83% 2.22% 7.07%
Excluding sales charges 10.83 2.22 7.07
</Table>
(LINE GRAPH FOR CLASS C SHARES)
<Table>
<Caption>
MAINSTAY ALL CAP RUSSELL 1000 VALUE RUSSELL 3000 VALUE
VALUE FUND S&P 500 INDEX INDEX INDEX
---------------- ------------- ------------------ ------------------
10/31/94 10000.00 10000.00 10000.00 10000.00
11522.00 12644.00 12471.00 12378.00
14001.00 15691.00 15431.00 15260.00
17147.00 20729.00 20552.00 20384.00
16809.00 25288.00 23599.00 22952.00
17733.00 31779.00 27500.00 26458.00
19546.00 33715.00 29017.00 28128.00
17943.00 25319.00 25575.00 25149.00
14856.00 21494.00 23012.00 22774.00
17859.00 25965.00 28276.00 28254.00
10/31/04 19793.00 28411.00 32646.00 32672.00
</Table>
<Table>
-- MainStay All Cap Value Fund -- S&P 500 Index
- - Russell 1000 Value Index -- Russell 3000 Value Index
</Table>
Performance tables and graphs do not reflect the deduction of taxes that a
shareholder would pay on distributions or Fund-share redemptions. Total returns
reflect change in share price, reinvestment of dividend and capital-gain
distributions, and maximum applicable sales charges explained in this paragraph.
The graphs assume an initial investment of $10,000 and reflect the deduction of
all sales charges that would have applied for the period of investment. Class A
shares are sold with a maximum initial sales charge of 5.5% and an annual 12b-1
fee of .25%. Class B shares are sold with no initial sales charge, are subject
to a contingent deferred sales charge (CDSC) of up to 5% if redeemed within the
first six years of purchase, and have an annual 12b-1 fee of 1.00%. Class C
shares are sold with no initial sales charge, are subject to a CDSC of 1% if
redeemed within one year of purchase, and have an annual 12b-1 fee of 1.00%.
Class I shares are sold with no initial sales charge or CDSC, have no annual
12b-1 fee, and are generally available to corporate and institutional investors
with a minimum initial investment of $5 million. Performance figures reflect
certain fee waivers and/or expense limitations, without which total returns may
have been lower. The fee waivers and/or expense limitations are voluntary and
may be discontinued at any time. Performance for Class A, B, and C shares, first
offered 1/2/04, includes the historical performance of Class I shares from
inception (1/2/91) through 12/31/03 adjusted to reflect the applicable sales
charge (or CDSC) and fees and expenses for Class A, B, and C shares.
THE DISCLOSURE AND FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THESE
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
16 MainStay All Cap Value Fund
CLASS I SHARES -- NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
11.97% 3.23% 8.08%
</Table>
(LINE GRAPH FOR CLASS I SHARES)
<Table>
<Caption>
MAINSTAY ALL CAP RUSSELL 1000 VALUE RUSSELL 3000 VALUE
VALUE FUND S&P 500 INDEX INDEX INDEX
---------------- ------------- ------------------ ------------------
10/31/94 10000 10000 10000 10000
11629 12644 12471 12378
14272 15691 15431 15260
17635 20729 20552 20384
17444 25288 23599 22952
18558 31779 27500 26458
20657 33715 29017 28128
19151 25319 25575 25149
15998 21494 23012 22774
19426 25965 28276 28254
10/31/04 21751 28411 32646 32672
</Table>
<Table>
-- MainStay All Cap Value Fund -- S&P 500 Index
- - Russell 1000 Value Index -- Russell 3000 Value Index
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
S&P 500(R) Index(1) 9.42% -2.22% 11.01%
Russell 1000(R) Value Index(2) 15.45 3.49 12.56
Russell 3000(R) Value Index(3) 15.64 4.31 12.57
Average Lipper multi-cap value
fund(4) 12.73 4.25 10.70
</Table>
1. "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500(R)
is an unmanaged index and is widely regarded as the standard for measuring
large-cap U.S. stock-market performance. Results assume reinvestment of all
income and capital gains. An investment cannot be made directly into an
index.
2. The Russell 1000(R) Value Index is an unmanaged index that measures the
performance of those Russell 1000(R) companies with lower price-to-book
ratios and lower forecasted growth values. The Russell 1000(R) Index is an
unmanaged index that measures the performance of the 1,000 largest U.S.
companies based on total market capitalization. Results assume reinvestment
of all income and capital gains. An investment cannot be made directly into
an index.
3. MainStay All Cap Value Fund, going forward, will measure its performance
against the Russell 3000(R) Value Index. The Russell 3000(R) Value Index is
an unmanaged index that measures the performance of those Russell 3000(R)
Index companies with lower price-to-book ratios and lower forecasted growth
values. The Russell 3000(R) Index measures the performance of the 3,000
largest U.S. companies based on total market capitalization. Total returns
assume reinvestment of all dividends and capital gains. The Russell 3000(R)
Value Index is considered to be the Fund's broad-based securities-market
index for comparison purposes. You cannot invest directly in an index.
4. Lipper Inc. is an independent fund performance monitor. Results are based on
total returns with all dividend and capital-gain distributions reinvested.
THE DISCLOSURE AND FOOTNOTES ON THE PRECEDING PAGE ARE AN INTEGRAL PART OF THESE
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
www.mainstayfunds.com 17
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY ALL CAP VALUE FUND
Expenses shown in the table are meant to highlight your ongoing costs only and
do not reflect any transactional costs, such as sales charges (loads),
redemption fees, or exchange fees. Therefore, the third data column of the table
is 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 had been included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT ENDING ACCOUNT
VALUE (BASED VALUE (BASED
BEGINNING ON ACTUAL EXPENSES ON HYPOTHETICAL EXPENSES
ACCOUNT RETURNS AND PAID 5% ANNUALIZED PAID
VALUE EXPENSES) DURING RETURN AND DURING
SHARE CLASS(1) 5/1/04 10/31/04 PERIOD ACTUAL EXPENSES) PERIOD
CLASS A SHARES $1,000.00 $1,025.05 $ 6.77 $1,018.35 $ 6.75
- ----------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $1,021.90 $10.57 $1,014.60 $10.53
- ----------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $1,021.90 $10.57 $1,014.60 $10.53
- ----------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,027.40 $ 4.79 $1,020.30 $ 4.77
- ----------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio multiplied by the
average account value over the period, divided by 366, multiplied by 184 (to
reflect the one-half year period).
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2004
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
Common Stocks 94.90
Short-Term Investments (collateral from securities lending 6.20
is 1.4%)
Liabilities in Excess of Cash and Other Assets -1.1
</Table>
See Portfolio of Investments on page 21 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2004 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. Citigroup, Inc.
2. Bank of America Corp.
3. Transocean, Inc.
4. JPMorgan Chase & Co.
5. CVS Corp.
6. Gap, Inc. (The)
7. Wachovia Corp.
8. Computer Sciences Corp.
9. International Business Machines Corp.
10. Sprint Corp.
</Table>
18 MainStay All Cap Value Fund
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio manager Richard A. Rosen of MacKay Shields LLC
HOW HAS THE FUND'S PORTFOLIO-MANAGEMENT MANDATE CHANGED DURING THE REPORTING
PERIOD?
Prior to January 1, 2004, the Fund was known as Eclipse Value Equity Fund, and
it invested primarily in large-cap value stocks. As its new name implies,
MainStay All Cap Value Fund now has the flexibility to diversify its portfolio
without capitalization restrictions. MainStay All Cap Value Fund, going forward
will measure its performance against the Russell 3000(R) Value Index.(1)
CAN YOU BRIEFLY DESCRIBE THE FUND'S INVESTMENT APPROACH?
The Fund normally invests in securities that have value characteristics and that
span the entire range of market capitalizations reflected in the Russell 3000(R)
Value Index. The Fund normally invests at least 80% of its assets in equity
securities. In implementing this strategy, the Fund principally invests in
common stocks that we believe are selling below their value when purchased, that
typically pay dividends, and that are listed on a national securities exchange
or are traded in the over-the-counter market. When assessing whether a stock is
undervalued, we compare the stock's market price to the company's cash flow and
interest coverage ratios, the company's book value, the estimated value of the
company's assets, and the company's growth rates and future earnings potential.
There may be non-dividend-paying stocks in the portfolio if they meet the
"undervalued" criterion. We may sell securities that we believe no longer
contribute to the Fund's ability to meet its investment objective.
WHAT MAJOR FACTORS INFLUENCED THE STOCK MARKET DURING THE 12 MONTHS ENDED
OCTOBER 31, 2004?
An improving economy and strong growth in corporate profits drove stock prices
higher during the 12-month period. Despite three Federal Open Market Committee
increases in the targeted federal funds rate, the interest-rate and inflation
outlook remained relatively benign throughout most of the reporting period. In
the spring and summer of 2004, the upward trend in the equity markets reversed
and then paused when investors became concerned about higher energy prices and
the unsteady pace of job growth. The ongoing risks associated with election-year
politics and geopolitical uncertainty also remained unsettling factors. Even so,
equities finished the 12-month period on a strong note, as the national
elections approached, energy prices eased somewhat, and investors appeared to
take a more positive view of stock valuations.
WHICH SECTORS HAD THE GREATEST IMPACT ON THE FUND'S PERFORMANCE DURING THE
ANNUAL PERIOD?
Information technology and energy were the Fund's top-performing sectors
relative to the Russell 3000(R) Value Index. These positive contributions,
however, were offset by mediocre individual-stock performance within the
financials and health care sectors.
WHAT WERE SOME OF THE FUND'S STRONG PERFORMERS DURING THE REPORTING PERIOD?
Rising oil and gas prices helped the shares of many of the Fund's energy sector
holdings, including integrated producers ConocoPhillips (+51%)(2), ChevronTexaco
(+48%), and ExxonMobil (+38%). We reduced the Fund's positions in each of these
stocks by the end of the reporting period, as they approached our price targets.
Throughout the period, we also tilted the Fund's energy exposure away from
producers, which were generating high levels of free cash flow, and toward oil
services and exploration companies that we believed were likely to benefit from
increased spending. These holdings also performed well during the reporting
period, led by Transocean (+84%) and Kerr-McGee (+48%).
CVS (+24%) rose during the reporting period, as sales trends in the company's
pharmacy business continued on a solid course and the company's purchase of
Eckerd stores in Texas and Florida met with investor approval.
Holdings within the information technology and telecommunication services
sectors also contributed positively to performance. Information technology
services company Computer Sciences (+25%) benefited from strengthening trends in
bookings and increased cash flow generation. Motorola (+29%) benefited as
profitability from its mobile handset unit and its other business segments
markedly improved. We reduced the Fund's positions in these stocks when they
each neared our price targets during the
Mid-capitalization companies are generally less established and their stocks may
be more volatile and less liquid than the securities of larger companies. Stocks
of small companies may be subject to greater price volatility, significantly
lower trading volumes, and greater spreads between bid and ask prices than
stocks of larger companies. Small companies may be more vulnerable to adverse
business or market developments than mid- or large-capitalization companies.
1. See footnote on page 17 for more information on the Russell 3000(R) Value
Index.
2. Performance percentages reflect the price performance of the securities
mentioned for the 12 months ended October 31, 2004, or for the portion of the
reporting period shares were held in the Fund, if shorter. Performance
percentages do not reflect the impact of dividends received, if any. Due to
purchases and sales, the performance of Fund holdings may differ from that of
the securities themselves.
www.mainstayfunds.com 19
reporting period. Wireless and wireline telecommunications company Sprint was a
strong performer, gaining 23% from the Fund's initial purchase in June 2004
through the end of the reporting period.
HOW DID THE FUND'S FINANCIAL STOCKS FARE DURING THE REPORTING PERIOD?
The shares of most insurance companies were hurt during the reporting period by
an investigation led by the New York attorney general into insurance brokerage
practices. Among the industry's hardest-hit companies was Marsh & McLennan, a
key target of the New York attorney general. From the time we purchased the
stock in January 2004 through the end of the reporting period, the share price
was down 42%. We sold a portion of the Fund's position in Marsh & McLennan at
levels well above the period-end closing price. We sold the remainder of the
position near the closing price on October 29, 2004. Insurance provider AIG also
felt the impact of the attorney general's investigation, although its shares
were up 4% from the time we initiated a position in December 2003 through the
end of the Fund's fiscal year. We reduced the Fund's position in AIG near the
end of the reporting period. Several of the Fund's other insurance-related
holdings posted strong 12-month results. Despite industry volatility, the price
of Allstate shares rose 25%, and the price of Prudential Financial shares was up
22%.
The industrials sector generally improved with the economy. Burlington Northern
Santa Fe (+47%), Boeing (+32%), and Cooper Industries (+24%) were among the
Fund's stronger holdings. As these stocks approached our price targets, we
reduced all three positions.
WHICH STOCKS DETRACTED FROM THE FUND'S RESULTS?
Several pharmaceutical holdings were weak, including Merck (-27%) which fell
when its popular drug Vioxx was recalled. We reduced the Fund's position in
Merck at levels above the period-end closing price, but we continued to hold a
position in this stock, as we viewed the valuation of the shares at near the
bottom of historical ranges. Shares of pharmaceutical competitor Pfizer (-7%)
fell from the Fund's August 2004 purchase price through the end of the period,
and we reduced the Fund's position in this stock as well.
Navistar International (-15%), a truck manufacturer, was an exception to the
positive trend in the industrials sector. After posting strong gains in 2003,
Navistar International saw its share price decline throughout much of the
reporting period. Fortunately, we reduced the Fund's position at levels above
the end-of-period closing price.
HOW WAS THE FUND POSITIONED AT THE END OF THE REPORTING PERIOD?
As of October 31, 2004, the Fund had overweighted positions relative to the
Russell 3000(R) Value Index in consumer staples, energy, health care,
industrials, materials, and information technology. As of the same date, the
Fund was underweighted relative to the Index in consumer discretionary,
financials, and utilities.
WHAT DO YOU ANTICIPATE GOING FORWARD?
We intend to continue to emphasize stocks with better-than-market visibility for
earnings and cash-flow generation, as well as stocks with well-below-market
valuations. At the end of the period, we were finding many stocks with these
characteristics in the energy, consumer staples, and information technology
sectors, but were finding few similar opportunities in the utilities and
consumer discretionary sectors.
We expect energy prices to remain at relatively high levels, which may spur
increased exploration and production activity and benefit oil-drilling
companies. We have also added to the Fund's holdings in the information
technology and consumer staples sectors, as cash-flow generation prospects have
improved for many of these companies. Many health care stocks have struggled in
2004 because of political and company-specific concerns. Since we see an
emerging theme in this sector, we may add to the Fund's health care holdings as
opportunities arise.
We intend to remain underweighted in areas of the market that depend on consumer
spending, based on questions about where incremental increases might be
generated. We have focused our concerns on the consumer discretionary sector and
some financial institutions. Despite a strong showing in 2004, utilities appear
to offer little value going forward, and we intend to maintain the Fund's
underweighted position in this sector. We remain confident in our disciplined
classic value strategy and will continue to seek opportunities among undervalued
stocks with improving fundamental characteristics.
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.
INFORMATION ABOUT MAINSTAY ALL CAP VALUE FUND ON THIS PAGE AND THE PRECEDING
PAGES HAS NOT BEEN AUDITED.
20 MainStay All Cap Value Fund
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (94.9%)+
- -----------------------------------------------------------------------------
AEROSPACE & DEFENSE (3.6%)
Boeing Co. (The) 20,800 $ 1,037,920
Northrop Grumman Corp. 45,800 2,370,150
Raytheon Co. 36,300 1,324,224
------------
4,732,294
------------
AUTO COMPONENTS (1.2%)
TRW Automotive
Holdings Corp. (a) 89,100 1,635,876
------------
BUILDING PRODUCTS (1.6%)
American Standard Cos., Inc. (a) 57,200 2,091,804
------------
CAPITAL MARKETS (4.2%)
Goldman Sachs Group, Inc. (The) 22,000 2,164,360
Merrill Lynch & Co., Inc. 37,700 2,033,538
State Street Corp. 29,700 1,337,985
------------
5,535,883
------------
CHEMICALS (0.8%)
Cambrex Corp. 49,500 1,107,315
------------
COMMERCIAL BANKS (9.7%)
VBank of America Corp. 95,854 4,293,301
PNC Financial Services
Group, Inc. (The) 33,200 1,736,360
U.S. Bancorp 80,400 2,300,244
VWachovia Corp. 57,800 2,844,338
Wells Fargo & Co. 28,400 1,696,048
------------
12,870,291
------------
COMMUNICATIONS EQUIPMENT (2.8%)
Motorola, Inc. 92,900 1,603,454
Nokia Corp. ADR (b) 139,300 2,148,006
------------
3,751,460
------------
COMPUTERS & PERIPHERALS (3.1%)
Hewlett-Packard Co. 71,700 1,337,922
VInternational Business
Machines Corp. 30,800 2,764,300
------------
4,102,222
------------
CONSTRUCTION & ENGINEERING (1.1%)
Insituform Technologies, Inc. Class A (a) 73,300 1,452,806
------------
CONTAINERS & PACKAGING (1.4%)
Smurfit-Stone Container Corp. (a) 108,200 1,878,352
------------
</Table>
<Table>
<Caption>
SHARES VALUE
DIVERSIFIED FINANCIAL SERVICES (6.0%)
VCitigroup, Inc. 106,933 $ 4,744,617
VJPMorgan Chase & Co. 81,256 3,136,482
------------
7,881,099
------------
DIVERSIFIED TELECOMMUNICATION SERVICES (8.0%)
ALLTEL Corp. 29,300 1,609,449
BellSouth Corp. 72,100 1,922,907
SBC Communications, Inc. 87,700 2,215,302
VSprint Corp. 128,000 2,681,600
Verizon Communications, Inc. 55,700 2,177,870
------------
10,607,128
------------
ELECTRIC UTILITIES (0.8%)
FirstEnergy Corp. 23,800 983,654
------------
ELECTRICAL EQUIPMENT (0.5%)
Cooper Industries, Ltd. Class A 10,700 683,730
------------
ENERGY EQUIPMENT & SERVICES (7.1%)
ENSCO International, Inc. 37,000 1,130,350
Pride International, Inc. (a) 131,400 2,428,272
Rowan Cos., Inc. (a) 103,200 2,634,696
VTransocean, Inc. (a) 89,000 3,137,250
------------
9,330,568
------------
FOOD & STAPLES RETAILING (3.6%)
VCVS Corp. 70,000 3,042,200
Kroger Co. (The) (a) 111,500 1,684,765
------------
4,726,965
------------
FOOD PRODUCTS (5.2%)
Cadbury Schweppes PLC ADR (b) 72,900 2,442,150
General Mills, Inc. 59,800 2,646,150
Kraft Foods, Inc. Class A 54,200 1,805,402
------------
6,893,702
------------
HEALTH CARE PROVIDERS & SERVICES (1.8%)
HCA, Inc. 36,100 1,325,953
Universal Health Services, Inc. Class B 24,800 1,030,688
------------
2,356,641
------------
HOUSEHOLD PRODUCTS (1.7%)
Kimberly-Clark Corp. 36,600 2,183,922
------------
INSURANCE (6.4%)
Allstate Corp. (The) 38,600 1,856,274
American International Group, Inc. 17,900 1,086,709
Hartford Financial Services
Group, Inc. (The) 33,700 1,970,776
</Table>
+ Percentages indicated are based on Fund net assets.
V Among the Fund's 10 largest holdings, 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. www.mainstayfunds.com
21
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------
INSURANCE (CONTINUED)
Prudential Financial, Inc. 46,900 $ 2,179,443
St. Paul Travelers Cos., Inc. (The) 40,534 1,376,535
------------
8,469,737
------------
IT SERVICES (2.1%)
VComputer Sciences Corp. (a) 56,800 2,821,256
------------
LEISURE EQUIPMENT & PRODUCTS (0.9%)
Mattel, Inc. 65,000 1,138,150
------------
MACHINERY (1.7%)
Navistar International Corp. (a) 63,100 2,180,105
------------
METALS & MINING (1.9%)
Alcoa, Inc. 77,772 2,527,590
------------
OIL & GAS (5.3%)
ChevronTexaco Corp. 50,242 2,665,840
ConocoPhillips 31,300 2,638,903
Kerr-McGee Corp. 28,700 1,699,614
------------
7,004,357
------------
PAPER & FOREST PRODUCTS (1.8%)
Bowater, Inc. 45,600 1,679,904
International Paper Co. 19,000 731,690
------------
2,411,594
------------
PHARMACEUTICALS (3.3%)
Bristol-Myers Squibb Co. 85,500 2,003,265
Merck & Co., Inc. 32,650 1,022,271
Pfizer, Inc. 45,300 1,311,435
------------
4,336,971
------------
ROAD & RAIL (0.8%)
Burlington Northern
Santa Fe Corp. 25,000 1,045,250
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (0.7%)
Advanced Micro Devices, Inc. (a) 55,400 931,828
------------
SOFTWARE (1.5%)
BMC Software, Inc. (a) 103,900 1,965,788
------------
SPECIALTY RETAIL (3.1%)
Christopher & Banks Corp. 72,300 1,174,875
VGap, Inc. (The) 144,400 2,885,112
------------
4,059,987
------------
</Table>
<Table>
<Caption>
SHARES VALUE
THRIFTS & MORTGAGE FINANCE (1.2%)
Washington Mutual, Inc. 40,400 $ 1,563,884
------------
Total Common Stocks
(Cost $108,158,132) 125,262,209
------------
<Caption>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS (6.2%)
- -----------------------------------------------------------------------------
COMMERCIAL PAPER (5.8%)
AIG Funding, Inc.
1.78%, due 11/2/04 $1,410,000 1,409,931
American Express Credit Corp.
1.80%, due 11/18/04 3,000,000 2,997,449
Lilly (Eli) & Co.
1.72%, due 11/3/04 395,000 394,962
UBS Finance (Delaware) LLC
1.84%, due 11/1/04 2,780,000 2,780,000
------------
Total Commercial Paper
(Cost $7,582,342) 7,582,342
------------
SHARES
INVESTMENT COMPANY (0.1%)
AIM Institutional Funds Group (c) 161,368 161,368
------------
Total Investment Company
(Cost $161,368) 161,368
------------
PRINCIPAL
AMOUNT
MASTER NOTE (0.1%)
Banc of America Securities LLC
1.955%, due 10/1/04 (c) $100,000 100,000
------------
Total Master Note
(Cost $100,000) 100,000
------------
REPURCHASE AGREEMENTS (0.2%)
Credit Suisse First Boston LLC
1.925%, dated 10/29/04 due 11/1/04
Proceeds at Maturity $150,024 (c)
(Collateralized by Various Bonds with a
Principal Amount of $150,420 and a Market Value
of $153,005) 150,000 150,000
</Table>
22 MainStay All Cap Value Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONTINUED)
- -----------------------------------------------------------------------------
REPURCHASE AGREEMENTS (CONTINUED)
Lehman Brothers, Inc.
1.925%, dated 10/29/04 due 11/1/04
Proceeds at Maturity
$150,024 (c)
(Collateralized by Various Bonds with a
Principal Amount of $298,871 and a Market Value
of $154,712) $150,000 $ 150,000
------------
Total Repurchase Agreements
(Cost $300,000) 300,000
------------
Total Short-Term Investments
(Cost $8,143,710) 8,143,710
------------
Total Investments
(Cost $116,301,842) (d) 101.1% 133,405,919(e)
Liabilities in Excess of
Cash and Other Assets (1.1) (1,390,025)
---------- ------------
Net Assets 100.0% $132,015,894
========== ============
</Table>
<Table>
(a) Non-income producing security.
(b) ADR -- American Depositary Receipt.
(c) Represents a security purchased with cash collateral
received for a loaned security pending settlement.
(d) The cost for federal income tax purposes is
$117,263,562.
(e) At October 31, 2004 net unrealized appreciation was
$16,142,357, based on cost for federal income tax
purposes. This consisted of aggregate gross unrealized
appreciation for all investments on which there was an
excess of market value over cost of $18,460,565 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $2,318,208.
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
23
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2004
<Table>
ASSETS:
Investment in securities, at value
(identified cost $116,301,842) $133,405,919
Cash 4,985
Receivables:
Investment securities sold 2,360,207
Dividends and interest 256,839
Fund shares sold 138,823
Other assets 14,025
------------
Total assets 136,180,798
------------
LIABILITIES:
Securities lending collateral (a) 561,368
Payables:
Investment securities purchased 2,327,157
Fund shares redeemed 1,105,170
Manager 92,183
Transfer agent 27,354
NYLIFE Distributors 5,695
Custodian 4,570
Accrued expenses 41,407
------------
Total liabilities 4,164,904
------------
Net assets $132,015,894
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
1 billion shares authorized:
Class A $ 743
Class B 306
Class C 72
Class I 9,495
Additional paid-in capital 133,276,163
Accumulated undistributed net investment
income 1,345,037
Accumulated net realized loss on investments
and option transactions (19,719,999)
Net unrealized appreciation on investments 17,104,077
------------
Net assets $132,015,894
============
CLASS A
Net assets applicable to outstanding shares $ 9,206,282
============
Shares of capital stock outstanding 742,706
============
Net asset value per share outstanding $ 12.40
Maximum sales charge (5.50% of offering price) 0.72
------------
Maximum offering price per share outstanding $ 13.12
============
CLASS B
Net assets applicable to outstanding shares $ 3,775,573
============
Shares of capital stock outstanding 306,309
============
Net asset value and offering price per share
outstanding $ 12.33
============
</Table>
<Table>
CLASS C
Net assets applicable to outstanding shares $ 883,735
============
Shares of capital stock outstanding 71,672
============
Net asset value and offering price per share
outstanding $ 12.33
============
CLASS I
Net assets applicable to outstanding shares $118,150,304
============
Shares of capital stock outstanding 9,494,845
============
Net asset value and offering price per share
outstanding $ 12.44
============
</Table>
(a) Collateral on unsettled sale of securities loaned.
24 MainStay All Cap Value Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2004
<Table>
INVESTMENT INCOME:
INCOME:
Dividends $ 2,950,174
Interest 83,326
Income from securities loaned -- net 10,249
-----------
Total income 3,043,749
-----------
EXPENSES:
Manager 1,309,453
Professional 59,654
Registration 29,844
Custodian 21,606
Transfer agent -- Classes A, B and C 21,420
Transfer agent -- Class I 136,435
Shareholder communication 19,481
Directors 19,411
Service -- Class A 15,696
Service -- Class B 3,746
Service -- Class C 941
Service -- Service Class 2,647
Distribution -- Class B 11,238
Distribution -- Class C 2,822
Miscellaneous 26,683
-----------
Total expenses before reimbursement 1,681,077
Expense reimbursement from Manager (183,259)
-----------
Net expenses 1,497,818
-----------
Net investment income 1,545,931
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND WRITTEN
OPTION TRANSACTIONS:
Net realized gain from:
Security transactions 14,387,283
Written option transactions 77,269
-----------
Net realized gain on investments and written
option transactions 14,464,552
-----------
Net change in unrealized appreciation on
investments 1,615,665
-----------
Net realized and unrealized gain on investments
and written option transactions 16,080,217
-----------
Net increase in net assets resulting from
operations $17,626,148
===========
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
25
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003
<Table>
<Caption>
2004 2003
INCREASE (DECREASE)
IN NET ASSETS:
Operations:
Net investment income $ 1,545,931 $ 2,115,385
Net realized gain (loss) on
investments and written option
transactions 14,464,552 (5,825,222)
Net change in unrealized
appreciation on investments and
written option transactions 1,615,665 34,319,392
---------------------------
Net increase in net assets
resulting from operations 17,626,148 30,609,555
---------------------------
Dividends to shareholders:
From net investment income:
Class I (2,046,476) (1,595,725)
Service Class (65,067) (40,231)
---------------------------
Total dividends to shareholders (2,111,543) (1,635,956)
---------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 10,262,130 --
Class B 3,852,520 --
Class C 1,014,648 --
Class I 23,435,990 33,010,544
Service Class 429,948 1,233,322
Net asset value of shares issued to shareholders
in reinvestments of dividends:
Class I 2,043,233 1,593,669
Service Class 52,463 40,013
---------------------------
41,090,932 35,877,548
Cost of shares redeemed:
Class A (1,210,034) --
Class B (104,583) --
Class C (139,405) --
Class I (85,783,397) (36,240,410)
Service Class (6,291,284) (1,037,345)
---------------------------
(93,528,703) (37,277,755)
---------------------------
Decrease in net assets derived
from capital share
transactions (52,437,771) (1,400,207)
---------------------------
Net increase (decrease) in net
assets (36,923,166) 27,573,392
NET ASSETS:
Beginning of year 168,939,060 141,365,668
---------------------------
End of year $132,015,894 $168,939,060
===========================
Accumulated undistributed net
investment income at end of year $ 1,345,037 $ 1,909,734
===========================
</Table>
26 MainStay All Cap Value Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
This page intentionally left blank
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A CLASS B CLASS C
----------- ----------- -----------
JANUARY 2, JANUARY 2, JANUARY 2,
2004* 2004* 2004*
THROUGH THROUGH THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31,
2004 2004 2004
Net asset value at beginning of period $12.08 $12.08 $12.08
------ ------ ------
Net investment income (loss) 0.06(c) (0.01)(c) (0.01)(c)
Net realized and unrealized gain (loss) on
investments 0.26 0.26 0.26
------ ------ ------
Total from investment operations 0.32 0.25 0.25
------ ------ ------
Less dividends and distributions:
From net investment income -- -- --
From net realized gain on investments -- -- --
------ ------ ------
Total dividends and distributions -- -- --
------ ------ ------
Net asset value at end of period $12.40 $12.33 $12.33
====== ====== ======
Total investment return (a) 2.65%(b) 2.07%(b) 2.07%(b)
Ratios (to average net
assets)/Supplemental Data:
Net investment income (loss) 0.65%+ (0.10%)+ (0.10%)+
Net expenses 1.33%+ 2.08%+ 2.08%+
Expenses (before reimbursement) 1.45%+ 2.20%+ 2.20%+
Portfolio turnover rate 48% 48% 48%
Net assets at end of period (in 000's) $9,206 $3,776 $ 884
</Table>
<Table>
<Caption>
SERVICE CLASS++
-------------------------------------------------------------------
NOVEMBER 1,
2003
THROUGH
JANUARY 9, YEAR ENDED OCTOBER 31,
2004 2003 2002 2001 2000
Net asset value at beginning of period $11.24 $ 9.36 $12.52 $13.97 $12.66
------ ------ ------ ------ ------
Net investment income 0.02(c) 0.11(c) 0.10(c) 0.14(c) 0.10
Net realized and unrealized gain (loss) on
investments 1.07 1.85 (1.85) (1.16) 1.28
------ ------ ------ ------ ------
Total from investment operations 1.09 1.96 (1.75) (1.02) 1.38
------ ------ ------ ------ ------
Less dividends and distributions:
From net investment income (0.13) (0.08) (0.28) (0.12) (0.07)
From net realized gain on investments -- -- (1.13) (0.31) --
------ ------ ------ ------ ------
Total dividends and distributions (0.13) (0.08) (1.41) (0.43) (0.07)
------ ------ ------ ------ ------
Net asset value at end of period $12.20 $11.24 $ 9.36 $12.52 $13.97
====== ====== ====== ====== ======
Total investment return (a) 9.77%(b) 21.14% (16.64%) (7.54%) 11.00%
Ratios (to average net
assets)/Supplemental Data:
Net investment income 0.91%+ 1.12% 0.87% 1.03% 0.87%
Net expenses 1.14%+ 1.19% 1.19% 1.19% 1.19%
Expenses (before reimbursement) 1.31%+ 1.36% 1.37% 1.25% 1.19%
Portfolio turnover rate 7% 64% 65% 94% 96%
Net assets at end of period (in 000's) $ 0 $5,388 $4,296 $5,219 $5,776
</Table>
<Table>
* Commencement of Operations.
** The Fund changed its fiscal year end from December 31 to
October 31.
+ Annualized.
++ Service Class shares ceased operations on January 9, 2004.
(a) Total return is calculated exclusive of sales charges. Class
I and Service Class are not subject to sales charges.
(b) Total return is not annualized.
(c) Per share data based on average shares outstanding during
the period.
(d) Less than one cent per share.
</Table>
28 MainStay All Cap Value Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS I
- --------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2004 2003 2002 2001 2000
$ 11.26 $ 9.38 $ 12.55 $ 14.00 $ 12.69
-------- -------- -------- -------- --------
0.11(c) 0.14(c) 0.13(c) 0.16(c) 0.15
1.23 1.85 (1.86) (1.15) 1.27
-------- -------- -------- -------- --------
1.34 1.99 (1.73) (0.99) 1.42
-------- -------- -------- -------- --------
(0.16) (0.11) (0.31) (0.15) (0.11)
-- -- (1.13) (0.31) --
-------- -------- -------- -------- --------
(0.16) (0.11) (1.44) (0.46) (0.11)
-------- -------- -------- -------- --------
$ 12.44 $ 11.26 $ 9.38 $ 12.55 $ 14.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
11.97% 21.43% (16.46%) (7.29%) 11.31%
1.04% 1.37% 1.12% 1.28% 1.12%
0.94% 0.94% 0.94% 0.94% 0.94%
1.06% 1.11% 1.12% 1.00% 0.94%
48% 64% 65% 94% 96%
$118,150 $163,551 $137,069 $140,919 $742,924
</Table>
<Table>
<Caption>
SERVICE CLASS++
- --------------------------
JANUARY 1,
1999
THROUGH YEAR ENDED
OCTOBER 31, DECEMBER 31,
1999** 1998
$ 11.76 $ 16.35
-------- --------
0.06 0.14
0.84 (1.57)
-------- --------
0.90 (1.43)
-------- --------
(0.00)(d) (0.14)
-- (3.02)
-------- --------
(0.00)(d) (3.16)
-------- --------
$ 12.66 $ 11.76
======== ========
7.65%(b) (8.30%)
0.59%+ 0.79%
1.21%+ 1.23%
1.21%+ 1.23%
49% 76%
$ 7,418 $ 9,740
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
29
MAINSTAY MID CAP OPPORTUNITY FUND
INVESTMENT AND PERFORMANCE COMPARISON
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY, CURRENT PERFORMANCE MAY
BE LESS OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. FOR CURRENT TO THE MOST RECENT MONTH-END PERFORMANCE
INFORMATION, PLEASE CONTACT 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM.
CLASS A SHARES -- MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE SINCE
TOTAL RETURNS YEAR YEARS INCEPTION
- --------------------------------------------------
With sales charges 6.47% 8.09% 12.30%
Excluding sales charges 12.67 9.32 12.95
</Table>
(LINE GRAPH FOR CLASS A SHARES)
<Table>
<Caption>
MAINSTAY MID CAP RUSSELL MIDCAP RUSSELL MIDCAP
OPPORTUNITY FUND VALUE INDEX INDEX S&P 500 INDEX
---------------- -------------- -------------- -------------
12/27/94 9450 10000 10000 10000
11624 12655 12734 12919
13473 15333 15237 16032
18426 20315 19621 21180
20104 21482 20496 25838
20094 22707 24005 32470
22083 25397 29701 34448
21511 25047 24349 25869
21379 24303 22395 21961
27846 32439 30431 26529
10/31/04 31373 38842 35021 29029
</Table>
<Table>
-- MainStay Mid Cap Opportunity Fund -- Russell Midcap Value Index
- - Russell Midcap Index -- S&P 500 Index
</Table>
CLASS B SHARES -- MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE SINCE
TOTAL RETURNS YEAR YEARS INCEPTION
- --------------------------------------------------
With sales charges 6.77% 8.18% 12.03%
Excluding sales charges 11.77 8.47 12.03
</Table>
(LINE GRAPH FOR CLASS B SHARES)
<Table>
<Caption>
MAINSTAY MID CAP RUSSELL MIDCAP RUSSELL MIDCAP
OPPORTUNITY FUND VALUE INDEX INDEX S&P 500 INDEX
---------------- -------------- -------------- -------------
12/27/94 10000 10000 10000 10000
12216 12655 12734 12919
14044 15333 15237 16032
19012 20315 19621 21180
20585 21482 20496 25838
20388 22707 24005 32470
22221 25397 29701 34448
21483 25047 24349 25869
21194 24303 22395 21961
27396 32439 30431 26529
10/31/04 30620 38842 35021 29029
</Table>
<Table>
-- MainStay Mid Cap Opportunity Fund -- Russell Midcap Value Index
- - Russell Midcap Index -- S&P 500 Index
</Table>
CLASS C SHARES -- MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE SINCE
TOTAL RETURNS YEAR YEARS INCEPTION
- --------------------------------------------------
With sales charges 10.71% 8.50% 12.04%
Excluding sales charges 11.71 8.50 12.04
</Table>
(LINE GRAPH FOR CLASS C SHARES)
<Table>
<Caption>
MAINSTAY MID CAP RUSSELL MIDCAP RUSSELL MIDCAP
OPPORTUNITY FUND VALUE INDEX INDEX S&P 500 INDEX
---------------- -------------- -------------- -------------
12/27/94 10000 10000 10000 10000
12218 12655 12734 12919
14048 15333 15237 16032
19011 20315 19621 21180
20597 21482 20496 25838
20388 22707 24005 32470
22222 25397 29701 34448
21496 25047 24349 25869
21193 24303 22395 21961
27442 32439 30431 26529
10/31/04 30657 38842 35021 29029
</Table>
<Table>
-- MainStay Mid Cap Opportunity Fund -- Russell Midcap Value Index
- - Russell Midcap Index -- S&P 500 Index
</Table>
Performance tables and graphs do not reflect the deduction of taxes that a
shareholder would pay on distributions or Fund-share redemptions. Total returns
reflect change in share price, reinvestment of dividend and capital-gain
distributions, and maximum applicable sales charges explained in this paragraph.
The graphs assume an initial investment of $10,000 and reflect the deduction of
all sales charges that would have applied for the period of investment. Class A
shares are sold with a maximum initial sales charge of 5.5% and an annual 12b-1
fee of .25%. Class B shares are sold with no initial sales charge, are subject
to a contingent deferred sales charge (CDSC) of up to 5% if redeemed within the
first six years of purchase, and have an annual 12b-1 fee of 1.00%. Class C
shares are sold with no initial sales charge, are subject to a CDSC of 1% if
redeemed within one year of purchase, and have an annual 12b-1 fee of 1.00%.
Class I shares are sold with no initial sales charge or CDSC, have no annual
12b-1 fee, and are generally available to corporate and institutional investors
with a minimum initial investment of $5 million. Performance figures reflect
certain fee waivers and/or expense limitations, without which total returns may
have been lower. The fee waivers and/or expense limitations are voluntary and
may be discontinued at any time. Performance for Class A and B shares, first
offered 1/2/04, includes the historical performance of Class I shares from
inception (12/27/94) through 12/31/03 adjusted to reflect the applicable sales
charge (or CDSC) and fees and expenses for Class A and B shares. Prior to
1/2/04, the Fund offered Class L shares, which were subject to a 1% sales charge
and a 1% CDSC on
THE DISCLOSURE AND FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THESE
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
30 MainStay Mid Cap Opportunity Fund
CLASS I SHARES -- NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE SINCE
TOTAL RETURNS YEAR YEARS INCEPTION
- --------------------------------------------------
12.97% 9.59% 13.22%
</Table>
(LINE GRAPH FOR CLASS I SHARES)
<Table>
<Caption>
MAINSTAY MID CAP RUSSELL MIDCAP RUSSELL MIDCAP
OPPORTUNITY FUND VALUE INDEX INDEX S&P 500 INDEX
---------------- -------------- -------------- -------------
12/27/94 10000 10000 10000 10000
12320 12655 12734 12919
14320 15333 15237 16032
19620 20315 19621 21180
21465 21482 20496 25838
21500 22707 24005 32470
23688 25397 29701 34448
23129 25047 24349 25869
23041 24303 22395 21961
30090 32439 30431 26529
10/31/04 33993 38842 35021 29029
</Table>
<Table>
-- MainStay Mid Cap Opportunity Fund -- Russell Midcap Value Index
- - Russell Midcap Index -- S&P 500 Index
</Table>
<Table>
<Caption>
ONE FIVE SINCE
BENCHMARK PERFORMANCE YEAR YEARS INCEPTION
Russell Midcap(R) Value Index(1) 19.74% 11.33% 14.80%
Russell Midcap(R) Index(2) 15.09 7.85 13.59
S&P 500(R) Index(3) 9.42 -2.22 11.43
Average Lipper mid-cap value
fund(4) 15.75 12.10 12.83
</Table>
redemptions within one year of purchase. Performance for Class L shares, first
offered 12/30/02, includes the historical performance of Class I shares from
inception through 12/29/02 adjusted to reflect the applicable sales charge,
CDSC, and fees and expenses for Class L shares. Effective 1/2/04, all
outstanding Class L shares of the Fund were converted to and/or redesignated
Class C shares.
1. The Russell Midcap(R) Value Index is an unmanaged index that measures the
performance of those Russell Midcap(R) companies with lower price-to-book
ratios and lower forecasted growth values. The Russell Midcap(R) Index is an
unmanaged index that measures the performance of the 800 smallest companies
in the Russell 1000(R) Index, which, in turn, is an unmanaged index that
measures the performance of the 1,000 largest U.S. companies based on total
market capitalization. Results for all indices assume reinvestment of all
income and capital gains. The Russell Midcap(R) Value Index is considered to
be the Fund's broad-based securities-market index for comparison purposes. An
investment cannot be made directly into an index.
2. The Russell Midcap(R) Index is an unmanaged index that measures the
performance of the 800 smallest companies in the Russell 1000(R) Index,
which, in turn, is an unmanaged index that measures the performance of the
1,000 largest U.S. companies based on total market capitalization. Results
assume reinvestment of all income and capital gains. An investment cannot be
made directly into an index.
3. "S&P 500" is a trademark of the McGraw-Hill Companies, Inc. The S&P 500(R) is
an unmanaged index and is widely regarded as the standard for measuring
large-cap U.S. stock-market performance. Results assume reinvestment of all
income and capital gains. An investment cannot be made directly into an
index.
4. Lipper Inc. is an independent fund performance monitor. Results are based on
total returns with all dividend and capital-gain distributions reinvested.
THE DISCLOSURE AND FOOTNOTES ON THE PRECEDING PAGE ARE AN INTEGRAL PART OF THESE
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
www.mainstayfunds.com 31
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY MID CAP OPPORTUNITY FUND
Expenses shown in the table are meant to highlight your ongoing costs only and
do not reflect any transactional costs, such as sales charges (loads),
redemption fees, or exchange fees. Therefore, the third data column of the table
is 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 had been included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT ENDING ACCOUNT
VALUE (BASED VALUE (BASED
BEGINNING ON ACTUAL EXPENSES ON HYPOTHETICAL EXPENSES
ACCOUNT RETURNS AND PAID 5% ANNUALIZED PAID
VALUE EXPENSES) DURING RETURN AND DURING
SHARE CLASS(1) 5/1/04 10/31/04 PERIOD ACTUAL EXPENSES) PERIOD
CLASS A SHARES $1,000.00 $1,064.05 $ 7.94 $1,017.35 $ 7.76
- ------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $1,059.80 $11.81 $1,013.60 $11.54
- ------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $1,059.40 $11.80 $1,013.60 $11.54
- ------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,066.10 $ 5.51 $1,019.70 $ 5.38
- ------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio multiplied by the
average account value over the period, divided by 366, multiplied by 184 (to
reflect the one-half year period).
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2004
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
<Caption>
COMMON STOCKS SHORT TERM INVESTMENT CASH AND OTHER ASSETS
- ------------- --------------------- ---------------------
95.8 3.7 0.5
</Table>
See Portfolio of Investments on page 35 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2004 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. Activision, Inc.
2. Edison International
3. Nucor Corp.
4. CIT Group, Inc.
5. Laidlaw International, Inc.
6. Torchmark Corp.
7. Terex Corp.
8. Kraft Foods, Inc. Class A
9. Valero Energy Corp.
10. Sherwin-Williams Co. (The)
</Table>
32 MainStay Mid Cap Opportunity Fund
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio manager Kathy A. O'Connor of New York Life
Investment Management LLC
CAN YOU BRIEFLY DESCRIBE THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 80% of its assets in common and preferred
stock of companies with market capitalizations that, at the time of investment,
are similar to those of companies in the Russell Midcap(R) Index,(1) the
Standard & Poor's MidCap 400(R) Index,(2) or a universe selected from the
smallest 800 companies of the largest 1,000 companies, ranked by market
capitalization. In implementing this strategy, the Fund invests primarily in
stocks of mid-capitalization companies that we determine to have strong or
improving operating characteristics and to be relatively overlooked or
undervalued by the market. The Fund uses a quantitative and statistical model to
analyze the relative quality and value of stocks.
WHAT MAJOR FACTORS INFLUENCED THE STOCK MARKET DURING THE 12 MONTHS ENDED
OCTOBER 31, 2004?
All of the broadly watched equity indices generated positive performance during
the 12-month reporting period. Overall, mid-capitalization stocks outperformed
their small- and large-capitalization counterparts. In terms of investment
style, the market favored value- over growth-oriented stocks across all
capitalization sectors. Equity-market sentiment was positive throughout much of
the reporting period, as low interest rates and indications of rebounding
economic activity contributed to an optimistic outlook. Beginning in July,
however, consumer confidence dropped as the presidential election approached.
With the candidates and the public focusing on issues such as Iraq, terrorism,
and the economy, spending and investing also declined.
WHAT FACTORS MOST SIGNIFICANTLY AFFECTED THE FUND'S ABSOLUTE AND RELATIVE
PERFORMANCE DURING THE REPORTING PERIOD?
While the Fund posted strong absolute performance during the reporting period,
it underperformed the Russell Midcap(R) Index. The Fund's holdings in the
materials, capital goods and insurance industry groups underperformed relative
to securities in the benchmark.
Since the Russell Midcap(R) Value Index is capitalization weighted, it has
larger weightings in securities with larger market capitalizations. MainStay Mid
Cap Opportunity Fund attempts to have equal weights among the securities in the
portfolio. For the year ended October 31, 2004, the Russell Midcap(R) Value
Index was approximately 50% weighted in the top 25% of companies ranked by
market capitalization. This contributed significantly to the return of the
Index. The MainStay Mid Cap Opportunity Fund, which was invested in some but not
all of the stocks in the benchmark Index, was weighted only 29% in the top 25%
of mid-cap companies ranked by market capitalization. The Fund's underweighted
position and lower overall exposure to the top 25% of companies relative to the
Index detracted from the Fund's relative performance.
WHAT WERE THE FUND'S STRONGEST-PERFORMING STOCKS DURING THE REPORTING PERIOD?
On the basis of total returns alone, mass merchandising company Kmart Holding
(+203.7%)(3) was the Fund's strongest performer, followed by Autodesk (+136.3%),
a worldwide supplier of PC software and multimedia tools, and Overseas
Shipholding Group (+100.9%), an independent bulk shipping company. Other
holdings with strong total returns included Mandalay Resort Group and Choice
Hotels International. On the basis of impact, which takes weightings, total
returns, and holding periods into account, the stock that made the greatest
overall positive contribution to the Fund's performance, was Autodesk, followed
by Kmart Holding, Overseas Shipholding Group, cigarette company Reynolds
American, and electric-power and financial-services company Edison
International.
WHAT STOCKS DETRACTED FROM RESULTS?
Maxtor (-50.8%), which provides hard disk drive products for desktop computer
systems, was the Fund's worst performer both in terms of total return
Mid-capitalization companies are generally less established and their stocks may
be more volatile and less liquid than the securities of larger companies.
Foreign securities may be subject to greater risks than U.S. investments,
including currency fluctuations, less-liquid trading markets, greater price
volatility, political and economic instability, less publicly available
information, and changes in tax or currency laws or monetary policy.
1 See footnote on page 31 for more information on the Russell Midcap(R) Index.
2 The S&P MidCap 400(R) Index is an unmanaged market-value weighted index that
consists of 400 domestic common stocks chosen for market size, liquidity, and
industry-group representation and is generally considered representative of
the market for domestic mid cap stocks. Results assume reinvestment of all
income and capital gains. An investment cannot be made directly into an index.
3 Percentages reflect total returns of Fund holdings in the securities
mentioned, including purchases and sales, for the 12 months ended 10/31/04, or
for the portion of the reporting period such securities were held in the Fund,
if shorter.
www.mainstayfunds.com 33
and impact (or negative contribution to overall performance). Other stocks that
had a negative overall impact on the Fund's performance included New York
Community Bancorp (-32.7%), a bank holding company; Citrix Systems (-37.5%), a
software and information-technology services company; Quanta Services (-36.3%),
which provides contracting services to various industries; and Sanmina-SCI
(-34.7%), a global electronics manufacturing services company.
WHICH INDUSTRY GROUPS PROVIDED THE STRONGEST AND WEAKEST PERFORMANCE?
The energy industry group was particularly strong, followed by transportation,
and utilities. Food, beverage & tobacco and real estate rounded out the Fund's
top five industry groups for the reporting period. Automobiles & components was
the Fund's weakest industry group, followed by the technology hardware &
equipment, pharmaceuticals & biotechnology, semiconductors & semiconductor
equipment, and materials industry groups.
WERE THERE ANY SIGNIFICANT PURCHASES DURING THE REPORTING PERIOD?
Based on our proprietary model, the Fund selects stocks that have relatively
improving operating characteristics and are relatively undervalued. The Fund
purchased First BanCorp (+44.7%) in May 2004, after the commercial lender saw a
strong increase in loans and investments. The Fund purchased Black & Decker
(+35.0%) in July 2004, when improving profitability at the manufacturer and
marketer of home-improvement products helped the stock meet the Fund's purchase
criteria. The Fund also purchased Hershey Foods (+31.6%) in November 2003, when
the consumer food products and chocolate company showed a strong balance sheet
and solid performance.
WHAT STOCKS WERE ELIMINATED DURING THE PERIOD?
The Fund sells stocks that exhibit deteriorating operating results and/or are
relatively overvalued. During the reporting period, the Fund sold Mandalay
Resort Group, which owns and operates several properties in Las Vegas. The stock
enhanced Fund results and was eliminated when our quantitative model indicated
that the stock was relatively overvalued. GreenPoint Financial, a bank holding
company, was eliminated when the company was acquired by North Fork Bancorp. We
also sold J.B. Hunt Transport Services, a provider of transport services for
automotive parts, department store merchandise, chemicals, and manufacturing
materials. While the stock had performed well for the Fund, we were concerned
about the impact of rising diesel-fuel costs on the company's future earnings.
DID THE FUND CHANGE ITS INDUSTRY GROUP WEIGHTINGS?
Weighting changes in the Fund's portfolio result from a combination of security
performance, industry performance, and the Fund's security selection. The Fund
increased its weighting in energy from 1.3% on October 31, 2003, to 10.0% on
October 31, 2004. The shift in weighting was the result of new purchases and
improved performance of the industry group relative to other industry groups.
Over the same period, another significant change was a decrease in the
technology hardware & equipment industry group from 12.78% to 4.68%. The decline
in weighting was a result of the sale of several positions and weaker relative
performance.
WHAT IS YOUR OUTLOOK FOR THE FUND?
As always, the Fund will continue to focus on securities that are appropriate
given its stated objective and its valuation and quality parameters.
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.
INFORMATION ABOUT MAINSTAY MID CAP OPPORTUNITY FUND ON THIS PAGE AND THE
PRECEDING PAGES HAS NOT BEEN AUDITED.
34 MainStay Mid Cap Opportunity Fund
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (95.8%)+
- --------------------------------------------------------------------------------
CAPITAL MARKETS (0.6%)
Bear Stearns Cos., Inc. (The) 2,097 $ 198,691
------------
COMMERCIAL BANKS (2.5%)
Bank of America Corp. 7,400 331,446
First BanCorp 5,700 310,821
Silicon Valley Bancshares (a) 6,300 252,063
------------
894,330
------------
COMMERCIAL SERVICES & SUPPLIES (5.2%)
Brink's Co. (The) 17,200 552,120
Cendant Corp. 9,100 187,369
Copart, Inc. (a) 21,500 399,470
Deluxe Corp. 600 22,854
IKON Office Solutions, Inc. 43,600 457,800
Kelly Services, Inc. Class A 9,400 253,001
------------
1,872,614
------------
COMPUTERS & PERIPHERALS (3.7%)
Dell, Inc. (a) 4,800 168,288
Imation Corp. 13,200 412,764
InFocus Corp. (a) 57,900 372,876
PalmOne, Inc. (a) 13,300 385,301
------------
1,339,229
------------
CONSUMER FINANCE (2.4%)
AmeriCredit Corp. (a) 22,500 436,500
Student Loan Corp. (The) 700 102,550
WFS Financial, Inc. (a) 7,600 334,856
------------
873,906
------------
DIVERSIFIED FINANCIAL SERVICES (1.9%)
VCIT Group, Inc. 16,700 674,680
------------
ELECTRIC UTILITIES (2.0%)
VEdison International 23,400 713,700
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.7%)
Tektronix, Inc. 8,700 263,871
------------
FOOD & STAPLES RETAILING (1.0%)
Albertson's, Inc. 10,600 241,786
SUPERVALU, Inc. 3,900 115,011
------------
356,797
------------
FOOD PRODUCTS (6.2%)
Hershey Foods Corp. 4,400 223,036
Hormel Foods Corp. 6,400 179,904
VKraft Foods, Inc. Class A 18,300 609,573
</Table>
<Table>
<Caption>
SHARES VALUE
FOOD PRODUCTS (CONTINUED)
McCormick & Co., Inc. 6,600 $ 233,838
Pilgrim's Pride Corp. Class B 20,700 559,728
Tyson Foods, Inc. Class A 28,400 411,800
------------
2,217,879
------------
HEALTH CARE EQUIPMENT & SUPPLIES (1.3%)
Bausch & Lomb, Inc. 3,800 231,648
Fisher Scientific International, Inc. (a) 4,368 250,548
------------
482,196
------------
HEALTH CARE PROVIDERS & SERVICES (2.4%)
Humana, Inc. (a) 15,700 300,655
Manor Care, Inc. 8,100 265,194
PacifiCare Health Systems, Inc. (a) 7,800 277,836
------------
843,685
------------
HOTELS, RESTAURANTS & LEISURE (1.8%)
Choice Hotels International, Inc. 1,900 94,810
Darden Restaurants, Inc. 16,200 396,900
Outback Steakhouse, Inc. 3,900 154,401
------------
646,111
------------
HOUSEHOLD DURABLES (7.5%)
Black & Decker Corp. (The) 6,600 529,848
Fortune Brands, Inc. 4,700 342,254
M.D.C. Holdings, Inc. 1,320 101,310
Newell Rubbermaid, Inc. 25,800 556,248
NVR, Inc. (a) 400 250,800
Ryland Group, Inc. (The) 1,300 124,007
Stanley Works (The) 13,200 587,664
Toll Brothers, Inc. (a) 4,400 203,940
------------
2,696,071
------------
HOUSEHOLD PRODUCTS (2.4%)
Clorox Co. (The) 10,500 573,300
Energizer Holdings, Inc. (a) 6,000 278,580
------------
851,880
------------
INDUSTRIAL CONGLOMERATES (0.2%)
Alleghany Corp. (a) 300 86,670
------------
INSURANCE (2.6%)
MBIA, Inc. 4,700 271,942
VTorchmark Corp. 12,100 653,642
------------
925,584
------------
+ Percentages indicated are based on Fund net assets.
V Among the Fund's 10 largest holdings, excluding short-term investments. May
be subject to change daily.
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
35
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS (1.2%)
Eastman Kodak Co. 14,400 $ 436,032
------------
MACHINERY (1.8%)
VTerex Corp. (a) 16,800 638,400
------------
METALS & MINING (2.7%)
VNucor Corp. 16,700 705,241
United States Steel Corp. 7,400 271,728
------------
976,969
------------
MULTILINE RETAIL (4.0%)
Dillard's, Inc. Class A 23,700 485,613
Federated Department Stores, Inc. 3,400 171,530
Kmart Holding Corp. (a) 4,700 432,588
Saks, Inc. (a) 17,100 208,962
Sears, Roebuck and Co. 3,400 119,000
------------
1,417,693
------------
MULTI-UTILITIES & UNREGULATED POWER (2.4%)
Reliant Energy, Inc. (a) 53,800 553,064
Williams Cos., Inc. (The) 23,700 296,487
------------
849,551
------------
OIL & GAS (10.0%)
Amerada Hess Corp. 6,300 508,473
Burlington Resources, Inc. 12,300 510,450
Overseas Shipholding Group, Inc. 7,600 432,820
Premcor, Inc. 11,100 433,344
Sunoco, Inc. 7,300 542,828
Tesoro Petroleum Corp. (a) 18,000 545,040
VValero Energy Corp. 14,000 601,580
------------
3,574,535
------------
PAPER & FOREST PRODUCTS (1.4%)
Louisiana-Pacific Corp. 19,900 487,749
------------
PERSONAL PRODUCTS (1.4%)
Estee Lauder Cos., Inc. (The) Class A 11,400 489,630
------------
PHARMACEUTICALS (1.4%)
Pfizer, Inc. 17,500 506,625
------------
</Table>
<Table>
<Caption>
SHARES VALUE
REAL ESTATE (3.5%)
Equity Office Properties Trust 14,800 $ 416,176
Impac Mortgage Holdings, Inc. 13,400 302,974
LNR Property Corp. 4,700 293,938
Reckson Associates Realty Corp. 7,900 239,765
------------
1,252,853
------------
ROAD & RAIL (1.9%)
VLaidlaw International, Inc. (a) 40,200 670,134
------------
SOFTWARE (3.7%)
VActivision, Inc. (a) 52,700 763,096
Autodesk, Inc. 10,400 548,600
------------
1,311,696
------------
SPECIALTY RETAIL (3.7%)
Barnes & Noble, Inc. (a) 3,500 116,445
Circuit City Stores, Inc. 22,000 357,500
Home Depot, Inc. (The) 2,300 94,484
VSherwin-Williams Co. (The) 14,000 598,080
Zale Corp. (a) 5,800 165,416
------------
1,331,925
------------
TEXTILES, APPAREL & LUXURY GOODS (0.4%)
Reebok International Ltd. 3,500 129,500
------------
THRIFTS & MORTGAGE FINANCE (9.7%)
Astoria Financial Corp. 6,900 269,721
Countrywide Financial Corp. 10,198 325,622
Doral Financial Corp. 4,800 201,504
Fannie Mae 2,600 182,390
Freddie Mac 5,200 346,320
Fremont General Corp. 18,300 393,450
Independence Community Bank Corp. 4,800 180,624
IndyMac Bancorp, Inc. 6,900 222,594
MGIC Investment Corp. 3,000 192,930
New Century Financial Corp. 10,800 595,620
PMI Group, Inc. (The) 5,600 217,392
R&G Financial Corp. Class B 3,700 139,194
Radian Group, Inc. 4,200 201,306
------------
3,468,667
------------
TOBACCO (1.0%)
Reynolds American, Inc. 5,100 351,186
------------
</Table>
36 MainStay Mid Cap Opportunity Fund The notes to the financial statements
are an integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS (1.2%)
Grainger (W.W.), Inc. 7,300 $ 427,707
------------
Total Common Stocks (Cost $30,404,503) 34,258,746
------------
<Caption>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENT (3.7%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (3.7%)
Bank of New York (The)
1.65%, dated 10/29/04 due 11/1/04
Proceeds at Maturity $1,314,181
(Collateralized by Federal National Mortgage
Association 4.124%, due 3/1/33 with a Principal
Amount of $2,100,000 and a Market Value of
$2,142,484 including accrued interest) $ 1,314,000 1,314,000
------------
Total Short-Term Investment (Cost $1,314,000) 1,314,000
------------
Total Investments (Cost $31,718,503) (b) 99.5% 35,572,746(c)
Cash and Other Assets,
Less Liabilities 0.5 196,724
------------- ------------
Net Assets 100.0% $ 35,769,470
============= ============
</Table>
<Table>
(a) Non-income producing security.
(b) The cost for federal income tax purposes is $31,708,485.
(c) At October 31, 2004 net unrealized appreciation was
$3,864,261, based on cost for federal income tax
purposes. This consisted of aggregate gross unrealized
appreciation for all investments on which there was an
excess of market value over cost of $4,643,773 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $779,512.
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
37
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2004
<Table>
ASSETS:
Investment in securities, at value
(identified cost $31,718,503) $35,572,746
Cash 5,560
Receivables:
Fund shares sold 247,523
Dividends and interest 18,439
Other assets 12,144
-----------
Total assets 35,856,412
-----------
LIABILITIES:
Payables:
Professional 27,438
Manager 13,550
Transfer agent 10,643
NYLIFE Distributors 9,577
Fund shares redeemed 5,316
Custodian 2,604
Accrued expenses 17,814
-----------
Total liabilities 86,942
-----------
Net assets $35,769,470
===========
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
1 billion shares authorized:
Class A $ 2,796
Class B 2,487
Class C 2,139
Class I 7,852
Additional paid-in capital 30,571,765
Accumulated undistributed net realized gain
on investments 1,328,188
Net unrealized appreciation on investments 3,854,243
-----------
Net assets $35,769,470
===========
CLASS A
Net assets applicable to outstanding shares $ 6,554,422
===========
Shares of capital stock outstanding 279,557
===========
Net asset value per share outstanding $ 23.45
Maximum sales charge (5.50% of offering price) 1.36
-----------
Maximum offering price per share outstanding $ 24.81
===========
CLASS B
Net assets applicable to outstanding shares $ 5,756,017
===========
Shares of capital stock outstanding 248,695
===========
Net asset value and offering price per share
outstanding $ 23.14
===========
CLASS C
Net assets applicable to outstanding shares $ 4,950,826
===========
Shares of capital stock outstanding 213,906
===========
Net asset value and offering price per share
outstanding $ 23.14
===========
CLASS I
Net assets applicable to outstanding shares $18,508,205
===========
Shares of capital stock outstanding 785,164
===========
Net asset value and offering price per share
outstanding $ 23.57
===========
</Table>
38 MainStay Mid Cap Opportunity Fund The notes to the financial statements
are an integral part of, and should be read in conjunction with, the financial
statements.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2004
<Table>
INVESTMENT INCOME:
INCOME:
Dividends (a) $ 266,618
Interest 9,391
----------
Total income 276,009
----------
EXPENSES:
Manager 190,634
Registration 44,531
Professional 33,068
Transfer agent -- Classes A, B and C 24,515
Transfer agent -- Class I 29,290
Distribution -- Class B 14,747
Distribution -- Class C 13,003
Custodian 8,742
Trustees 7,941
Service -- Class A 5,683
Service -- Class B 4,916
Service -- Class C 4,334
Service -- Service Class 9
Shareholder communication 5,169
Portfolio pricing 3,946
Miscellaneous 14,966
----------
Total expenses before reimbursement 405,494
Expense reimbursement from Manager (126,156)
Fees paid indirectly (See Note 2(E)) (3,310)
----------
Net expenses 276,028
----------
Net investment loss (19)
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 1,340,083
Net change in unrealized appreciation on
investments 1,004,716
----------
Net realized and unrealized gain on investments 2,344,799
----------
Net increase in net assets resulting from
operations $2,344,780
==========
</Table>
(a) Dividends recorded net of foreign withholding taxes in the amount of $95.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
39
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003
<Table>
<Caption>
2004 2003
INCREASE (DECREASE)
IN NET ASSETS:
Operations:
Net investment income (loss) $ (19) $ 229,089
Net realized gain on investments 1,340,083 10,470,034
Net change in unrealized appreciation
on investments 1,004,716 787,704
--------------------------
Net increase in net assets resulting
from operations 2,344,780 11,486,827
--------------------------
Dividends and distributions to shareholders:
From net investment income:
Class I -- (220,660)
Service Class -- (1)
From net realized gain on investments:
Class C (11) --
Class I (109,405) --
Service Class (167) --
--------------------------
Total dividends and distributions to
shareholders (109,583) (220,661)
--------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 6,832,118 --
Class B 5,871,147 --
Class C 4,954,042 1,148
Class I 8,968,490 6,543,744
Service Class 21,108 1,529
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions:
Class C 10 --
Class I 109,130 219,240
Service Class 167 1
--------------------------
26,756,212 6,765,662
Cost of shares redeemed:
Class A (408,728) --
Class B (218,504) --
Class C (132,476) (104)
Class I (6,057,924) (55,643,197)
Service Class (24,327) --
--------------------------
(6,841,959) (55,643,301)
--------------------------
Increase (decrease) in net assets
derived from capital share
transactions 19,914,253 (48,877,639)
--------------------------
Net increase (decrease) in net
assets 22,149,450 (37,611,473)
</Table>
<Table>
<Caption>
2004 2003
NET ASSETS:
Beginning of year $13,620,020 $ 51,231,493
--------------------------
End of year $35,769,470 $ 13,620,020
==========================
</Table>
40 MainStay Mid Cap Opportunity Fund The notes to the financial statements
are an integral part of, and should be read in conjunction with, the financial
statements.
This page intentionally left blank
41
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A CLASS B CLASS C
----------- ----------- --------------------------------
JANUARY 2, JANUARY 2, DECEMBER 30,
2004** 2004** YEAR 2002**
THROUGH THROUGH ENDED THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2004 2004 2004 2003
Net asset value at beginning of period $21.93 $21.79 $20.86 $15.87
------ ------ ------ ------
Net investment income (loss) (0.01) (0.07) (0.07) (0.06)(a)
Net realized and unrealized gain (loss) on
investments 1.53 1.42 2.50 5.05
------ ------ ------ ------
Total from investment operations 1.52 1.35 2.43 4.99
------ ------ ------ ------
Less dividends and distributions:
From net investment income -- -- -- --
From net realized gain on investments -- -- (0.15) --
------ ------ ------ ------
Total dividends and distributions -- -- (0.15) --
------ ------ ------ ------
Net asset value at end of period $23.45 $23.14 $23.14 $20.86
====== ====== ====== ======
Total investment return (b) 6.93%(c) 6.20%(c) 11.71% 31.44%(c)
Ratios (to average net
assets)/Supplemental Data:
Net investment income (loss) (0.21%)+ (0.96%)+ (0.96%) (0.53%)+
Net expenses 1.53%+# 2.28%+# 2.28%# 2.13%+#
Expenses (before reimbursement) 2.13%+# 2.88%+# 2.88%# 2.37%+#
Portfolio turnover rate 43% 43% 43% 90%
Net assets at end of period (in 000's) $6,554 $5,756 $4,951 $ 1
</Table>
<Table>
* The Fund changed its fiscal year end from December 31 to
October 31.
** Commencement of Operations.
+ Annualized.
# Includes transfer agent fees paid indirectly which amounted
to 0.02%, 0.09%, 0.13% and 0.15% of average net assets for
the years or periods ended October 31, 2004, October 31,
2003, October 31, 2002 and October 31, 2001, respectively,
and custodian fees and other expenses paid indirectly which
amounted to 0.02% of average net assets for the year ended
December 31, 2000.
(a) Per share data based on average shares outstanding during
the period.
(b) Total return is calculated exclusive of sales charges. Class
I is not subject to sales charges.
(c) Total return is not annualized.
(d) Restated.
</Table>
42 MainStay Mid Cap Opportunity Fund The notes to the financial statements
are an integral part of, and should be read in conjunction with, the financial
statements.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS I
- -------------------------------------------------------------------------------------------------------------------------
JANUARY 1,
2001
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31, YEAR ENDED DECEMBER 31,
2004 2003 2002 2001* 2000 1999
$ 21.01 $ 16.16 $ 16.30 $ 16.93 $ 16.06 $ 17.73
------- ------- ------- ------- ------- -------
0.05 0.08(a) 0.09 0.06 0.06 0.11
2.66 4.84 (0.14) (0.69) 0.88 (0.13)
------- ------- ------- ------- ------- -------
2.71 4.92 (0.05) (0.63) 0.94 (0.02)
------- ------- ------- ------- ------- -------
-- (0.07) (0.09) -- (0.06) (0.11)
(0.15) -- -- -- (0.01) (1.54)
------- ------- ------- ------- ------- -------
(0.15) (0.07) (0.09) -- (0.07) (1.65)
------- ------- ------- ------- ------- -------
$ 23.57 $ 21.01 $ 16.16 $ 16.30 $ 16.93 $ 16.06
======= ======= ======= ======= ======= =======
12.97% 30.59% (0.38%) (3.72%)(c) 5.83% 0.04%
0.26% 0.47% 0.46% 0.41%+ 0.35% 0.51%
1.06%# 1.13%# 1.17%# 1.19%+#(d) 1.06%# 1.05%
1.66%# 1.37%# 1.29%# 1.22%+#(d) 1.06%# 1.05%
43% 90% 75% 69% 114% 51%
$18,508 $13,617 $51,231 $56,907 $67,401 $83,064
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
43
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
SERVICE CLASS++
-----------------------------------------
NOVEMBER 1, JULY 1,
2003 YEAR 2002*
THROUGH ENDED THROUGH
JANUARY 9, OCTOBER 31, OCTOBER 31,
2004 2003 2002
Net asset value at beginning of period $20.97 $16.16 $17.77
------ ------ ------
Net investment income 0.00(b) 0.05(a) 0.06
Net realized and unrealized gain (loss) on
investments 1.35 4.81 (1.67)
------ ------ ------
Total from investment operations 1.35 4.86 (1.61)
------ ------ ------
Less dividends and distributions:
From net investment income -- (0.05) --
From net realized gain on investments (0.15) -- --
------ ------ ------
Total dividends and distributions (0.15) (0.05) --
------ ------ ------
Net asset value at end of period $22.17 $20.97 $16.16
====== ====== ======
Total investment return (c) 6.47%(d) 30.18% (9.06%)(d)
Ratios (to average net
assets)/Supplemental Data:
Net investment income (loss) (0.22%)+ 0.22% 0.21%+
Net expenses 1.31%+# 1.38%# 1.42%+#
Expenses (before reimbursement) 2.45%+# 1.62%# 1.54%+#
Portfolio turnover rate 9% 90% 75%
Net assets at end of period (in 000's) $ 0 $ 2 $ 0(e)
</Table>
<Table>
* Commencement of Operations.
+ Annualized.
++ Service Class shares ceased operations on January 9, 2004.
# Includes transfer agent fees paid indirectly which amounted
to 0.02%, 0.09% and 0.13% of average net assets for the
years or periods ended January 9, 2004, October 31, 2003 and
October 31, 2002, respectively.
(a) Per share data based on average shares outstanding during
the period.
(b) Less than one cent per share.
(c) Total return is calculated exclusive of sales charges.
Service Class is not subject to sales charges.
(d) Total return is not annualized.
(e) Less than one thousand dollars.
</Table>
44 MainStay Mid Cap Opportunity Fund The notes to the financial statements
are an integral part of, and should be read in conjunction with, the financial
statements.
MAINSTAY S&P 500 INDEX FUND
INVESTMENT AND PERFORMANCE COMPARISON
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY, CURRENT PERFORMANCE MAY
BE LESS OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. FOR CURRENT TO THE MOST RECENT MONTH-END PERFORMANCE
INFORMATION, PLEASE CONTACT 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM.
CLASS A SHARES -- MAXIMUM 3% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
With sales charges 5.51% -3.17% 10.20%
Excluding sales charges 8.77 -2.58 10.53
</Table>
(LINE GRAPH FOR CLASS A SHARES)
<Table>
<Caption>
MAINSTAY S&P 500 INDEX FUND S&P 500 INDEX
--------------------------- -------------
10/31/94 9700 10000
12197 12644
15037 15691
19771 20729
23999 25288
30088 31779
31820 33715
23860 25319
20188 21494
24278 25965
10/31/04 26407 28411
</Table>
<Table>
-- MainStay S&P 500 Index Fund -- S&P 500 Index
</Table>
CLASS I SHARES -- NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
9.10% -2.35% 10.78%
</Table>
(LINE GRAPH FOR CLASS I SHARES)
<Table>
<Caption>
MAINSTAY S&P 500 INDEX FUND S&P 500 INDEX
--------------------------- -------------
10/31/94 10000.00 10000.00
12599.00 12644.00
15565.00 15691.00
20507.00 20729.00
24954.00 25288.00
31351.00 31779.00
33226.00 33715.00
24954.00 25319.00
21154.00 21494.00
25508.00 25965.00
10/31/04 27829.00 28411.00
</Table>
<Table>
-- MainStay S&P 500 Index Fund -- S&P 500 Index
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
S&P 500(R) Index(1) 9.42% -2.22% 11.01%
Average Lipper S&P 500 Index objective
fund(2) 8.75 -2.74 10.53
</Table>
Performance tables and graphs do not reflect the deduction of taxes that a
shareholder would pay on distributions or Fund-share redemptions. Total returns
reflect change in share price, reinvestment of dividend and capital-gain
distributions, and maximum applicable sales charges explained in this paragraph.
The graphs assume an initial investment of $10,000 and reflect the deduction of
all sales charges that would have applied for the period of investment. Class A
shares are sold with a maximum initial sales charge of 3% and an annual 12b-1
fee of .25%. Class I shares are sold with no initial sales charge or CDSC, have
no annual 12b-1 fee, and are generally available to corporate and institutional
investors with a minimum initial investment of $5 million. Performance figures
reflect certain fee waivers and/or expense limitations, without which total
returns may have been lower. The fee waivers and/or expense limitations are
contractual and may be discontinued at any time after December 31, 2004.
Performance for Class A shares, first offered 1/2/04, includes the historical
performance of Class I shares from inception (1/2/91) through 12/31/03 adjusted
to reflect the applicable sales charge and fees and expenses for Class A shares.
1. "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use. Standard & Poor's does not sponsor, endorse, sell, or
promote the Fund or represent the advisability of investing in the Fund. The
S&P 500(R) is an unmanaged index and is widely regarded as the standard for
measuring large-cap U.S. stock-market performance. Results assume
reinvestment of all income and capital gains. The S&P 500(R) Index is
considered to be the Fund's broad-based securities-market index for
comparison purposes. An investment cannot be made directly into an index.
2. Lipper Inc. is an independent fund performance monitor. Results are based on
total returns with all dividend and capital-gain distributions reinvested.
www.mainstayfunds.com 45
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY S&P 500 INDEX FUND
Expenses shown in the table are meant to highlight your ongoing costs only and
do not reflect any transactional costs, such as sales charges (loads),
redemption fees, or exchange fees. Therefore, the third data column of the table
is 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 had been included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT ENDING ACCOUNT
VALUE (BASED VALUE (BASED
BEGINNING ON ACTUAL EXPENSES ON HYPOTHETICAL EXPENSES
ACCOUNT RETURNS AND PAID 5% ANNUALIZED PAID
VALUE EXPENSES) DURING RETURN AND DURING
SHARE CLASS(1) 5/1/04 10/31/04 PERIOD ACTUAL EXPENSES) PERIOD
CLASS A SHARES $1,000.00 $1,026.45 $3.01 $1,022.05 $3.00
- ----------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,028.10 $1.53 $1,023.50 $1.53
- ----------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio multiplied by the
average account value over the period, divided by 366, multiplied by 184 (to
reflect the one-half year period).
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2004
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
Common Stocks 96.8
Short Term Investments 5.4
Liabilities in excess of cash and other assets -2.2
</Table>
See Portfolio of Investments on page 49 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2004 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. General Electric Co.
2. ExxonMobil Corp.
3. Microsoft Corp.
4. Citigroup, Inc.
5. Wal-Mart Stores, Inc.
6. Pfizer, Inc.
7. Bank of America Corp.
8. Johnson & Johnson
9. American International Group, Inc.
10. International Business Machines Corp.
</Table>
46 MainStay S&P 500 Index Fund
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio manager Francis J. Ok of New York Life
Investment Management LLC
CAN YOU BRIEFLY DESCRIBE THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 80% of its total assets in stocks contained
in the S&P 500(R) Index(1) in the same proportion, to the extent feasible, as
they are represented in the Index. In implementing this strategy, we use
statistical techniques to determine which stocks are to be purchased or sold to
replicate the S&P 500(R) Index to the extent feasible. From time to time,
adjustments may be made in the Fund's portfolio because of changes in the
composition of the Index.
WHAT WERE THE MAJOR FACTORS THAT AFFECTED THE STOCK MARKET DURING THE 12-MONTH
REPORTING PERIOD?
The reporting period began amid changing investor sentiment. Concerns over the
economy gave way to optimism that a sustainable recovery might be underway.
Several factors helped support the economy, including the lowest interest rates
seen in 45 years and a generous tax-cut package. The weaker dollar helped
stimulate export activity, and low inventory levels prompted additional business
investment.
Investors, however, were not able to sustain the strong stock-market gains
posted in the fourth quarter of 2003. Although stocks did surge into early
February 2004, the latter part of February and much of March proved troublesome
for the equity market. Terrorism muted any momentum that had been building in
the markets when an attack in Madrid, combined with the assassination of Hamas
leader Sheik Ahmed Yasin, drove equities lower. Ongoing violence against U.S.
troops and civilians involved in rebuilding Iraq further troubled the financial
markets. Instability in the Middle East and geopolitical difficulties elsewhere
continued to present obstacles for equity investors.
Caution was a market theme in the second and third quarters of 2004.
Record-breaking oil prices heightened the threat of inflation. Meanwhile,
investors seemed preoccupied with the uncertainty surrounding the November
presidential election. The Federal
Open Market Committee raised the targeted federal funds rate 25 basis points
three times during the reporting period--in June, August, and September. Even
so, the Federal Reserve remained optimistic that the economy could weather the
"soft patch" brought on by high energy prices and other forces.
WHAT WERE THE BEST-PERFORMING SUBINDUSTRIES(2) IN THE S&P 500(R) INDEX DURING
THE REPORTING PERIOD?
On the basis of total returns alone, Internet retail (+74.49%)(3) was the
best-performing subindustry for the 12 months ended October 31, 2004. Other top-
performing subindustries included fertilizers & agricultural chemicals
(+70.66%), oil & gas refining, marketing & transportation (+68.00%), Internet
software & services (+65.63%), and wireless telecommunication services
(+59.51%).
The subindustries that made the greatest positive contribution to the
performance of the Index, however, all had higher weightings and lower total
returns. On the basis of impact, which takes weightings and total returns both
into consideration, the leading subindustry was integrated oil & gas (+38.52%),
followed by industrial conglomerates (+18.38%), diversified banks (+13.99%),
electrical utilities (+22.03%), and aerospace & defense (+18.56%).
WHICH SUBINDUSTRIES WERE THE WORST PERFORMERS?
On the basis of total returns alone, the worst-performing subindustries in the
Index for the 12-month reporting period were IT consulting & other services
(-30.86%), semiconductor equipment (-29.57%), insurance brokers (-28.61%),
semiconductors (-24.29%), and airlines (-22.46%).
For the 12 months ended October 31, 2004, semiconductors (-24.29%) was the
subindustry with the greatest negative impact on Index performance when
weightings and total returns were both taken into account. Pharmaceuticals
(-5.68%) was next, followed by semiconductor equipment (-29.57%),
Index funds generally seek to reflect the performance of an index or an
allocation among indices, unlike other funds, whose objectives may, in some
cases, involve seeking to outperform an index or other benchmark. The Fund may
invest in derivatives, which may increase the volatility of the Fund's net asset
value and may result in a loss to the Fund.
1. See footnote on page 45 for more information on the S&P 500(R) Index.
2. The Global Industry Classification Standard categorizes companies by sector,
industry group, industry, and subindustry. Results in this section of the
annual report reflect subindustry and company performance. In the Portfolio
of Investments that follows, companies are listed by industry.
3. Percentages reflect the total-return performance, including reinvestment of
all dividends and capital gains, of the subindustries or the securities
mentioned for the 12 months ended 10/31/04. Due to purchases and sales, the
performance of Fund holdings may differ from that of the sub-industries or
securities themselves.
www.mainstayfunds.com 47
hypermarkets & super centers (-5.88%), and broadcast & cable TV (-13.76%).
WHICH INDIVIDUAL STOCKS HAD THE HIGHEST TOTAL RETURNS DURING THE REPORTING
PERIOD?
For the 12 months ended October 31, 2004, the best-performing company in the S&P
500(R) Index on the basis of total returns alone was Autodesk (+174.03%). The
second-best performer was TXU (+168.27%), followed by Apple Computer (+129.49%),
Allegheny Technology (+119.74%), and Valero Energy (+101.26%).
As impressive as these returns may be, the five stocks that made the greatest
positive contribution to the performance of the S&P 500(R) Index all had higher
weightings and lower total returns. On the basis of impact, which takes
weightings and total returns both into account, the strongest positive
contributor to the performance of the Index for the 12-month period was
ExxonMobil (+34.55%), followed by General Electric (+17.61%), ChevronTexaco
(+42.83%), QUALCOMM (+76.04%), and eBay (+74.49%).
WHICH STOCKS WERE THE WEAKEST PERFORMERS DURING THE REPORTING PERIOD?
On the basis of total returns alone, the worst-performing stock in the S&P
500(R) Index during the 12 months ended October 31, 2004, was CIENA (-61.47%).
Other weak performers included Delta Airlines (-58.14%), Winn-Dixie Stores
(-57.48%), LSI Logic (-50.76%), and Calpine (-45.99%).
On the basis of impact, which takes weightings and total returns both into
account, Intel (-32.65%) made the greatest negative contribution to the
performance of the Index for the 12-month reporting period. Merck (-29.24%) was
next, followed by Wal-Mart Stores (-8.53%), Pfizer (-8.39%), and Citigroup
(-6.39%).
WERE THERE ANY CHANGES MADE TO THE FUND OR THE INDEX DURING THE PERIOD?
The Fund seeks to track the performance and weightings of stocks in the S&P
500(R) Index. The Index itself, however, may change from time to time as
companies merge, divest units, add to their market capitalization, or face
financial difficulties. Standard & Poor's may also occasionally adjust the Index
to better reflect the companies that it believes are most representative of the
makeup of our economy. During the fiscal year ended October 31, 2004, there were
13 companies deleted from the S&P 500(R) Index and 13 companies added to it.
Among the deleted companies were familiar names such as Tupperware, American
Greetings, John Hancock Financial Services, and AT&T Wireless. Among the
additions were such well-known companies as Caremark Rx, E*Trade Financial,
Valero Energy, and Coach.
WHAT DO YOU ANTICIPATE GOING FORWARD?
After the reporting period ended, President Bush was reelected, which served as
a short-term catalyst for a surge in the equity markets. In our opinion,
however, it remains to be seen whether the direction of oil prices and
inflation--and their effects on corporate profits--will quell some of the
market's anxieties or exacerbate them.
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.
INFORMATION ABOUT MAINSTAY S&P 500 INDEX FUND ON THIS PAGE AND THE PRECEDING
PAGES HAS NOT BEEN AUDITED.
48 MainStay S&P 500 Index Fund
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (96.8%)+
- ----------------------------------------------------------------------------------
AEROSPACE & DEFENSE (1.9%)
Boeing Co. (The) 97,630 $ 4,871,737
General Dynamics Corp. 22,993 2,348,045
Goodrich Corp. 13,677 421,662
Honeywell International, Inc. 99,944 3,366,114
Lockheed Martin Corp. 51,706 2,848,483
Northrop Grumman Corp. 41,823 2,164,340
Raytheon Co. 52,066 1,899,368
Rockwell Collins, Inc. 20,777 736,960
United Technologies Corp. 59,457 5,518,799
--------------
24,175,508
--------------
AIR FREIGHT & LOGISTICS (1.1%)
FedEx Corp. 34,937 3,183,459
Ryder System, Inc. 7,399 370,690
United Parcel Service, Inc. Class B 130,770 10,354,369
--------------
13,908,518
--------------
AIRLINES (0.1%)
Delta Air Lines, Inc. (a)(d) 14,500 79,025
Southwest Airlines Co. 91,393 1,441,268
--------------
1,520,293
--------------
AUTO COMPONENTS (0.2%)
Cooper Tire & Rubber Co. 8,656 168,619
Dana Corp. 17,405 259,509
Delphi Corp. 65,449 550,426
Goodyear Tire & Rubber Co. (The) (a) 20,481 206,448
Johnson Controls, Inc. 21,975 1,260,266
Visteon Corp. 15,055 107,041
--------------
2,552,309
--------------
AUTOMOBILES (0.6%)
Ford Motor Co. (d) 212,803 2,772,823
General Motors Corp. 65,446 2,522,943
Harley-Davidson, Inc. 34,262 1,972,464
--------------
7,268,230
--------------
BEVERAGES (2.3%)
Adolph Coors Co. Class B 4,341 289,545
Anheuser-Busch Cos., Inc. 92,989 4,644,800
Brown-Forman Corp. Class B 14,194 637,311
Coca-Cola Co. (The) (c) 282,050 11,468,153
Coca-Cola Enterprises, Inc. 54,585 1,141,372
Pepsi Bottling Group, Inc. (The) 30,197 846,724
PepsiCo, Inc. 196,957 9,765,128
--------------
28,793,033
--------------
</Table>
<Table>
<Caption>
SHARES VALUE
BIOTECHNOLOGY (1.2%)
Amgen, Inc. (a) 147,180 $ 8,359,824
Biogen Idec, Inc. (a) 39,502 2,297,437
Chiron Corp. (a)(d) 21,890 709,674
Genzyme Corp. (a) 26,372 1,383,739
Gilead Sciences, Inc. (a) 50,029 1,732,504
MedImmune, Inc. (a) 29,365 834,553
--------------
15,317,731
--------------
BUILDING PRODUCTS (0.2%)
American Standard Cos., Inc. (a) 25,246 923,246
Masco Corp. 50,387 1,726,259
--------------
2,649,505
--------------
CAPITAL MARKETS (2.7%)
Bank of New York Co., Inc. (The) 89,904 2,918,284
Bear Stearns Cos., Inc. (The) 12,041 1,140,885
Charles Schwab Corp. (The) 157,534 1,441,436
E*TRADE Financial Corp. (a) 42,520 548,508
Federated Investors, Inc. Class B 12,566 364,288
Franklin Resources, Inc. 29,085 1,763,133
Goldman Sachs
Group, Inc. (The) 56,518 5,560,241
Janus Capital Group, Inc. 27,969 426,527
Lehman Brothers Holdings, Inc. 31,584 2,594,626
Mellon Financial Corp. 49,338 1,425,868
Merrill Lynch & Co., Inc. 109,382 5,900,065
Morgan Stanley 127,536 6,515,814
Northern Trust Corp. 25,838 1,099,148
State Street Corp. 39,002 1,757,040
T. Rowe Price Group, Inc. 14,627 815,748
--------------
34,271,611
--------------
CHEMICALS (1.6%)
Air Products & Chemicals, Inc. 26,588 1,413,950
Dow Chemical Co. (The) 109,228 4,908,706
E.I. du Pont de
Nemours & Co. 116,250 4,983,637
Eastman Chemical Co. 9,049 429,556
</Table>
+ Percentages indicated are based on Fund net assets.
V Among the Fund's 10 largest holdings, 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. www.mainstayfunds.com
49
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- ----------------------------------------------------------------------------------
CHEMICALS (CONTINUED)
Ecolab, Inc. 30,133 $ 1,020,002
Engelhard Corp. 14,886 421,274
Great Lakes Chemical Corp. 5,856 150,031
Hercules, Inc. (a) 12,882 183,955
International Flavors & Fragrances, Inc. 10,953 427,715
Monsanto Co. 30,588 1,307,637
PPG Industries, Inc. 19,815 1,263,206
Praxair, Inc. 38,097 1,607,693
Rohm & Haas Co. 25,836 1,095,188
Sigma-Aldrich Corp. 8,009 445,621
--------------
19,658,171
--------------
COMMERCIAL BANKS (5.9%)
AmSouth Bancorp 40,859 1,078,269
VBank of America Corp. 472,110 21,145,807
BB&T Corp. 64,450 2,649,540
Comerica, Inc. 20,096 1,236,105
Fifth Third Bancorp 66,243 3,258,493
First Horizon National Corp. 14,368 621,847
Huntington Bancshares, Inc. 26,601 637,094
KeyCorp 47,677 1,601,470
M&T Bank Corp. 13,574 1,398,122
Marshall & Ilsley Corp. 26,134 1,096,844
National City Corp. 77,185 3,007,899
North Fork Bancorp., Inc. 36,197 1,596,288
PNC Financial Services Group, Inc. (The) 32,626 1,706,340
Regions Financial Corp. 53,535 1,878,008
SouthTrust Corp. 38,356 1,671,171
SunTrust Banks, Inc. 41,579 2,926,330
Synovus Financial Corp. 35,895 975,985
U.S. Bancorp 218,535 6,252,286
Wachovia Corp. 152,233 7,491,386
Wells Fargo & Co. 196,037 11,707,330
Zions Bancorp 10,355 685,190
--------------
74,621,804
--------------
COMMERCIAL SERVICES & SUPPLIES (1.0%)
Allied Waste
Industries, Inc. (a) 37,263 304,066
Apollo Group, Inc. Class A (a) 22,589 1,490,874
Avery Dennison Corp. 12,936 787,026
Cendant Corp. 122,793 2,528,308
Cintas Corp. 19,841 855,941
Deluxe Corp. 5,910 225,112
Donnelley (R.R.) & Sons Co. 25,429 799,742
Equifax, Inc. 15,928 416,517
H&R Block, Inc. 19,567 930,411
Monster Worldwide, Inc. (a) 13,616 381,929
</Table>
<Table>
<Caption>
SHARES VALUE
COMMERCIAL SERVICES & SUPPLIES (CONTINUED)
Pitney Bowes, Inc. 26,872 $ 1,175,650
Robert Half International, Inc. 19,898 527,894
Waste Management, Inc. 67,246 1,915,166
--------------
12,338,636
--------------
COMMUNICATIONS EQUIPMENT (2.8%)
ADC Telecommunications, Inc. (a) 93,883 207,482
Andrew Corp. (a) 18,732 261,873
Avaya, Inc. (a) 52,503 756,043
CIENA Corp. (a) 66,769 164,919
Cisco Systems, Inc. (a) 785,701 15,093,316
Comverse Technology, Inc. (a) 22,733 469,209
Corning, Inc. (a) 161,670 1,851,122
JDS Uniphase Corp. (a) 167,427 530,744
Lucent Technologies, Inc. (a)(d) 496,174 1,761,418
Motorola, Inc. 274,648 4,740,424
QLogic Corp. (a) 10,909 354,543
QUALCOMM, Inc. 189,305 7,914,842
Scientific-Atlanta, Inc. 17,488 478,996
Tellabs, Inc. (a) 48,265 386,120
--------------
34,971,051
--------------
COMPUTERS & PERIPHERALS (3.6%)
Apple Computer, Inc. (a) 44,984 2,363,010
Dell, Inc. (a) 290,304 10,178,058
EMC Corp. (a) 279,755 3,600,447
Gateway, Inc. (a) 43,541 254,715
Hewlett-Packard Co. 351,076 6,551,078
VInternational Business Machines Corp. 194,443 17,451,259
Lexmark International, Inc. (a) 15,104 1,255,294
NCR Corp. (a) 11,135 627,457
Network Appliance, Inc. (a) 41,418 1,013,499
Sun Microsystems, Inc. (a) 386,716 1,751,823
--------------
45,046,640
--------------
CONSTRUCTION & ENGINEERING (0.0%) (B)
Fluor Corp. 9,367 435,003
--------------
CONSTRUCTION MATERIALS (0.0%) (B)
Vulcan Materials Co. 11,882 591,486
--------------
CONSUMER FINANCE (1.3%)
American Express Co. 147,368 7,820,820
Capital One Financial Corp. 27,844 2,053,773
MBNA Corp. 148,486 3,805,696
Providian Financial Corp. (a) 33,878 526,803
SLM Corp. 51,038 2,309,980
--------------
16,517,072
--------------
</Table>
50 MainStay S&P 500 Index Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- ----------------------------------------------------------------------------------
CONTAINERS & PACKAGING (0.2%)
Ball Corp. 13,191 $ 525,661
Bemis Co., Inc. 12,347 326,825
Pactiv Corp. (a) 17,851 422,890
Sealed Air Corp. (a) 9,820 486,483
Temple-Inland, Inc. 6,322 373,757
--------------
2,135,616
--------------
DISTRIBUTORS (0.1%)
Genuine Parts Co. 20,490 817,346
--------------
DIVERSIFIED FINANCIAL SERVICES (3.7%)
CIT Group, Inc. 24,500 989,800
VCitigroup, Inc. 601,282 26,678,882
JPMorgan Chase & Co. 414,007 15,980,670
Moody's Corp. 17,160 1,335,220
Principal Financial Group, Inc. 36,423 1,375,333
--------------
46,359,905
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES (2.9%)
ALLTEL Corp. 35,791 1,966,000
AT&T Corp. 92,043 1,574,856
BellSouth Corp. 212,842 5,676,496
CenturyTel, Inc. 15,720 504,455
Citizens Communications Co. 38,020 509,468
Qwest Communications International, Inc. (a) 206,257 705,399
SBC Communications, Inc. 384,826 9,720,705
Sprint Corp. (FON Group) 168,870 3,537,826
Verizon Communications, Inc. 321,836 12,583,787
--------------
36,778,992
--------------
ELECTRIC UTILITIES (2.3%)
Allegheny Energy, Inc. (a)(d) 14,693 269,029
Ameren Corp. 22,542 1,082,016
American Electric Power Co., Inc. 46,043 1,516,196
CenterPoint Energy, Inc. 35,629 374,461
Cinergy Corp. 20,753 820,159
CMS Energy Corp. (a) 22,072 206,594
Consolidated Edison, Inc. 27,901 1,212,298
Dominion Resources, Inc. 38,289 2,462,748
DTE Energy Co. 20,141 860,222
Edison International 38,035 1,160,068
Entergy Corp. 26,281 1,717,726
Exelon Corp. 76,597 3,034,773
FirstEnergy Corp. 38,422 1,587,981
FPL Group, Inc. 21,381 1,473,151
PG&E Corp. (a) 46,576 1,492,295
Pinnacle West Capital Corp. 10,611 452,241
PPL Corp. 21,956 1,141,712
</Table>
<Table>
<Caption>
SHARES VALUE
ELECTRIC UTILITIES (CONTINUED)
Progress Energy, Inc. 28,626 $ 1,182,254
Public Service Enterprise Group, Inc. 27,381 1,166,157
Southern Co. (The) 85,297 2,694,532
TECO Energy, Inc. 22,050 308,700
TXU Corp. (d) 34,590 2,117,600
Xcel Energy, Inc. 46,613 797,082
--------------
29,129,995
--------------
ELECTRICAL EQUIPMENT (0.4%)
American Power Conversion Corp. 22,967 442,804
Cooper Industries, Ltd. Class A 10,735 685,966
Emerson Electric Co. 49,093 3,144,407
Power-One, Inc. (a) 9,397 65,967
Rockwell Automation, Inc. 21,674 903,589
--------------
5,242,733
--------------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.5%)
Agilent Technologies, Inc. (a) 55,955 1,402,232
Jabil Circuit, Inc. (a) 23,217 564,405
Molex, Inc. 22,372 661,540
PerkinElmer, Inc. 14,756 303,088
Sanmina-SCI Corp. (a) 59,711 477,688
Solectron Corp. (a) 111,592 582,510
Symbol Technologies, Inc. 26,980 396,336
Tektronix, Inc. 9,899 300,237
Thermo Electron Corp. (a) 19,181 556,249
Waters Corp. (a) 13,933 575,294
--------------
5,819,579
--------------
ENERGY EQUIPMENT & SERVICES (1.0%)
Baker Hughes, Inc. 39,033 1,671,783
BJ Services Co. 18,736 955,536
Halliburton Co. 51,047 1,890,781
Nabors Industries, Ltd. (a) 17,001 835,089
Noble Corp. (a) 15,627 713,841
Rowan Cos., Inc. (a) 12,124 309,526
Schlumberger Ltd. 68,512 4,312,145
Transocean, Inc. (a) 37,374 1,317,434
--------------
12,006,135
--------------
FOOD & STAPLES RETAILING (3.3%)
Albertson's, Inc. 42,964 980,009
Costco Wholesale Corp. 53,402 2,560,092
CVS Corp. 46,023 2,000,160
Kroger Co. (The) (a) 86,649 1,309,266
Safeway, Inc. (a) 51,562 940,491
SUPERVALU, Inc. 15,596 459,926
Sysco Corp. 74,354 2,399,403
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
51
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- ----------------------------------------------------------------------------------
FOOD & STAPLES RETAILING (CONTINUED)
Walgreen Co. 119,066 $ 4,273,279
VWal-Mart Stores, Inc. (d) 492,397 26,550,046
Winn-Dixie Stores, Inc. (d) 16,462 56,629
--------------
41,529,301
--------------
FOOD PRODUCTS (1.2%)
Archer-Daniels-Midland Co. 75,457 1,461,602
Campbell Soup Co. 47,980 1,287,783
ConAgra Foods, Inc. 61,406 1,621,119
General Mills, Inc. 44,129 1,952,708
H.J. Heinz Co. 40,668 1,478,282
Hershey Foods Corp. 28,616 1,450,545
Kellogg Co. 48,050 2,066,150
McCormick & Co., Inc. 16,234 575,171
Sara Lee Corp. 91,868 2,138,687
Wm. Wrigley Jr. Co. 26,063 1,704,520
--------------
15,736,567
--------------
GAS UTILITIES (0.3%)
KeySpan Corp. 18,372 733,961
Kinder Morgan, Inc. 14,312 921,264
Nicor, Inc. 5,132 192,553
NiSource, Inc. 30,791 660,465
Peoples Energy Corp. 4,271 182,713
Sempra Energy 26,944 903,702
--------------
3,594,658
--------------
HEALTH CARE EQUIPMENT & SUPPLIES (2.1%)
Applera Corp. Applied
Biosystems Group 23,454 447,502
Bausch & Lomb, Inc. 6,212 378,684
Baxter International, Inc. 71,084 2,186,544
Becton, Dickinson & Co. 29,413 1,544,183
Biomet, Inc. 29,569 1,380,281
Boston Scientific Corp. (a) 97,947 3,457,529
C.R. Bard, Inc. 12,139 689,495
Fisher Scientific International, Inc. (a) 13,399 768,567
Guidant Corp. 36,304 2,418,572
Hospira, Inc. (a) 18,176 579,996
Medtronic, Inc. 140,379 7,174,771
Millipore Corp. (a) 5,690 261,683
St. Jude Medical, Inc. (a) 20,457 1,566,392
Stryker Corp. 46,581 2,007,175
Zimmer Holdings, Inc. (a) 28,378 2,201,849
--------------
27,063,223
--------------
HEALTH CARE PROVIDERS & SERVICES (1.9%)
Aetna, Inc. 17,898 1,700,310
AmerisourceBergen Corp. 13,005 715,795
</Table>
<Table>
<Caption>
SHARES VALUE
HEALTH CARE PROVIDERS & SERVICES (CONTINUED)
Anthem, Inc. (a) 16,242 $ 1,305,857
Cardinal Health, Inc. 50,033 2,339,043
Caremark Rx, Inc. (a) 54,106 1,621,557
CIGNA Corp. 16,030 1,017,264
Express Scripts, Inc. (a) 8,341 533,824
HCA, Inc. 56,407 2,071,829
Health Management Associates, Inc. Class A 27,958 577,612
Humana, Inc. (a) 18,934 362,586
IMS Health, Inc. 27,325 578,743
Laboratory Corp. of America Holdings (a) 8,100 370,980
Manor Care, Inc. 10,223 334,701
McKesson Corp. 34,014 906,813
Medco Health
Solutions, Inc. (a) 31,588 1,071,149
Quest Diagnostics, Inc. 11,877 1,039,713
Tenet Healthcare Corp. (a) 54,272 581,796
UnitedHealth Group, Inc. 77,500 5,611,000
WellPoint Health
Networks, Inc. (a) 18,256 1,782,881
--------------
24,523,453
--------------
HOTELS, RESTAURANTS & LEISURE (1.4%)
Carnival Corp. 73,490 3,715,654
Darden Restaurants, Inc. 18,340 449,330
Harrah's Entertainment, Inc. 13,114 767,431
Hilton Hotels Corp. 44,138 878,355
International Game Technology 40,333 1,332,602
Marriott International, Inc. Class A 26,602 1,449,543
McDonald's Corp. 146,319 4,265,199
Starbucks Corp. (a) 46,143 2,440,042
Starwood Hotels & Resorts Worldwide, Inc. 24,246 1,157,262
Wendy's International, Inc. 13,424 447,959
Yum! Brands, Inc. 33,662 1,464,297
--------------
18,367,674
--------------
HOUSEHOLD DURABLES (0.5%)
Black & Decker Corp. (The) 9,105 730,949
Centex Corp. 14,448 750,429
Fortune Brands, Inc. 16,757 1,220,245
KB HOME 5,569 458,050
Leggett & Platt, Inc. 22,537 633,966
Maytag Corp. 9,170 159,558
Newell Rubbermaid, Inc. 32,245 695,202
Pulte Homes, Inc. 14,654 804,212
Snap-on, Inc. 6,795 199,637
</Table>
52 MainStay S&P 500 Index Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- ----------------------------------------------------------------------------------
HOUSEHOLD DURABLES (CONTINUED)
xStanley Works (The) 9,471 $ 421,649
Whirlpool Corp. 7,730 454,138
--------------
6,528,035
--------------
HOUSEHOLD PRODUCTS (1.8%)
Clorox Co. (The) 24,578 1,341,959
Colgate-Palmolive Co. 62,048 2,768,582
Kimberly-Clark Corp. 57,477 3,429,652
Procter & Gamble Co. (The) 295,115 15,103,986
--------------
22,644,179
--------------
INDUSTRIAL CONGLOMERATES (4.5%)
3M Co. 90,855 7,047,622
VGeneral Electric Co. (c) 1,225,519 41,814,708
Textron, Inc. 15,938 1,086,175
Tyco International Ltd. 232,983 7,257,421
--------------
57,205,926
--------------
INSURANCE (4.1%)
Ace, Ltd. 32,628 1,241,822
AFLAC, Inc. 59,129 2,121,549
Allstate Corp. (The) 80,524 3,872,399
Ambac Financial Group, Inc. 12,439 970,988
VAmerican International Group, Inc. 302,432 18,360,647
Aon Corp. 36,457 744,087
Chubb Corp. (The) 22,195 1,600,925
Cincinnati Financial Corp. 19,840 828,320
Hartford Financial Services Group, Inc. (The) 33,886 1,981,653
Jefferson-Pilot Corp. 15,919 768,729
Lincoln National Corp. 20,737 908,281
Loews Corp. 21,586 1,293,001
Marsh & McLennan Cos., Inc. 60,832 1,682,613
MBIA, Inc. 16,778 970,775
MetLife, Inc. 87,252 3,346,114
Progressive Corp. (The) 23,199 2,170,266
Prudential Financial, Inc. 60,301 2,802,187
SAFECO Corp. 14,603 675,243
St. Paul Travelers Cos., Inc. (The) 77,534 2,633,055
Torchmark Corp. 12,947 699,397
UnumProvident Corp. 33,816 461,927
XL Capital Ltd. Class A 15,937 1,155,433
--------------
51,289,411
--------------
INTERNET & CATALOG RETAIL (0.6%)
eBay, Inc. (a) 76,830 7,499,376
--------------
</Table>
<Table>
<Caption>
SHARES VALUE
INTERNET SOFTWARE & SERVICES (0.4%)
Yahoo!, Inc. (a) 158,142 $ 5,723,159
--------------
IT SERVICES (1.1%)
Affiliated Computer Services, Inc. Class A (a) 15,110 824,251
Automatic Data Processing, Inc. 67,910 2,946,615
Computer Sciences Corp. (a) 21,914 1,088,468
Convergys Corp. (a) 17,091 222,354
Electronic Data Systems Corp. 59,553 1,266,692
First Data Corp. 99,752 4,117,763
Fiserv, Inc. (a) 22,608 803,488
Paychex, Inc. 43,903 1,439,755
Sabre Holdings Corp. 16,108 346,483
SunGard Data Systems, Inc. (a) 33,206 879,627
Unisys Corp. (a) 38,389 407,691
--------------
14,343,187
--------------
LEISURE EQUIPMENT & PRODUCTS (0.2%)
Brunswick Corp. 11,055 518,701
Eastman Kodak Co. 33,437 1,012,472
Hasbro, Inc. 20,315 359,372
Mattel, Inc. 49,078 859,356
--------------
2,749,901
--------------
MACHINERY (1.4%)
Caterpillar, Inc. 39,732 3,200,015
Crane Co. 6,958 193,920
Cummins, Inc. 5,011 351,171
Danaher Corp. 35,709 1,968,637
Deere & Co. 28,715 1,716,583
Dover Corp. 23,683 930,032
Eaton Corp. 17,524 1,120,660
Illinois Tool Works, Inc. 35,119 3,240,781
Ingersoll-Rand Co. Class A 20,100 1,375,644
ITT Industries, Inc. 10,706 868,685
Navistar International Corp. (a) 7,940 274,327
PACCAR, Inc. 20,358 1,411,013
Pall Corp. 14,412 372,694
Parker-Hannifin Corp. 13,853 978,437
--------------
18,002,599
--------------
MEDIA (3.5%)
Clear Channel Communications, Inc. 68,752 2,296,317
Comcast Corp. Class A (a) 259,887 7,666,667
Dow Jones & Co., Inc. 9,537 422,012
Gannett Co., Inc. 30,949 2,567,219
Interpublic Group of Cos., Inc. (The) (a) 48,360 592,894
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
53
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- ----------------------------------------------------------------------------------
MEDIA (CONTINUED)
Knight-Ridder, Inc. 9,142 $ 626,501
McGraw-Hill Cos., Inc. (The) 22,168 1,911,990
Meredith Corp. 5,793 283,857
New York Times Co. (The) Class A 17,026 681,891
Omnicom Group, Inc. 21,800 1,720,020
Time Warner, Inc. (a) 531,617 8,846,107
Tribune Co. 37,093 1,602,418
Univision Communications, Inc. Class A (a) 37,581 1,163,508
Viacom, Inc. Class B 201,323 7,346,276
Walt Disney Co. (The) (d) 238,461 6,013,986
--------------
43,741,663
--------------
METALS & MINING (0.7%)
Alcoa, Inc. 101,193 3,288,773
Allegheny Technologies, Inc. 10,825 181,968
Freeport-McMoRan Copper & Gold, Inc. Class B 20,620 746,856
Newmont Mining Corp. 51,520 2,448,230
Nucor Corp. 18,184 767,910
Phelps Dodge Corp. 10,890 953,311
United States Steel Corp. 13,186 484,190
Worthington Industries, Inc. 10,060 199,691
--------------
9,070,929
--------------
MULTILINE RETAIL (1.1%)
Big Lots, Inc. (a) 13,530 167,637
Dillard's, Inc. Class A 9,823 201,273
Dollar General Corp. 38,307 737,410
Family Dollar Stores, Inc. 19,539 577,377
Federated Department Stores, Inc. 21,007 1,059,803
J.C. Penney Co., Inc. Holding Co. 33,469 1,157,693
Kohl's Corp. (a) 39,677 2,014,004
May Department Stores Co. (The) 33,771 880,072
Nordstrom, Inc. 16,333 705,259
Sears, Roebuck and Co. 24,728 865,480
Target Corp. 105,030 5,253,601
--------------
13,619,609
--------------
MULTI-UTILITIES & UNREGULATED POWER (0.5%)
AES Corp. (The) (a) 74,072 807,385
Calpine Corp. (a) 61,857 154,024
Constellation Energy Group, Inc. 20,342 826,292
Duke Energy Corp. 108,779 2,668,349
Dynegy, Inc. Class A (a) 43,586 214,879
</Table>
<Table>
<Caption>
SHARES VALUE
MULTI-UTILITIES & UNREGULATED POWER (CONTINUED)
El Paso Corp. 74,503 $ 666,056
Williams Cos., Inc. (The) 64,455 806,332
--------------
6,143,317
--------------
OFFICE ELECTRONICS (0.1%)
Xerox Corp. (a) 97,130 1,434,610
--------------
OIL & GAS (6.0%)
Amerada Hess Corp. 10,398 839,223
Anadarko Petroleum Corp. 29,245 1,972,575
Apache Corp. 37,914 1,922,240
Ashland, Inc. 7,928 456,811
Burlington Resources, Inc. 46,159 1,915,598
ChevronTexaco Corp. 247,697 13,142,803
ConocoPhillips 80,105 6,753,652
Devon Energy Corp. 27,886 2,062,727
EOG Resources, Inc. 13,568 903,086
VExxonMobil Corp. 755,119 37,166,957
Kerr-McGee Corp. 17,349 1,027,408
Marathon Oil Corp. 39,915 1,521,161
Occidental Petroleum Corp. 45,176 2,522,176
Sunoco, Inc. 8,753 650,873
Unocal Corp. 30,630 1,278,803
Valero Energy Corp. 29,678 1,275,264
--------------
75,411,357
--------------
PAPER & FOREST PRODUCTS (0.5%)
Georgia-Pacific Corp. 29,971 1,036,697
International Paper Co. 56,454 2,174,044
Louisiana-Pacific Corp. 12,233 299,831
MeadWestvaco Corp. 23,404 737,928
Weyerhaeuser Co. 28,016 1,754,922
--------------
6,003,422
--------------
PERSONAL PRODUCTS (0.6%)
Alberto-Culver Co. 10,519 471,882
Avon Products, Inc. 54,785 2,166,747
Gillette Co. (The) 116,668 4,839,389
--------------
7,478,018
--------------
PHARMACEUTICALS (6.9%)
Abbott Laboratories 181,362 7,731,462
Allergan, Inc. 15,313 1,095,798
Bristol-Myers Squibb Co. 225,972 5,294,524
Forest Laboratories, Inc. (a) 42,972 1,916,552
VJohnson & Johnson 344,458 20,109,458
King Pharmaceuticals, Inc. (a) 28,119 306,778
Lilly (Eli) & Co. 131,198 7,204,082
Merck & Co., Inc. 257,923 8,075,569
Mylan Laboratories, Inc. (d) 31,187 537,041
VPfizer, Inc. 876,457 25,373,430
Schering-Plough Corp. 171,048 3,097,679
</Table>
54 MainStay S&P 500 Index Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- ----------------------------------------------------------------------------------
PHARMACEUTICALS (CONTINUED)
Watson Pharmaceuticals, Inc. (a) 12,491 $ 350,123
Wyeth 154,988 6,145,274
--------------
87,237,770
--------------
REAL ESTATE (0.5%)
Apartment Investment & Management Co. Class A 10,895 399,738
Equity Office Properties Trust 46,599 1,310,364
Equity Residential 32,392 1,080,273
Plum Creek Timber Co., Inc. 21,270 771,888
ProLogis 20,945 816,436
Simon Property Group, Inc. 25,699 1,498,766
--------------
5,877,465
--------------
ROAD & RAIL (0.5%)
Burlington Northern Santa Fe Corp. 43,444 1,816,394
CSX Corp. 24,985 911,953
Norfolk Southern Corp. 45,531 1,545,777
Union Pacific Corp. 30,091 1,894,830
--------------
6,168,954
--------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (3.0%)
Advanced Micro Devices, Inc. (a) 40,349 678,670
Altera Corp. (a) 43,474 988,164
Analog Devices, Inc. 43,996 1,771,279
Applied Materials, Inc. (a) 197,499 3,179,734
Applied Micro Circuits Corp. (a) 35,591 129,551
Broadcom Corp. Class A (a) 37,313 1,009,317
Intel Corp. 744,363 16,569,520
KLA-Tencor Corp. (a) 22,661 1,031,755
Linear Technology Corp. 35,964 1,362,316
LSI Logic Corp. (a) 44,040 200,382
Maxim Integrated Products, Inc. 37,499 1,649,581
Micron Technology, Inc. (a) 71,182 866,997
National Semiconductor Corp. (a) 41,396 691,313
Novellus Systems, Inc. (a) 16,683 432,257
NVIDIA Corp. (a) 19,249 278,533
PMC-Sierra, Inc. (a) 19,744 202,574
Teradyne, Inc. (a) 22,121 366,324
Texas Instruments, Inc. 201,241 4,920,342
Xilinx, Inc. 40,108 1,227,305
--------------
37,555,914
--------------
</Table>
<Table>
<Caption>
SHARES VALUE
SOFTWARE (4.5%)
Adobe Systems, Inc. 27,768 $ 1,555,841
Autodesk, Inc. 13,083 690,128
BMC Software, Inc. (a) 25,879 489,631
Citrix Systems, Inc. (a) 19,111 461,148
Computer Associates International, Inc. 67,820 1,879,292
Compuware Corp. (a) 44,329 256,665
Electronic Arts, Inc. (a) 35,026 1,573,368
Intuit, Inc. (a) 22,272 1,010,258
Mercury Interactive Corp. (a) 10,487 455,450
VMicrosoft Corp. (c) 1,262,047 35,324,696
Novell, Inc. (a) 45,424 326,599
Oracle Corp. (a) 601,221 7,611,458
Parametric Technology Corp. (a) 30,802 159,862
PeopleSoft, Inc. (a) 42,415 880,960
Siebel Systems, Inc. (a) 58,425 555,038
Symantec Corp. (a) 36,210 2,061,797
VERITAS Software Corp. (a) 49,689 1,087,195
--------------
56,379,386
--------------
SPECIALTY RETAIL (2.4%)
AutoNation, Inc. (a) 31,555 543,693
AutoZone, Inc. (a) 9,659 790,203
Bed Bath & Beyond, Inc. (a) 34,943 1,425,325
Best Buy Co., Inc. 37,643 2,229,218
Boise Cascade Corp. (a) 10,001 295,230
Circuit City Stores, Inc. 23,067 374,839
Gap, Inc. (The) 104,232 2,082,555
Home Depot, Inc. (The) 255,351 10,489,819
Limited Brands, Inc. 54,206 1,343,225
Lowe's Cos., Inc. 90,682 5,103,583
Office Depot, Inc. (a) 36,118 584,750
RadioShack Corp. 18,671 558,823
Sherwin-Williams Co. (The) 16,604 709,323
Staples, Inc. 58,026 1,725,693
Tiffany & Co. 16,925 496,410
TJX Cos., Inc. (The) 57,517 1,379,258
Toys "R" Us, Inc. (a) 24,930 448,989
--------------
30,580,936
--------------
TEXTILES, APPAREL & LUXURY GOODS (0.4%)
Coach, Inc. (a) 21,913 1,021,803
Jones Apparel Group, Inc. 14,917 526,570
Liz Claiborne, Inc. 12,573 513,984
NIKE, Inc. Class B 30,910 2,513,292
Reebok International Ltd. 6,969 257,853
V.F. Corp. 12,626 679,658
--------------
5,513,160
--------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
55
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- ----------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE (1.8%)
Countrywide Financial Corp. 65,437 $ 2,089,404
Fannie Mae 112,611 7,899,662
Freddie Mac 80,022 5,329,465
Golden West Financial Corp. 17,772 2,077,902
MGIC Investment Corp. 11,523 741,044
Sovereign Bancorp, Inc. 39,700 859,505
Washington Mutual, Inc. 101,472 3,927,981
--------------
22,924,963
--------------
TOBACCO (1.1%)
Altria Group, Inc. (d) 238,318 11,548,890
Reynolds American, Inc. 17,443 1,201,125
UST, Inc. 19,581 805,954
--------------
13,555,969
--------------
TRADING COMPANIES & DISTRIBUTORS (0.0%) (B)
Grainger (W.W.), Inc. 10,553 618,300
--------------
WIRELESS TELECOMMUNICATION SERVICES (0.3%)
Nextel Communications, Inc. Class A (a) 128,738 3,410,270
--------------
Total Common Stocks
(Cost $1,149,341,734) 1,222,453,563(f)
--------------
<Caption>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS (5.4%)
- ----------------------------------------------------------------------------------
COMMERCIAL PAPER (2.5%)
Cooperative Association of Tractor Dealer
1.80%, due 11/2/04 (c) $ 1,900,000 1,899,905
Dealers Capital Access Trust
1.81%, due 11/12/04 (c) 4,700,000 4,697,395
1.82%, due 11/12/04 (c) 800,000 799,555
1.83%, due 11/5/04 (c) 1,800,000 1,799,634
1.85%, due 11/12/04 (c) 1,300,000 1,299,264
2.01%, due 12/23/04 (c) 13,100,000 13,061,960
General Electric Capital Corp. 1.77%, due 11/18/04
(c) 600,000 599,498
HBOS Treasury Services
1.86%, due 12/2/04 (c) 400,000 399,358
Hitachi Credit America Corp.
1.80%, due 11/29/04 (c) 1,300,000 1,298,177
Wells Fargo & Co.
1.68%, due 11/1/04 (c) 5,900,000 5,900,000
--------------
Total Commercial Paper (Cost $31,754,746) 31,754,746
--------------
<Caption>
SHARES VALUE
INVESTMENT COMPANY (0.2%)
AIM Institutional Funds Group (e) 2,375,474 $ 2,375,474
--------------
Total Investment Company (Cost $2,375,474) 2,375,474
--------------
<Caption>
PRINCIPAL
AMOUNT
MASTER NOTE (0.3%)
Bank of America LLC
1.96%, due 11/1/04 (e) $ 3,300,000 3,300,000
--------------
Total Master Note
(Cost $3,300,000) 3,300,000
--------------
REPURCHASE AGREEMENTS (1.6%)
Credit Suisse First Boston LLC
1.93%, dated 10/29/04
due 11/1/04
Proceeds at Maturity
$1,500,241 (e)
(Collateralized by Various Bonds
with a Principal Amount of
$1,504,219 and a Market Value of
$1,530,078) 1,500,000 1,500,000
Dresdner Kleinwort Wasserstein
1.95%, dated 10/29/04
due 11/1/04
Proceeds at Maturity
$3,000,486 (e)
(Collateralized by Various Bonds
with a Principal Amount of
$3,114,200 and a Market Value of
$3,150,161) 3,000,000 3,000,000
Lehman Brothers, Inc.
1.93%, dated 10/29/04
due 11/1/04
Proceeds at Maturity
$5,600,898 (e)
(Collateralized by Various Bonds
with a Principal Amount of
$11,156,446 and a Market Value of
$5,775,177) 5,600,000 5,600,000
</Table>
56 MainStay S&P 500 Index Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONTINUED)
- ----------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (CONTINUED)
Merrill Lynch Pierce Fenner & Smith, Inc.
1.96%, dated 10/29/04
due 11/1/04
Proceeds at Maturity
$4,500,733 (e)
(Collateralized by Various Bonds
with a Principal Amount of
$4,449,996 and a Market Value of
$4,725,074) $ 4,500,000 $ 4,500,000
Morgan Stanley & Co., Inc.
1.93%, dated 10/29/04
due 11/1/04
Proceeds at Maturity
$6,301,011 (e)
(Collateralized by Various Bonds
with a Principal Amount of
$9,612,419 and a Market Value of
$6,626,753) 6,300,000 6,300,000
--------------
Total Repurchase Agreements (Cost $20,900,000) 20,900,000
--------------
U.S. GOVERNMENT (0.8%)
United States Treasury Bills
1.74%, due 1/20/05 (c) 7,600,000 7,568,673
1.75%, due 1/27/05 (c) 2,200,000 2,190,058
--------------
Total U.S. Government (Cost $9,760,954) 9,758,731
--------------
Total Short-Term Investments (Cost $68,091,174) 68,088,951
--------------
Total Investments (Cost $1,217,432,908) (g) 102.2% 1,290,542,514(h)
Liabilities in Excess of
Cash and Other Assets (2.2) (27,693,542)
------------- --------------
Net Assets 100.0% $1,262,848,972
============= ==============
<Caption>
CONTRACTS UNREALIZED
LONG APPRECIATION (i)
FUTURES CONTRACTS (0.1%)
- ------------------------------------------------------------------------------------
Standard & Poor's 500 Index December 2004 146 $ 714,162
Mini December 2004 1 1,034
--------------
Total Futures Contracts (Settlement Value
$41,312,465) (f) $ 715,196
==============
</Table>
<Table>
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) Segregated as collateral for futures contracts.
(d) Represents securities out on loan or a portion which is
out on loan.
(e) Represents a security or a portion thereof, purchased
with cash collateral received for securities on loan.
(f) The combined market value of common stocks and settle-
ment value of Index futures contracts represents 100.1%
of net assets.
(g) The cost for federal income tax purposes is
$1,230,629,529.
(h) At October 31, 2004 net unrealized appreciation was
$59,912,985, based on cost for federal income tax
purposes. This consisted of aggregate gross unrealized
appreciation for all investments on which there was an
excess of market value over cost of $229,283,088 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $169,370,103.
(i) Represents the difference between the value of the con-
tracts at the time they were opened and the value at
October 31, 2004.
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
57
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2004
<Table>
ASSETS:
Investment in securities, at value
(identified cost $1,217,432,908) including
$25,508,054 market value of securities
loaned $1,290,542,514
Cash 595,581
Receivables:
Fund shares sold 2,734,704
Dividends 1,578,653
Investment securities sold 942,083
Variation margin on futures contracts 98,577
Other assets 32,957
--------------
Total assets 1,296,525,069
--------------
LIABILITIES:
Securities lending collateral 26,575,475
Payables:
Fund shares redeemed 4,692,422
Investment securities purchased 1,838,502
Manager 235,163
Transfer agent 98,561
Professional 64,835
NYLIFE Distributors 58,914
Shareholder communication 40,517
Custodian 33,976
Directors 11,398
Accrued expenses 26,334
--------------
Total liabilities 33,676,097
--------------
Net assets $1,262,848,972
==============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
500 million shares authorized:
Class A $ 10,736
Class I 37,293
Additional paid-in capital 1,216,615,267
Accumulated undistributed net investment
income 12,428,343
Accumulated net realized loss on investments
and futures contracts (40,067,469)
Net unrealized appreciation on investments
and futures contracts 73,824,802
--------------
Net assets $1,262,848,972
==============
CLASS A
Net assets applicable to outstanding shares $ 280,346,026
==============
Shares of capital stock outstanding 10,736,286
==============
Net asset value per share outstanding $ 26.11
Maximum sales charge (3.00% of offering
price) 0.81
--------------
Maximum offering price per share outstanding $ 26.92
==============
CLASS I
Net assets applicable to outstanding shares $ 982,502,946
==============
Shares of capital stock outstanding 37,293,499
==============
Net asset value and offering price per share
outstanding $ 26.35
==============
</Table>
58 MainStay S&P 500 Index Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2004
<Table>
INVESTMENT INCOME:
INCOME:
Dividends $18,484,148
Interest 816,884
Income from securities loaned -- net 13,260
-----------
Total income 19,314,292
-----------
EXPENSES:
Manager 5,750,788
Service -- Class A 514,544
Service -- Service Class 93,676
Professional 277,892
Custodian 141,335
Shareholder communication 130,227
Transfer agent -- Class A 126,461
Transfer agent -- Class I 78,112
Directors 109,561
Registration 29,832
Miscellaneous 99,765
-----------
Total expenses before reimbursement 7,352,193
Expense reimbursement from Manager (3,188,303)
-----------
Net expenses 4,163,890
-----------
Net investment income 15,150,402
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Security transactions (5,862,148)
Futures transactions 7,946,388
-----------
Net realized gain on investments 2,084,240
-----------
Net change in unrealized appreciation
(depreciation) on investments:
Security transactions 76,403,959
Futures transactions (25,480)
-----------
Net unrealized gain on investments 76,378,479
-----------
Net realized and unrealized gain on investments 78,462,719
-----------
Net increase in net assets resulting from
operations $93,613,121
===========
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
59
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003
<Table>
<Caption>
2004 2003
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 15,150,402 $ 10,878,788
Net realized gain on investments
and futures contracts 2,084,240 2,197,918
Net change in unrealized
appreciation (depreciation) on
investments and
futures contracts 76,378,479 138,389,476
------------------------------
Net increase in net assets
resulting from operations 93,613,121 151,466,182
------------------------------
Dividends to shareholders:
From net investment income:
Class I (9,637,543) (7,726,950)
Service Class (2,029,302) (1,659,778)
------------------------------
Total dividends to shareholders (11,666,845) (9,386,728)
------------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 339,361,707 --
Class I 331,146,317 293,140,422
Service Class 16,110,983 105,806,918
Net asset value of shares issued
to shareholders in reinvestment
of dividends:
Class I 9,634,831 7,719,756
Service Class 2,029,023 1,659,778
------------------------------
698,282,861 408,326,874
Cost of shares redeemed:
Class A (65,366,049) --
Class I (201,319,436) (164,877,116)
Service Class (225,114,946) (66,922,507)
------------------------------
(491,800,431) (231,799,623)
------------------------------
Increase in net assets derived
from capital share
transactions 206,482,430 176,527,251
------------------------------
Net increase in net assets 288,428,706 318,606,705
NET ASSETS:
Beginning of year 974,420,266 655,813,561
------------------------------
End of year $1,262,848,972 $ 974,420,266
==============================
Accumulated undistributed net
investment income at end of year $ 12,428,343 $ 9,123,203
==============================
</Table>
60 MainStay S&P 500 Index Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
This page intentionally left blank
61
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A CLASS I
------------ ------------------------------------------------------
JANUARY 2,
2004*
THROUGH
OCTOBER 31, YEAR ENDED OCTOBER 31,
2004 2004 2003 2002 2001 2000
Net asset value at beginning of period $ 25.46 $ 24.43 $ 20.57 $ 25.84 $ 37.38 $ 36.99
-------- -------- -------- -------- -------- ----------
Net investment income 0.20 0.33 0.32(a) 0.31 0.30(a) 0.37
Net realized and unrealized gain (loss) on investments 0.45 1.88 3.85 (3.86) (9.06) 1.86
-------- -------- -------- -------- -------- ----------
Total from investment operations 0.65 2.21 4.17 (3.55) (8.76) 2.23
-------- -------- -------- -------- -------- ----------
Less dividends and distributions:
From net investment income -- (0.29) (0.31) (0.32) (0.36) (0.38)
From net realized gain on investments -- -- -- (1.40) (2.42) (1.46)
-------- -------- -------- -------- -------- ----------
Total dividends and distributions -- (0.29) (0.31) (1.72) (2.78) (1.84)
-------- -------- -------- -------- -------- ----------
Net asset value at end of period $ 26.11 $ 26.35 $ 24.43 $ 20.57 $ 25.84 $ 37.38
======== ======== ======== ======== ======== ==========
Total investment return (b) 2.55%(c) 9.10% 20.59% (15.23%) (24.90%) 5.98%
Ratios (to average net assets)/Supplemental Data:
Net investment income 1.09%+ 1.38% 1.46% 1.31% 1.03% 0.95%
Net expenses 0.59%+ 0.30% 0.30% 0.30% 0.30% 0.30%
Expenses (before reimbursement) 0.87%+ 0.58% 0.61% 0.59% 0.57% 0.54%
Portfolio turnover rate 2% 2% 3% 4% 5% 11%
Net assets at end of period (in 000's) $280,346 $982,503 $777,843 $527,277 $612,937 $1,503,224
</Table>
<Table>
* Commencement of Operations.
** The Fund changed its fiscal year end from December 31 to
October 31.
+ Annualized.
++ Service Class shares ceased operations on January 9, 2004.
(a) Per share data based on average shares outstanding during
the period.
(b) Total return is calculated exclusive of sales charges. Class
I and Service Class are not subject to sales charges.
(c) Total return is not annualized.
</Table>
62 MainStay S&P 500 Index Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
SERVICE CLASS++
- ------------------------------------------------------------------------------------------
NOVEMBER 1,
2003 JANUARY 1,
THROUGH THROUGH YEAR ENDED
JANUARY 9, YEAR ENDED OCTOBER 31, OCTOBER 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999** 1998
$24.23 $ 20.42 $ 25.68 $ 37.16 $ 36.80 $ 33.28 $ 26.99
------ -------- -------- ------- ------- ------- -------
(0.22) 0.26(a) 0.27 0.24(a) 0.27 0.21 0.31
1.92 3.81 (3.84) (9.04) 1.85 3.62 7.31
------ -------- -------- ------- ------- ------- -------
1.70 4.07 (3.57) (8.80) 2.12 3.83 7.62
------ -------- -------- ------- ------- ------- -------
(0.24) (0.26) (0.29) (0.26) (0.30) -- (0.31)
-- -- (1.40) (2.42) (1.46) (0.31) (1.02)
------ -------- -------- ------- ------- ------- -------
(0.24) (0.26) (1.69) (2.68) (1.76) (0.31) (1.33)
------ -------- -------- ------- ------- ------- -------
$25.69 $ 24.23 $ 20.42 $ 25.68 $ 37.16 $ 36.80 $ 33.28
====== ======== ======== ======= ======= ======= =======
7.04%(c) 20.20% (15.41%) (25.10%) 5.72% 11.60%(c) 28.24%
1.33%+ 1.21% 1.06% 0.78% 0.70% 0.81%+ 1.04%
0.55%+ 0.55% 0.55% 0.55% 0.55% 0.55%+ 0.55%
0.85%+ 0.86% 0.84% 0.82% 0.79% 0.80%+ 0.81%
2% 3% 4% 5% 11% 7% 8%
$ 0 $196,577 $128,537 $90,127 $64,254 $61,647 $36,442
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
63
MAINSTAY SMALL CAP OPPORTUNITY FUND
INVESTMENT AND PERFORMANCE COMPARISON
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY, CURRENT PERFORMANCE MAY
BE LESS OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. FOR CURRENT TO THE MOST RECENT MONTH-END PERFORMANCE
INFORMATION, PLEASE CONTACT 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM.
CLASS A SHARES -- MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 13.68% 11.50% 12.87%
Excluding sales charges 20.29 12.77 13.51
</Table>
(LINE GRAPH FOR CLASS A SHARES)
<Table>
<Caption>
MAINSTAY SMALL LIPPER SMALL-CAP
CAP OPPORTUNITY RUSSELL 2000 S&P SMALLCAP VALUE FUNDS
FUND S&P 500 INDEX VALUE INDEX 600 INDEX INDEX
--------------- ------------- ------------ ------------ ----------------
10/31/94 9450 10000 10000 10000 10000
10566 12644 11596 12116 11253
13085 15691 13866 14596 13168
18375 20729 19022 19261 17963
17641 25288 17558 17132 15786
18404 31779 17685 19194 16138
18706 33715 20743 24044 19210
18655 25319 22559 22497 20732
19709 21494 21989 21646 20131
27907 25965 30848 28915 28481
10/31/04 33569 28411 36398 33766 33356
</Table>
<Table>
-- MainStay Small Cap Opportunity Fund - - S&P SmallCap 600 Index
-- Russell 2000 Value Index -- S&P 500 Index
-- Lipper Small Cap Value Funds Index
</Table>
CLASS B SHARES -- MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 14.36% 11.68% 12.46%
Excluding sales charges 19.36 11.94 12.46
</Table>
(LINE GRAPH FOR CLASS B SHARES)
<Table>
<Caption>
MAINSTAY SMALL LIPPER SMALL-CAP
CAP OPPORTUNITY RUSSELL 2000 S&P SMALLCAP VALUE FUNDS
FUND S&P 500 INDEX VALUE INDEX 600 INDEX INDEX
--------------- ------------- ------------ ------------ ----------------
10/31/94 10000 10000 10000 10000 10000
11063 12644 11596 12116 11253
13578 15691 13866 14596 13168
18815 20729 19022 19261 17963
17841 25288 17558 17132 15786
18409 31779 17685 19194 16138
18556 33715 20743 24044 19210
18372 25319 22559 22497 20732
19260 21494 21989 21646 20131
27109 25965 30848 28915 28481
10/31/04 32356 28411 36398 33766 33356
</Table>
<Table>
-- MainStay Small Cap Opportunity Fund - - S&P SmallCap 600 Index
-- Russell 2000 Value Index -- S&P 500 Index
-- Lipper Small Cap Value Funds Index
</Table>
Performance tables and graphs do not reflect the deduction of taxes that a
shareholder would pay on distributions or Fund-share redemptions. Total returns
reflect change in share price, reinvestment of dividend and capital-gain
distributions, and maximum applicable sales charges explained in this paragraph.
The graphs assume an initial investment of $10,000 and reflect the deduction of
all sales charges that would have applied for the period of investment. Class A
shares are sold with a maximum initial sales charge of 5.5% and an annual 12b-1
fee of .25%. Class B shares are sold with no initial sales charge, are subject
to a contingent deferred sales charge (CDSC) of up to 5% if redeemed within the
first six years of purchase, and have an annual 12b-1 fee of 1.00%. Class C
shares are sold with no initial sales charge, are subject to a CDSC of 1% if
redeemed within one year of purchase, and have an annual 12b-1 fee of 1.00%.
Class I shares are sold with no initial sales charge or CDSC, have no annual
12b-1 fee, and are generally available to corporate and institutional investors
with a minimum initial investment of $5 million. Performance figures reflect
certain fee waivers and/or expense limitations, without which total returns may
have been lower. The fee waivers and/or expense limitations are voluntary and
may be discontinued at any time. Performance for Class A and B shares, first
offered 1/2/04, includes the historical performance of Class I shares from
inception (1/12/87) through 12/31/03 adjusted to reflect the applicable sales
charge (or CDSC) and fees and expenses for Class A and B shares. Prior to
1/2/04, the Fund offered Class L shares, which were subject to a 1% sales charge
and a 1% CDSC on redemptions within one year of purchase. Performance for Class
L shares, first offered 12/30/02, includes the historical performance of Class I
shares from inception through 12/29/02 adjusted to reflect the applicable sales
charge, CDSC, and fees and expenses for Class L shares. Effective 1/2/04, all
outstanding Class L shares of the Fund were converted to and/or redesignated
Class C shares.
THE DISCLOSURE AND FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THESE
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
64 MainStay Small Cap Opportunity Fund
CLASS C SHARES -- MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 18.29% 11.95% 12.48%
Excluding sales charges 19.29 11.95 12.48
</Table>
(LINE GRAPH FOR CLASS C SHARES)
<Table>
<Caption>
MAINSTAY SMALL LIPPER SMALL-CAP
CAP OPPORTUNITY RUSSELL 2000 S&P SMALLCAP VALUE FUNDS
FUND VALUE INDEX S&P 500 INDEX 600 INDEX INDEX
--------------- ------------ ------------- ------------ ----------------
10/31/94 10000 10000 10000 10000 10000
11072 11596 12644 12116 11253
13584 13866 15691 14596 13168
18831 19022 20729 19261 17963
17855 17558 25288 17132 15786
18440 17685 31779 19194 16138
18588 20743 33715 24044 19210
18386 22559 25319 22497 20732
19294 21989 21494 21646 20131
27180 30848 25965 28915 28481
10/31/04 32423 36398 28411 33766 33356
</Table>
<Table>
-- MainStay Small Cap Opportunity Fund - - S&P SmallCap 600 Index
-- Russell 2000 Value Index -- S&P 500 Index
-- Lipper Small Cap Value Funds Index
</Table>
CLASS I SHARES -- NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
20.72% 13.08% 13.84%
</Table>
(LINE GRAPH FOR CLASS I SHARES)
<Table>
<Caption>
MAINSTAY SMALL LIPPER SMALL-CAP
CAP OPPORTUNITY RUSSELL 2000 S&P SMALLCAP VALUE FUNDS
FUND S&P 500 INDEX VALUE INDEX 600 INDEX INDEX
--------------- ------------- ------------ ------------ ----------------
10/31/94 10000 10000 10000 10000 10000
11211 12644 11596 12116 11253
13918 15691 13866 14596 13168
19608 20729 19022 19261 17963
18896 25288 17558 17132 15786
19768 31779 17685 19194 16138
20137 33715 20743 24044 19210
20137 25319 22559 22497 20732
21313 21494 21989 21646 20131
30273 25965 30848 28915 28481
10/31/04 36547 28411 36398 33766 33356
</Table>
<Table>
-- MainStay Small Cap Opportunity Fund - - S&P SmallCap 600 Index
-- Russell 2000 Value Index -- S&P 500 Index
-- Lipper Small Cap Value Funds Index
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
Russell 2000(R) Value Index(1) 17.99% 15.53% 13.79%
S&P 500(R) Index(2) 9.42 -2.22 11.01
Russell 2000(R) Index(3) 11.73 7.74 10.13
S&P SmallCap 600(R) Index(4) 16.78 11.96 12.94
Lipper Small Cap Value Funds
Index(5) 17.12 15.63 12.80
Average Lipper small-cap value
fund(6) 16.56 15.06 12.96
</Table>
1. The Russell 2000(R) Value Index is an unmanaged index that measures the
performance of those Russell 2000(R) companies with lower price-to-book
ratios and lower forecasted growth values. Results assume reinvestment of all
income and capital gains. The Russell 2000(R) Value Index is considered to be
the Fund's broad-based securities-market index for comparison purposes. An
investment cannot be made directly into an index.
2. "S&P 500(R)" is a trademark of the McGraw-Hill Companies, Inc. The S&P 500(R)
is an unmanaged index and is widely regarded as the standard for measuring
large-cap U.S. stock-market performance. Results assume reinvestment of all
income and capital gains. An investment cannot be made directly into an
index.
3. The Russell 2000(R) Index is an unmanaged index that measures the performance
of the 2,000 smallest companies in the Russell 3000(R) Index, which, in turn,
is an unmanaged index that measures the performance of the 3,000 largest U.S.
companies based on total market capitalization. Results assume reinvestment
of all income and capital gains. An investment cannot be made directly into
an index.
4. S&P SmallCap 600(R) Index is an unmanaged market-value weighted index of 600
small-capitalization common stocks. Results assume reinvestment of all
dividend and capital-gain distributions. An investment cannot be made
directly into an index.
5. The Lipper Small Cap Value Funds Index is an unmanaged index that tracks the
performance, after expenses, of the 30 largest small-company value funds.
Results assume reinvestment of all dividend and capital-gain distributions.
An investment cannot be made directly into an index.
6. Lipper Inc. is an independent fund performance monitor. Results are based on
total returns with all dividend and capital-gain distributions reinvested.
THE DISCLOSURE AND FOOTNOTES ON THE PRECEDING PAGE ARE AN INTEGRAL PART OF THESE
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
www.mainstayfunds.com 65
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY SMALL CAP OPPORTUNITY FUND
Expenses shown in the table are meant to highlight your ongoing costs only and
do not reflect any transactional costs, such as sales charges (loads),
redemption fees, or exchange fees. Therefore, the third data column of the table
is 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 had been included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT ENDING ACCOUNT
VALUE (BASED VALUE (BASED
BEGINNING ON ACTUAL EXPENSES ON HYPOTHETICAL EXPENSES
ACCOUNT RETURNS AND PAID 5% ANNUALIZED PAID
VALUE EXPENSES) DURING RETURN AND DURING
SHARE CLASS(1) 5/1/04 10/31/04 PERIOD ACTUAL EXPENSES) PERIOD
CLASS A SHARES $1,000.00 $1,095.85 $ 9.85 $1,015.65 $ 9.47
- ----------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $1,092.20 $13.78 $1,011.90 $13.25
- ----------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $1,092.20 $13.78 $1,011.90 $13.25
- ----------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,099.50 $ 6.23 $1,019.10 $ 5.99
- ----------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio multiplied by the
average account value over the period, divided by 366, multiplied by 184 (to
reflect the one-half year period).
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2004
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
Common Stocks 97.5
Short-Term Investment 2.5
</Table>
See Portfolio of Investments on page 69 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2004 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. General Maritime Corp.
2. Safety Insurance Group, Inc.
3. Tesoro Petroleum Corp.
4. Overseas Shipholding Group, Inc.
5. Terra Industries, Inc.
6. Impac Mortgage Holdings, Inc.
7. Dade Behring Holdings, Inc.
8. United Fire & Casualty Co.
9. Energen Corp.
10. M.D.C. Holdings, Inc.
</Table>
66 MainStay Small Cap Opportunity Fund
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio manager Kathy A. O'Connor of New York Life
Investment Management LLC
CAN YOU BRIEFLY DESCRIBE THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 80% of its assets in common and preferred
stock of companies with market capitalizations that, at the time of investment,
are similar to those of companies in the Russell 2000(R) Index, the S&P SmallCap
600(R) Index, or a universe selected from the smallest 2,000 companies of the
largest 3,000 companies, ranked by market capitalization.(1) In implementing
this strategy, the Fund focuses primarily on stocks that have strong or
improving operating characteristics and have been overlooked or undervalued by
the market. The Fund uses a quantitative and statistical model to analyze the
relative quality and value of stocks.
WHAT MAJOR FACTORS INFLUENCED THE STOCK MARKET DURING THE ONE YEAR REPORTING
PERIOD ENDED OCTOBER 31, 2004?
All of the broadly watched equity indices generated positive performance during
the 12-month reporting period. Overall, mid-capitalization stocks outperformed,
followed by small- and then large-capitalization stocks. In terms of investment
style, the market favored value- over growth-oriented stocks across all
capitalization sectors. Equity market sentiment was positive throughout much of
the reporting period, as low interest rates and indications of rebounding
economic activity contributed to an optimistic outlook. Beginning in July,
however, consumer confidence dropped as the presidential election approached.
With the candidates and the public focusing on issues such as Iraq, terrorism,
and the economy, spending and investing also declined.
WHAT FACTORS MOST SIGNIFICANTLY AFFECTED FUND PERFORMANCE RELATIVE TO THE
RUSSELL 2000(R) VALUE INDEX DURING THE REPORTING PERIOD?
The Fund posted strong absolute and relative performance during the reporting
period as it outperformed the Russell 2000(R) Value Index.(2) The performance of
Fund holdings in the energy, food beverage & tobacco, and consumer durables &
apparel industry groups was stronger than the performance of related securities
in the Index. The Fund's weakest-performing industry groups were
telecommunication services, pharmaceuticals & biotechnology, and technology
hardware & equipment.
Since the Russell 2000(R) Value Index is capitalization weighted, it has larger
weightings in securities with larger market capitalizations. The MainStay Small
Cap Opportunity Fund, which invests in some but not all of the companies in the
Russell 2000(R) Value Index, attempts to have equal weights among the securities
in which it invests. For the 12 months ended October 31, 2004, the Fund was
weighted approximately 51% in the bottom 50% of companies ranked by market
capitalization. The Russell 2000(R) Value Index, on the other hand, had only
about 22% of its total weighting in the bottom 50% of companies ranked by market
capitalization. The Fund's overweighted position in smaller companies relative
to the Index contributed to the Fund's positive performance during the reporting
period.
WHICH HOLDINGS WERE AMONG THE FUND'S STRONGEST PERFORMERS DURING THE REPORTING
PERIOD?
On the basis of total returns alone, the strongest performing stocks in the
Fund's portfolio were Petroleum Development, SBA Communications, General
Maritime, Harvest Natural Resources, and Arch Wireless. Although some holdings
had higher total returns, General Maritime (+99.7%),(3) a provider of seaborne
crude oil transportation services, made the greatest positive contribution to
the Fund's total return. Other substantial contributors included NovaStar
Financial (+50.1%), a leading lender and investor in nonconforming
residential-mortgage loans; InfoSpace (+47.0%), a service provider to wireless
devices, merchants, and Web sites; IMPAC Mortgage Holdings (+41.9%), a mortgage
real estate investment trust; and Tesoro Petroleum (+35.2%), a company that
refines and markets petroleum products and provides marine logistics services.
Stocks of small companies may be subject to greater price volatility,
significantly lower trading volumes, and greater spreads between bid and ask
prices than stocks of larger companies. Small companies may be more vulnerable
to adverse business or market developments than mid- or large-capitalization
companies. Foreign securities may be subject to greater risks than U.S.
investments, including currency fluctuations, less-liquid trading markets,
greater price volatility, political and economic instability, less publicly
available information, and changes in tax or currency laws or monetary policy.
1. See footnote on page 65 for more information on the Russell 2000(R) Index and
the S&P SmallCap 600(R) Index.
2. See footnote on page 65 for more information on the Russell 2000(R) Value
Index.
3. Percentages reflect total returns of Fund holdings in the securities
mentioned, including purchases and sales, for the 12 months ended 10/31/04,
or for the portion of the reporting period such securities were held in the
Fund, if shorter.
www.mainstayfunds.com 67
WHICH STOCKS DETRACTED FROM THE FUND'S RESULTS?
From a total-return perspective, the weakest stocks in the portfolio included
Quovadx, Bookham, Brightpoint, Entersys Networks, and Time Warner Telecom. The
greatest negative impact on the Fund's performance, however, came from
Brightpoint (-60.6%), which distributes and integrates logistics services to the
wireless communications industry. Other weak contributors included telephony
services company Time Warner Telecom (-55.1%); jewelry retailer Friedman's
(-52.1%); medical-malpractice insurer SCPIE Holdings (-34.9%); and hard-drive
designer and manufacturer Western Digital (-31.8%).
WERE THERE ANY SIGNIFICANT PURCHASES DURING THE REPORTING PERIOD?
Based on our proprietary model, the Fund selects stocks that have relatively
improving operating characteristics and are relatively undervalued. Among the
securities that fit the Fund's purchase criteria during the reporting period
were Petroleum Development (+136.9%), Mariner Health Care (+50.0%), and Advanta
(+48.4%), all of which helped the Fund's absolute and relative performance.
WHAT STOCKS WERE ELIMINATED DURING THE PERIOD?
The Fund sells stocks that exhibit deteriorating operating results and/or are
relatively overvalued. In July 2004, the Fund sold Arch Wireless, a provider of
wireless messaging and information services. While the stock has returned 79.4%
since its purchase, we were concerned that it may be adversely affected by a
lawsuit. Independence Holdings, a life and health insurance company, was sold
from May through July 2004 when the company saw a softer rate environment in the
medical stop-loss market. The Fund sold off its position in MTS Systems, a
computer-based testing and simulation systems manufacturer, from May through
October 2004 when free cash flow reached a two-year low.
DID THE FUND CHANGE ITS INDUSTRY GROUP WEIGHTINGS?
Weighting changes in the Fund's portfolio result from a combination of security
performance, industry performance, and the Fund's proprietary security selection
process. The Fund increased its weighting in the energy industry group from
5.55% on October 31, 2003, to 18.48% at the end of October 2004. The shift in
weight was the result of new purchases and improved performance of the industry
group relative to other industry groups. Over the same period, another
significant change was a decrease in the banks industry group from 16.05% to
3.76%. The Fund's weighting decline resulted from the sale of several positions
and from weaker relative performance in the industry.
HOW DO THE FUND'S WEIGHTINGS DIFFER FROM THOSE OF ITS BENCHMARK?
As of October 31, 2004, the Fund was overweighted relative to the Russell
2000(R) Value Index in the energy, insurance, and health care equipment &
services industry groups. The Fund's relative overweighted positions in energy
and health care equipment & services enhanced performance. The Fund's
overweighted position in insurance, however, underperformed insurance securities
in the Russell 2000(R) Value Index.
At the end of the reporting period, the Fund was underweighted relative to the
Russell 2000(R) Value Index in the banks, real estate, and technology hardware &
equipment industry groups. Although real estate was underweighted compared to
the benchmark, the Fund's holdings in that industry generated higher returns
than related securities in the Index. The Fund benefited from its underweighted
positions in banks and technology hardware & equipment since the Fund's holdings
in these industry groups underperformed related stocks in the Russell 2000(R)
Value Index.
WHAT IS YOUR OUTLOOK FOR THE FUND?
As always, the Fund will continue to focus on securities that are appropriate
given its stated objective and its valuation and quality parameters.
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.
INFORMATION ABOUT MAINSTAY SMALL CAP OPPORTUNITY FUND ON THIS PAGE AND THE
PRECEDING PAGES HAS NOT BEEN AUDITED.
68 MainStay Small Cap Opportunity Fund
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (97.5%)+
- ---------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS (1.0%)
Hub Group, Inc. Class A (a) 29,500 $ 1,186,490
Park-Ohio Holdings Corp. (a) 57,600 1,203,840
-------------
2,390,330
-------------
AUTO COMPONENTS (1.3%)
Midas, Inc. (a) 52,200 988,146
R&B, Inc. (a) 25,800 672,864
Shiloh Industries, Inc. (a) 137,400 1,202,250
Visteon Corp. 52,300 371,853
-------------
3,235,113
-------------
BUILDING PRODUCTS (1.6%)
Jacuzzi Brands, Inc. (a) 11,100 96,015
NCI Building Systems, Inc. (a) 114,800 3,690,820
-------------
3,786,835
-------------
CAPITAL MARKETS (4.8%)
Capital Southwest Corp. 8,800 682,000
iShares Russell 2000 Index Fund (b) 20,400 2,370,276
iShares Russell 2000 Value Index Fund (b) 13,600 2,369,120
iShares S&P SmallCap 600 Index Fund (b) 16,100 2,370,403
iShares S&P SmallCap 600/ BARRA Value Index Fund
(b) 21,500 2,373,815
Stifel Financial Corp. (a) 73,633 1,444,679
-------------
11,610,293
-------------
CHEMICALS (2.2%)
NewMarket Corp. (a) 2,900 64,989
Octel Corp. 700 13,510
OM Group, Inc. (a) 14,900 491,551
VTerra Industries, Inc. (a) 600,800 4,596,120
-------------
5,166,170
-------------
COMMERCIAL BANKS (1.5%)
BFC Financial Corp. Class A (a) 4,079 42,116
Center Financial Corp. 11,800 231,811
Columbia Bancorp 4,900 152,488
First Citizens BancShares, Inc. Class A 400 47,180
First Financial Corp. 7,000 221,130
First M&F Corp. 1,300 43,810
FLAG Financial Corp. 2,600 36,010
Heritage Commerce Corp. (a) 62,000 1,085,000
Nara Bancorp, Inc. 500 9,555
Provident Bankshares Corp. 11,632 403,979
State Financial Services Corp. Class A 14,500 416,005
</Table>
<Table>
<Caption>
SHARES VALUE
COMMERCIAL BANKS (CONTINUED)
Taylor Capital Group, Inc. 300 $ 8,805
Umpqua Holdings Corp. 36,500 908,120
-------------
3,606,009
-------------
COMMERCIAL SERVICES & SUPPLIES (2.9%)
Ambassadors International, Inc. 45,000 580,050
Century Business Services, Inc. (a) 19,500 86,385
Cenveo, Inc. (a) 130,900 409,717
Consolidated Graphics, Inc. (a) 9,400 401,380
Hudson Highland Group, Inc. (a) 36,900 1,054,049
Insurance Auto Auctions, Inc. (a) 102,700 1,972,867
PICO Holdings, Inc. (a) 113,100 2,137,590
United Rentals, Inc. (a) 12,700 196,215
-------------
6,838,253
-------------
COMMUNICATIONS EQUIPMENT (0.1%)
Digi International, Inc. (a) 16,200 221,778
MRV Communications, Inc. (a) 10,900 37,823
-------------
259,601
-------------
COMPUTERS & PERIPHERALS (0.2%)
Intergraph Corp. (a) 14,800 369,038
-------------
CONSTRUCTION & ENGINEERING (0.1%)
Comfort Systems USA, Inc. (a) 900 6,237
Washington Group International, Inc. (a) 5,900 205,733
-------------
211,970
-------------
CONSTRUCTION MATERIALS (0.1%)
Texas Industries, Inc. 5,900 300,487
-------------
CONSUMER FINANCE (1.4%)
Advanta Corp. Class B 44,600 1,086,902
ASTA Funding, Inc. 45,200 816,990
Metris Cos., Inc. (a) 99,800 958,080
World Acceptance Corp. (a) 19,700 460,980
-------------
3,322,952
-------------
DISTRIBUTORS (0.1%)
Noland Co. 200 8,500
WESCO International, Inc. (a) 4,900 122,892
-------------
131,392
-------------
DIVERSIFIED TELECOMMUNICATION SERVICES (0.1%)
Time Warner Telecom, Inc. (a) 59,100 302,592
-------------
+ Percentages indicated are based on Fund net assets.
v Among the Fund's 10 largest holdings, excluding short-term investments. May be
subject to change daily.
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
69
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- ---------------------------------------------------------------------------------
ELECTRIC UTILITIES (1.1%)
Allegheny Energy, Inc. (a) 25,900 $ 474,229
Green Mountain Power Corp. 81,400 2,108,260
-------------
2,582,489
-------------
ELECTRICAL EQUIPMENT (0.3%)
General Cable Corp. (a) 61,000 750,300
-------------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.3%)
Agilysys, Inc. 29,700 507,573
Brightpoint, Inc. (a) 8,925 135,571
CellStar Corp. (a) 13,700 52,060
-------------
695,204
-------------
ENERGY EQUIPMENT & SERVICES (0.8%)
Lufkin Industries, Inc. 5,300 187,673
Maverick Tube Corp. (a) 35,500 936,135
NS Group, Inc. (a) 39,100 743,291
-------------
1,867,099
-------------
FOOD & STAPLES RETAILING (1.6%)
Ingles Markets, Inc. Class A 114,300 1,394,460
NeighborCare, Inc. (a) 45,400 1,163,602
Smart & Final, Inc. (a) 86,300 1,275,514
-------------
3,833,576
-------------
FOOD PRODUCTS (2.2%)
John B. Sanfilippo & Son, Inc. (a) 11,700 210,951
M & F Worldwide Corp. (a) 108,200 1,449,880
Pilgrim's Pride Corp. 200 5,408
Ralcorp Holdings, Inc. 5,200 191,100
Sanderson Farms, Inc. 20,400 662,796
Seaboard Corp. 4,060 2,821,700
-------------
5,341,835
-------------
HEALTH CARE EQUIPMENT & SUPPLIES (1.7%)
VDade Behring Holdings, Inc. (a) 72,200 4,064,138
-------------
HEALTH CARE PROVIDERS & SERVICES (4.4%)
Alderwoods Group, Inc. (a) 281,300 2,849,569
Gentiva Health Services, Inc. (a) 129,300 2,193,574
Magellan Health Services, Inc. (a) 13,500 504,900
Mariner Health Care, Inc. (a) 14,800 430,680
MedCath Corp. (a) 35,000 614,250
Res-Care, Inc. (a) 14,100 171,174
Stewart Enterprises, Inc. Class A (a) 543,000 3,866,160
-------------
10,630,307
-------------
</Table>
<Table>
<Caption>
SHARES VALUE
HOTELS, RESTAURANTS & LEISURE (1.2%)
Dave & Buster's, Inc. (a) 2,200 $ 39,050
La Quinta Corp. (a) 356,500 2,869,825
Magna Entertainment Corp. (a) 9,100 51,233
-------------
2,960,108
-------------
HOUSEHOLD DURABLES (3.7%)
Blount International, Inc. (a) 129,100 1,866,786
Brookfield Homes Corp. 13,200 341,880
VM.D.C. Holdings, Inc. 50,560 3,880,480
National Presto Industries, Inc. 59,700 2,400,537
Standard Pacific Corp. 4,100 230,215
Technical Olympic USA, Inc. 1,550 39,200
William Lyon Homes, Inc. (a) 2,900 199,955
-------------
8,959,053
-------------
INSURANCE (13.0%)
Allmerica Financial Corp. (a) 39,800 1,197,980
American Medical Security Group, Inc. (a) 35,900 1,139,825
AmerUs Group Co. 2,700 112,806
Argonaut Group, Inc. (a) 154,100 2,852,391
Ceres Group, Inc. (a) 355,800 1,921,320
Commerce Group, Inc. (The) 41,400 2,095,254
Delphi Financial Group, Inc. Class A 22,650 925,705
Donegal Group, Inc. Class B 44,400 891,552
Erie Family Life Insurance Co. 200 6,300
FBL Financial Group, Inc. Class A 27,500 712,525
FPIC Insurance Group, Inc. (a) 55,800 1,551,240
Kansas City Life Insurance Co. 10,700 438,700
LandAmerica Financial Group, Inc. 19,300 944,735
Midland Co. (The) 15,600 431,028
National Western Life Insurance Co. Class A (a) 3,200 480,480
NYMAGIC, Inc. 7,800 158,340
Ohio Casualty Corp. (a) 103,100 2,152,728
VSafety Insurance Group, Inc. 210,094 4,729,216
SCPIE Holdings, Inc. 100 865
Selective Insurance Group, Inc. 14,600 570,568
Stewart Information Services Corp. 30,000 1,272,600
UICI 37,100 1,097,418
VUnited Fire & Casualty Co. 65,600 3,943,216
Vesta Insurance Group, Inc. 110,500 502,775
Zenith National Insurance Corp. 24,600 1,010,322
-------------
31,139,889
-------------
</Table>
70 MainStay Small Cap Opportunity Fund The notes to the financial statements
are an integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- ---------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL (1.8%)
Blair Corp. 109,500 $ 3,427,350
Systemax, Inc. (a) 149,300 924,167
-------------
4,351,517
-------------
INTERNET SOFTWARE & SERVICES (1.7%)
InfoSpace, Inc. (a) 43,300 2,273,250
Keynote Systems, Inc. (a) 134,600 1,893,149
-------------
4,166,399
-------------
IT SERVICES (0.2%)
InterCept, Inc. (a) 21,420 402,482
-------------
LEISURE EQUIPMENT & PRODUCTS (0.6%)
JAKKS Pacific, Inc. (a) 77,100 1,215,096
Johnson Outdoors, Inc. Class A (a) 2,800 55,860
RC2 Corp. (a) 400 11,144
Steinway Musical Instruments, Inc. (a) 6,900 190,785
-------------
1,472,885
-------------
MACHINERY (3.0%)
Alamo Group, Inc. 400 7,400
Ampco-Pittsburgh Corp. 100 1,332
Astec Industries, Inc. (a) 111,200 1,611,288
EnPro Industries, Inc. (a) 93,300 2,048,868
Greenbrier Cos., Inc. (The) 2,100 51,849
Joy Global, Inc. 2,900 97,991
Reliance Steel & Aluminum Co. 14,000 480,480
Terex Corp. (a) 200 7,600
Wolverine Tube, Inc. (a) 287,200 2,857,640
-------------
7,164,448
-------------
MEDIA (0.4%)
Carmike Cinemas, Inc. 25,200 902,160
Pegasus Communications Corp. Class A (a) 1,400 11,536
PRIMEDIA, Inc. (a) 15,600 39,780
-------------
953,476
-------------
METALS & MINING (7.2%)
AK Steel Holding Corp. (a) 136,200 1,297,986
Castle (A.M.) & Co. (a) 104,400 1,175,544
Commercial Metals Co. 2,300 83,145
Metal Management, Inc. (a) 97,200 1,769,040
Metals USA, Inc. (a) 184,900 3,154,394
Olympic Steel, Inc. (a) 175,900 3,123,984
Oregon Steel Mills, Inc. (a) 177,300 2,574,396
Ryerson Tull, Inc. 102,900 1,679,328
Steel Dynamics, Inc. 19,800 657,360
</Table>
<Table>
<Caption>
SHARES VALUE
METALS & MINING (CONTINUED)
Steel Technologies, Inc. 23,100 $ 553,476
Stillwater Mining Co. (a) 92,800 1,147,008
-------------
17,215,661
-------------
MULTILINE RETAIL (0.4%)
Dillard's, Inc. Class A 45,800 938,442
-------------
MULTI-UTILITIES & UNREGULATED POWER (2.3%)
Avista Corp. 18,100 321,818
VEnergen Corp. 72,200 3,882,916
Sierra Pacific Resources (a) 115,400 1,107,840
Westar Energy, Inc. 5,300 111,035
-------------
5,423,609
-------------
OFFICE ELECTRONICS (0.0%) (C)
Gerber Scientific, Inc. (a) 3,600 28,152
-------------
OIL & GAS (16.5%)
Callon Petroleum Co. (a) 162,700 2,198,077
Comstock Resources, Inc. (a) 4,600 101,200
Denbury Resources, Inc. (a) 39,200 972,160
Frontier Oil Corp. 47,400 1,165,092
VGeneral Maritime Corp. (a) 129,800 4,932,400
Giant Industries, Inc. (a) 70,300 1,614,791
Harvest Natural Resources, Inc. (a) 41,800 632,016
Holly Corp. 86,700 2,128,485
Houston Exploration Co. (The) (a) 19,000 1,113,400
KCS Energy, Inc. (a) 244,400 3,326,284
Mission Resources Corp. (a) 81,000 496,125
VOverseas Shipholding Group, Inc. 81,600 4,647,120
Petroleum Development Corp. (a) 20,000 704,400
Plains Exploration & Production Co. (a) 108,986 2,724,650
Resource America, Inc. Class A 139,300 3,398,920
Swift Energy Co. (a) 116,600 2,827,550
VTesoro Petroleum Corp. (a) 156,000 4,723,680
Vintage Petroleum, Inc. 88,500 1,858,500
-------------
39,564,850
-------------
PAPER & FOREST PRODUCTS (0.3%)
Louisiana-Pacific Corp. 31,500 772,065
Mercer International, Inc. (a) 1,400 12,250
Potlatch Corp. 200 9,418
-------------
793,733
-------------
PERSONAL PRODUCTS (0.0%) (C)
Elizabeth Arden, Inc. (a) 200 4,796
-------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
71
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- ---------------------------------------------------------------------------------
REAL ESTATE (6.0%)
American Land Lease, Inc. 3,500 $ 69,510
Anworth Mortgage Asset Corp. 800 8,184
Bluegreen Corp. (a) 75,500 926,385
California Coastal Communities, Inc. (a) 50,300 1,081,450
Corrections Corp. of America (a) 62,000 2,154,500
Cousins Properties, Inc. 5,200 193,544
CRIIMI MAE, Inc. (a) 42,200 692,080
CRT Properties, Inc. 19,000 421,040
VImpac Mortgage Holdings, Inc. 193,400 4,372,774
LaSalle Hotel Properties 20,100 577,272
LNR Property Corp. 19,900 1,244,546
Newcastle Investment Corp. 36,300 1,111,143
Novastar Financial, Inc. 10,400 450,112
Price Legacy Corp. 32,500 611,325
Senior Housing Properties Trust 22,600 423,976
-------------
14,337,841
-------------
ROAD & RAIL (1.4%)
Celadon Group, Inc. (a) 700 13,615
Florida East Coast Industries, Inc. 49,800 1,885,428
Overnite Corp. 2,200 71,192
RailAmerica, Inc. (a) 53,200 589,988
SCS Transportation, Inc. (a) 45,300 818,571
-------------
3,378,794
-------------
SPECIALTY RETAIL (3.2%)
Building Materials Holding Corp. 114,100 3,297,490
Pep Boys-Manny, Moe & Jack (The) 14,800 210,456
Rent-Way, Inc. (a) 106,600 835,744
Stage Stores, Inc. (a) 13,900 500,539
Trans World Entertainment Corp. (a) 265,200 2,752,776
-------------
7,597,005
-------------
TEXTILES, APPAREL & LUXURY GOODS (1.4%)
Haggar Corp. 11,500 186,760
Hampshire Group, Ltd. (a) 5,300 161,862
Hartmax Corp. (a) 297,700 2,488,772
Movado Group, Inc. 2,200 37,950
Perry Ellis International, Inc. (a) 7,100 152,650
Phillips-Van Heusen Corp. 18,100 412,499
-------------
3,440,493
-------------
</Table>
<Table>
<Caption>
SHARES VALUE
THRIFTS & MORTGAGE FINANCE (2.5%)
BankAtlantic Bancorp, Inc. Class A 13,400 $ 234,366
BankUnited Financial Corp. (a) 23,800 708,050
Berkshire Hills Bancorp, Inc. 3,600 136,008
Capital Crossing Bank (a) 11,400 313,500
Commercial Capital Bancorp, Inc. 32,532 729,693
Corus Bankshares, Inc. 200 9,202
First Financial Service Corp. 400 9,804
Flagstar Bancorp, Inc. 5,100 106,539
Fremont General Corp. 200 4,300
ITLA Capital Corp. (a) 9,400 455,157
New Century Financial Corp. 20,400 1,125,060
Ocwen Financial Corp. (a) 83,600 627,000
Provident Financial Holdings, Inc. 3,450 100,257
Sterling Financial Corp. (a) 8,522 320,172
United Community Financial Corp. 7,300 81,541
Waypoint Financial Corp. 20,700 568,422
WSFS Financial Corp. 7,600 412,718
-------------
5,941,789
-------------
TOBACCO (0.1%)
Universal Corp. 5,100 233,478
-------------
TRADING COMPANIES & DISTRIBUTORS (0.2%)
Huttig Building Products, Inc. (a) 56,700 453,600
-------------
WIRELESS TELECOMMUNICATION SERVICES (0.6%)
American Tower Corp. Class A (a) 500 8,595
Crown Castle International Corp. (a) 1,900 29,089
Dobson Communications Corp. Class A (a) 46,300 61,579
SBA Communications Corp. (a) 153,900 1,288,143
-------------
1,387,406
-------------
Total Common Stocks (Cost $201,703,273) 233,605,889
-------------
</Table>
72 MainStay Small Cap Opportunity Fund The notes to the financial statements
are an integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENT (2.5%)
- ---------------------------------------------------------------------------------
REPURCHASE AGREEMENT (2.5%)
Bank of New York (The)
1.65%, dated 10/29/04
due 11/1/04
Proceeds at Maturity $5,930,815
(Collateralized by Federal
National Mortgage
Association
4.15%, due 3/1/33
with a Principal Amount of
$6,049,013 and a Market Value of $6,169,994
including accrued interest) $ 5,930,000 $ 5,930,000
-------------
Total Short-Term Investment (Cost $5,930,000) 5,930,000
-------------
Total Investments (Cost $207,633,273) (d) 100.0% 239,535,889(e)
Liabilities in Excess of
Cash and Other Assets (0.0)(c) (16,579)
------------- -------------
Net Assets 100.0% $ 239,519,310
============= =============
</Table>
<Table>
(a) Non-income producing security.
(b) Exchange Traded Fund -- represents a basket of
securities that are traded on an exchange.
(c) Less than one tenth of a percent.
(d) The cost for federal income tax purposes is
$207,884,371.
(e) At October 31, 2004 net unrealized appreciation was
$31,651,518, based on cost for federal income tax
purposes. This consisted of aggregate gross unrealized
appreciation for all investments on which there was an
excess of market value over cost of $37,584,005 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $5,932,487.
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
73
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2004
<Table>
ASSETS:
Investment in securities, at value
(identified cost $207,633,273) $239,535,889
Cash 5,227
Receivables:
Fund shares sold 1,425,721
Investment securities sold 160,407
Dividends and interest 69,839
Other assets 20,565
------------
Total assets 241,217,648
------------
LIABILITIES:
Payables:
Investment securities purchased 1,072,927
Fund shares redeemed 305,025
Manager 199,222
Transfer agent 31,302
NYLIFE Distributors 20,638
Custodian 10,210
Accrued expenses 59,014
------------
Total liabilities 1,698,338
------------
Net assets $239,519,310
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
1 billion shares authorized:
Class A $ 13,248
Class B 8,111
Class C 3,003
Class I 104,141
Additional paid-in capital 167,126,757
Accumulated undistributed net realized gain
on investments 40,361,434
Net unrealized appreciation on investments 31,902,616
------------
Net assets $239,519,310
============
CLASS A
Net assets applicable to outstanding shares $ 24,621,130
============
Shares of capital stock outstanding 1,324,843
============
Net asset value per share outstanding $ 18.58
Maximum sales charge (5.50% of offering price) 1.08
------------
Maximum offering price per share outstanding $ 19.66
============
CLASS B
Net assets applicable to outstanding shares $ 14,904,596
============
Shares of capital stock outstanding 811,078
============
Net asset value and offering price per share
outstanding $ 18.38
============
CLASS C
Net assets applicable to outstanding shares $ 5,517,707
============
Shares of capital stock outstanding 300,297
============
Net asset value and offering price per share
outstanding $ 18.37
============
CLASS I
Net assets applicable to outstanding shares $194,475,877
============
Shares of capital stock outstanding 10,414,063
============
Net asset value and offering price per share
outstanding $ 18.67
============
</Table>
74 MainStay Small Cap Opportunity Fund The notes to the financial statements
are an integral part of, and should be read in conjunction with, the financial
statements.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2004
<Table>
INVESTMENT INCOME:
INCOME:
Dividends (a) $ 2,988,232
Interest 56,938
-----------
Total income 3,045,170
-----------
EXPENSES:
Manager 2,050,915
Transfer agent -- Classes A, B and C 75,027
Transfer agent -- Class I 99,058
Professional 67,931
Registration 48,418
Custodian 47,417
Distribution -- Class B 44,074
Distribution -- Class C 14,436
Shareholder communication 41,085
Trustees 23,878
Service -- Class A 18,193
Service -- Class B 14,692
Service -- Class C 4,812
Service -- Service Class 573
Miscellaneous 38,845
-----------
Total expenses 2,589,354
Fees paid indirectly (See Note 2(E)) (42,247)
-----------
Net expenses 2,547,107
-----------
Net investment income 498,063
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 40,242,703
Net change in unrealized depreciation on
investments (4,766,868)
-----------
Net realized and unrealized gain on investments 35,475,835
-----------
Net increase in net assets resulting from
operations $35,973,898
===========
</Table>
(a) Dividends recorded net of foreign withholding taxes in the amount of $93.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
75
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003
<Table>
<Caption>
2004 2003
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 498,063 $ 653,795
Net realized gain on investments 40,242,703 14,921,032
Net change in unrealized
depreciation on investments (4,766,868) 30,247,013
----------------------------
Net increase in net assets
resulting from operations 35,973,898 45,821,840
----------------------------
Dividends and distributions to shareholders:
From net investment income:
Class I (529,938) (1,275,510)
Service Class (2,449) (1,461)
From net realized gain on investments:
Class C (69) --
Class I (8,783,780) --
Service Class (58,903) --
----------------------------
Total dividends and distributions
to shareholders (9,375,139) (1,276,971)
----------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 26,466,450 --
Class B 15,449,601 --
Class C 5,487,844 1,149
Class I 120,485,449 123,830,893
Service Class 150,100 853,598
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions:
Class C 69 --
Class I 8,970,892 1,237,937
Service Class 61,284 1,461
----------------------------
177,071,689 125,925,038
Cost of shares redeemed:
Class A (2,619,360) --
Class B (1,096,142) --
Class C (189,760) (102)
Class I (123,333,409) (117,287,648)
Service Class (1,347,714) (16,449)
----------------------------
(128,586,385) (117,304,199)
----------------------------
Increase in net assets derived
from capital share transactions 48,485,304 8,620,839
----------------------------
Net increase in net assets 75,084,063 53,165,708
</Table>
<Table>
<Caption>
2004 2003
NET ASSETS:
Beginning of year $ 164,435,247 $111,269,539
----------------------------
End of year $ 239,519,310 $164,435,247
============================
Accumulated undistributed net
investment income at end of year $ -- $ 216,019
============================
</Table>
76 MainStay Small Cap Opportunity Fund The notes to the financial statements
are an integral part of, and should be read in conjunction with, the financial
statements.
This page intentionally left blank
77
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A CLASS B CLASS C
----------- ----------- --------------------------
JANUARY 2, JANUARY 2, DECEMBER 30,
2004** 2004** YEAR 2002**
THROUGH THROUGH ENDED THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2004 2004 2004 2003
Net asset value at beginning of period $ 16.78 $ 16.71 $16.15 $ 11.46
------- ------- ------ -------
Net investment income (loss) (0.09)(e) (0.19)(e) (0.25)(e) (0.05)(e)
Net realized and unrealized gain (loss) on
investments 1.89 1.86 3.28 4.74
------- ------- ------ -------
Total from investment operations 1.80 1.67 3.03 4.69
------- ------- ------ -------
Less dividends and distributions:
From net investment income -- -- -- --
From net realized gain on investments -- -- (0.81) --
------- ------- ------ -------
Total dividends and distributions -- -- (0.81) --
------- ------- ------ -------
Net asset value at end of period $ 18.58 $ 18.38 $18.37 $ 16.15
======= ======= ====== =======
Total investment return (b) 10.73%(c) 9.99%(c) 19.29% 40.92%(c)
Ratios (to average net
assets)/Supplemental Data:
Net investment income (loss) (0.36%)++ (1.12%)++ (1.13%)++ (0.47%)++
Net expenses 1.87%++# 2.62%++# 2.62%++# 2.27%++#
Expenses (before reimbursement) 1.87%++# 2.62%++# 2.62%++# 2.34%++#
Portfolio turnover rate 132% 132% 132% 135%
Net assets at end of period (in 000's) $24,621 $14,905 $5,518 $ 2
</Table>
<Table>
* The Fund changed its fiscal year end from December 31 to
October 31.
** Commencement of Operations.
+ Less than 0.01% of average net assets.
++ Annualized.
# Includes transfer agent fees paid indirectly which amounted
to 0.02%, 0.08%, 0.07% and 0.08% of average net assets for
the years or periods ended October 31, 2004, October 31,
2003, October 31, 2002 and October 31, 2001, respectively,
and custodian fees and other expenses paid indirectly which
amounted to 0.02% of average net assets for the year ended
December 31, 2000 and less than 0.01% of average net assets
for the other years indicated.
(a) Less than one cent per share.
(b) Total return is calculated exclusive of sales charges. Class
I is not subject to sales charges.
(c) Total return is not annualized.
(d) Restated.
(e) Per share data based on average shares outstanding during
the period.
</Table>
78 MainStay Small Cap Opportunity Fund The notes to the financial statements
are an integral part of, and should be read in conjunction with, the financial
statements.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS I
---------------------------------------------------------------------------------------------------------------------------
JANUARY 1,
2001
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31, YEAR ENDED DECEMBER 31,
2004 2003 2002 2001* 2000 1999
$ 16.26 $ 11.58 $ 11.04 $ 10.65 $ 11.76 $ 11.93
-------- -------- -------- -------- -------- --------
0.06(e) 0.07(e) 0.15 0.08 (0.00)(a) 0.01
3.21 4.74 0.50 0.31 (1.11) 0.35
-------- -------- -------- -------- -------- --------
3.27 4.81 0.65 0.39 (1.11) 0.36
-------- -------- -------- -------- -------- --------
(0.05) (0.13) (0.11) -- -- (0.01)
(0.81) -- -- -- -- (0.52)
-------- -------- -------- -------- -------- --------
(0.86) (0.13) (0.11) -- -- (0.53)
-------- -------- -------- -------- -------- --------
$ 18.67 $ 16.26 $ 11.58 $ 11.04 $ 10.65 $ 11.76
======== ======== ======== ======== ======== ========
20.72% 42.04% 5.84% 3.66%(c) (9.44%) 3.05%
0.32%++ 0.53% 1.08% 0.70%++ (0.00%)+ 0.05%
1.18%++# 1.27%# 1.26%# 1.23%++#(d) 1.21%# 1.18%#
1.18%++# 1.34%# 1.27%# 1.23%++#(d) 1.21%# 1.18%#
132% 135% 103% 77% 105% 56%
$194,476 $163,362 $111,181 $108,105 $157,630 $251,229
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
79
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
SERVICE CLASS+++
---------------------------------------
NOVEMBER 1, JULY 1,
2003 2002**
THROUGH YEAR ENDED THROUGH
JANUARY 9, OCTOBER 31, OCTOBER 31,
2004 2003 2002
Net asset value at beginning of period $16.24 $11.58 $13.91
------ ------ ------
Net investment income (loss) 0.03(e) (0.04)(d) (0.00)(a)
Net realized and unrealized gain (loss) on
investments 1.74 4.75 (2.33)
------ ------ ------
Total from investment operations 1.77 4.79 (2.33)
------ ------ ------
Less dividends and distributions:
From net investment income (0.03) (0.13) --
From net realized gain on investments (0.81) -- --
------ ------ ------
Total dividends and distributions (0.84) (0.13) --
------ ------ ------
Net asset value at end of period $17.17 $16.24 $11.58
====== ====== ======
Total investment return (b) 11.07%(c) 41.80% (16.75%)(c)
Ratios (to average net
assets)/Supplemental Data:
Net investment income (loss) 1.02%++ 0.28% 0.83%++
Net expenses 1.44%++# 1.52%# 1.51%++#
Expenses (before reimbursement) 1.44%++# 1.59%# 1.52%++#
Portfolio turnover rate 135% 135% 103%
Net assets at end of period (in 000's) $ 0 $1,071 $ 88
</Table>
<Table>
* The Fund changed its fiscal year end from December 31 to
October 31.
** Commencement of Operations.
+ Less than 0.01% of average net assets.
++ Annualized.
+++ Service Class shares ceased operations on January 9, 2004.
# Includes transfer agent fees paid indirectly which amounted
to 0.02%, 0.08% and 0.07% of average net assets for the
years or periods ended January 9, 2004, October 31, 2003 and
October 31, 2002, respectively.
(a) Less than one cent per share.
(b) Total return is calculated exclusive of sales charges.
Service Class is not subject to sales charges.
(c) Total return is not annualized.
(d) Per share data based on average shares outstanding during
the period.
</Table>
80 MainStay Small Cap Opportunity Fund The notes to the financial statements
are an integral part of, and should be read in conjunction with, the financial
statements.
MAINSTAY CASH RESERVES FUND
INVESTMENT AND PERFORMANCE COMPARISON
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY, CURRENT PERFORMANCE MAY
BE LESS OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. FOR CURRENT TO THE MOST RECENT MONTH-END PERFORMANCE
INFORMATION, PLEASE CONTACT 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM.
CLASS I SHARES(2) -- NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
0.77% 2.76% 3.98%
</Table>
7-DAY CURRENT YIELD -- 1.28%
(LINE GRAPH FOR CLASS I SHARES)
<Table>
<Caption>
AVERAGE LIPPER MONEY MARKET
MAINSTAY CASH RESERVES FUND FUND
--------------------------- ---------------------------
10/31/94 10000 10000
10557 10530
11103 11045
11683 11591
12304 12173
12895 12723
13667 13444
14306 14026
14541 14211
14662 14300
10/31/04 14775 14381
</Table>
<Table>
-- MainStay Cash Reserves Fund -- Average Lipper money
market fund
</Table>
SWEEP SHARES CLASS(2) -- NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
0.27% 2.25% 3.41%
</Table>
7-DAY CURRENT YIELD -- 0.78%
(LINE GRAPH FOR SWEEP SHARES CLASS)
<Table>
<Caption>
AVERAGE LIPPER INSTITUTIONAL
MAINSTAY CASH RESERVES FUND MONEY MARKET FUND
--------------------------- ----------------------------
10/31/94 10000 10000
10492 10572
10953 11134
11463 11731
12012 12366
12513 12969
13197 13758
13744 14411
13901 14660
13946 14801
10/31/04 13984 14936
</Table>
<Table>
-- MainStay Cash Reserves Fund -- Average Lipper institutional
money market fund
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
Average Lipper money market fund(1) 0.47% 2.35% 3.70%
Average Lipper institutional money market
fund(1) 0.85 2.79 4.09
</Table>
Performance tables and graphs do not reflect the deduction of taxes that a
shareholder would pay on distributions or Fund-share redemptions. Total returns
reflect change in share price and reinvestment of dividend and capital-gain
distributions. The graphs assume an initial investment of $10,000. Class I
shares are sold with no initial sales charge or CDSC, have no annual 12b-1 fees,
and are generally available to corporate and institutional investors with a
minimum initial investment of $5 million. Sweep Shares Class shares are sold
with no initial sales charge or CDSC, have an annual 12b-1 fee of .25%, and are
available only through financial institutions participating in a sweep account
arrangement. Performance figures reflect certain fee waivers and/or expense
limitations, without which total returns may have been lower. The fee waivers
and/or expense limitations are voluntary and may be discontinued at any time.
Performance for the Sweep Shares Class shares, first offered 12/8/98, includes
the performance of Class I shares from inception (1/2/91) through 12/7/98.
1. Lipper Inc. is an independent fund performance monitor. Results are based on
total returns with all dividend and capital-gain distributions reinvested.
The average Lipper money market fund is considered to be the Fund's broad-
based securities-market index for comparison purposes.
2. As of 10/31/04, MainStay Cash Reserves Fund had an effective 7-day yield of
1.29% and a 7-day current yield of 1.28% for the Class I shares and an
effective 7-day yield of 0.79% and a 7-day current yield of 0.78% for the
Sweep Shares Class. These yields reflect certain expense limitations. Had
these expense limitations not been in effect, the effective 7-day yield and
the current 7-day yield would have been 1.19% and 1.18% for the Class I
Shares and 0.69% and 0.68% for the Sweep Shares Class. These expense
limitations are voluntary and may be terminated or revised at any time. The
current yield is more reflective of the Fund's earnings than the total
return.
www.mainstayfunds.com 81
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY CASH RESERVES FUND
Expenses shown in the table are meant to highlight your ongoing costs only and
do not reflect any transactional costs, such as sales charges (loads),
redemption fees, or exchange fees. Therefore, the third data column of the table
is 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 had been included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT ENDING ACCOUNT
VALUE (BASED VALUE (BASED
BEGINNING ON ACTUAL EXPENSES ON HYPOTHETICAL EXPENSES
ACCOUNT RETURNS AND PAID 5% ANNUALIZED PAID
VALUE EXPENSES) DURING RETURN AND DURING
SHARE CLASS(1) 5/1/04 10/31/04 PERIOD ACTUAL EXPENSES) PERIOD
CLASS I SHARES $1,000.00 $1,004.60 $2.52 $1,022.50 $2.54
- ------------------------------------------------------------------------------------------------------------------------
SWEEP SHARES $1,000.00 $1,002.10 $5.03 $1,020.00 $5.08
- ------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio multiplied by the
average account value over the period, divided by 366, multiplied by 184 (to
reflect the one-half year period).
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2004
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
<Caption>
U.S. LIABILITIES IN
GOVERNMENT EXCESS OF
CERTIFICATES OF CORPORATE MEDIUM TERM & FEDERAL ASSET-BACKED CASH AND
COMMERCIAL PAPER DEPOSIT BONDS NOTES AGENCY SECURITIES OTHER ASSETS
- ---------------- --------------- --------- ----------- ---------- ------------ --------------
71.5 13.90 5.60 5.50 3.70 3.30 -3.5
</Table>
See Portfolio of Investments on page 85 for specific holdings within these
categories.
82 MainStay Cash Reserves Fund
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio managers Mark C. Boyce and David E. Clement,
CFA, of
New York Life Investment Management LLC
CAN YOU BRIEFLY DESCRIBE THE FUND'S INVESTMENT APPROACH?
The Fund invests in high-quality, short-term securities that are denominated in
U.S. dollars and mature in 13 months or less. The Fund may invest in obli-
gations of the U.S. government and its agencies or instrumentalities. It may
also invest in CDs, bankers' acceptances, commercial paper, loans, time
deposits, repurchase agreements, and corporate debt securities. The Fund's
investments may also include variable rate notes, floaters, and asset-backed
securities.
WHAT MAJOR FACTORS INFLUENCED THE MONEY MARKETS DURING THE 12 MONTHS ENDED
OCTOBER 31, 2004?
The sustained war in Iraq, ongoing tensions in the Middle East, and growing
domestic budget deficits continued to influence the financial markets during the
12-month reporting period. For much of the reporting period, the Federal Reserve
remained largely out of sight and maintained the targeted federal funds rate at
a low 1.0%.
In April, however, the financial markets began to anticipate that the Federal
Open Market Committee might move to tighten interest rates, and the money-
market yield curve began to steepen. From June through October, the most
significant factor affecting the money markets was the action of the Federal
Reserve. The Federal Open Market Committee increased the targeted federal funds
rate three times--in June, August, and September--with a 25 basis point move on
each occasion. This brought the targeted federal funds rate to 1.75% at the end
of the annual period.
HOW DID FEDERAL RESERVE POLICY AFFECT THE FUND'S DURATION POSITIONING DURING THE
ANNUAL PERIOD?
The Fund's duration changed dramatically during the 12-month reporting period
based on the Federal Reserve's tightening moves. At the end of October 2003, the
Fund had a duration of 82 days as we sought to benefit from declining short-term
interest rates. As the economic picture changed over the ensuing months, the
money-market landscape changed as well. Short-term rates began to rise as the
Federal Open Market Committee tightened monetary policy for the first time since
May 2000. We positioned the Fund for higher short-term rates by shortening its
duration to 49 days by the end of October 2004. A shorter duration allows the
Fund to react more quickly to interest-rate changes. This strategy is generally
beneficial in a rising rate environment.
DID THE STEEPENING OF THE MONEY-MARKET YIELD CURVE INFLUENCE THE FUND'S
INVESTMENT DECISIONS?
The steepening of the money-market yield curve, as measured by the difference
between the overnight federal funds rate and 12-month LIBOR,(1) was a major
influence on our decisions. The curve steepened by 20 basis points during the
reporting period, from a 55 basis point difference on October 31, 2003, to a 75
basis point difference one year later. There was also substantial volatility in
the money markets during the reporting period. For example, in March 2004, the
money-market yield curve reached its flattest point--a 25 basis point difference
between the overnight federal funds rate and 12-month LIBOR. During June 2004,
the difference reached 147 basis points.
The Fund was able to benefit from the steeper yield curve through investments in
securities that mature in 2005. For instance, we purchased short-term Treasury
coupon securities, specifically 1.625% securities due at the end of March and
the end of April 2005. We also purchased some Colgate-Palmolive 3.98% securities
that mature near the end of April 2005.
HOW DID THE FUND INVEST DURING THE REPORTING PERIOD?
Commercial paper, which offers a high degree of liquidity, continued to be the
key market sector for the portfolio during the reporting period. In addition, we
continued to cull the short-term corporate-note sector for yield-enhancement
opportunities. Among
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. Foreign securities may be subject to greater
risks than U.S. investments, including currency fluctuations, less-liquid
trading markets, greater price volatility, political and economic instability,
less publicly available information, and changes in tax or currency laws or
monetary policy. These risks are likely to be greater in emerging markets than
in developed markets. The Fund may invest in derivatives, which may increase the
volatility of the Fund's net asset value and may result in a loss to the Fund.
1. The London interbank offered rate (LIBOR) is a floating interest rate that is
widely used as a base rate in bank, corporate, and government lending
agreements.
www.mainstayfunds.com 83
short corporates, some of the Fund's key investments included notes of Minnesota
Mining & Manufacturing, Colgate-Palmolive, and Bank One.
We also sought to add incremental yield through the asset-backed security sector
and the floating-rate security sector, though we gave up some liquidity in the
process. During the 12-month reporting period, we purchased Nissan Auto
Receivables Owners Trust, DaimlerChrysler Auto Trust, and Capital One Auto
Finance asset-backed securities and General Electric and American Express
floating-rate securities. We also purchased certificates of deposit issued by
Wells Fargo Bank, Citibank, Toronto-Dominion Bank, and Deutsche Bank. A portion
of the Fund's assets were invested in callable agency securities.
DID THE FUND CHANGE ITS ASSET CLASS WEIGHTINGS?
As we shortened the portfolio's duration over the 12-month reporting period, we
increased the Fund's weighting in commercial paper and in asset-backed
securities. As a result, the Fund's exposure to short-term corporate notes
decreased.
WHAT DO YOU ANTICIPATE GOING FORWARD?
As 2004 comes to a close, we expect the Federal Reserve to continue nudging
short-term interest rates higher. As long as this scenario appears likely, we
will continue to keep the portfolio's weighted average maturity short. We will
also seek securities that are likely to benefit from higher short-term interest
rates.
The opinions expressed are those of the portfolio managers as of the date of
this report and are subject to change. There is no guarantee that any forecasts
made will come to pass. This material does not constitute investment advice and
is not intended as an endorsement of any specific investment.
INFORMATION ABOUT MAINSTAY CASH RESERVES FUND ON THIS PAGE AND THE PRECEDING
PAGES HAS NOT BEEN AUDITED.
84 MainStay Cash Reserves Fund
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
PRINCIPAL AMORTIZED
AMOUNT COST
SHORT-TERM INVESTMENTS (103.5%)+
- ------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (3.3%)
Americredit Automobile Receivables Series 2004-CA
Class A1
1.765%, due 9/6/05 (c) $ 4,111,690 $ 4,111,690
Capital One Auto Finance Trust Series 2004-B Class
A1
1.81%, due 10/17/05 (b)(c) 2,000,000 2,000,000
Nissan Auto Receivables
Owners Trust
Series 2004-B Class A1
1.64%, due 7/15/05 (c) 2,551,380 2,551,381
1.93%, due 9/15/05 (c) 3,054,046 3,054,046
World Omni Vehicle Leasing
1.80%, due 11/1/04 (a)(c) 5,000,000 5,000,000
------------
16,717,117
------------
CERTIFICATES OF DEPOSIT (13.9%)
Citibank NA
1.805%, due 12/13/04 (c) 15,000,000 15,000,000
Deutsche Bank NY
1.11%, due 12/17/04 (c)(d) 10,000,000 9,998,413
Dresdner Bank AG
1.97%, due 5/10/05 (c)(d) 10,000,000 10,000,000
Suntrust Bank
2.07%, due 2/22/05 (c) 5,500,000 5,500,000
Toronto Dominion Bank
1.41%, due 1/5/05 (c)(d) 5,000,000 5,000,000
1.655%, due 11/23/04 (c) 10,000,000 10,000,000
Wells Fargo Bank NA
1.67%, due 11/1/04 (c) 15,000,000 15,000,000
------------
70,498,413
------------
COMMERCIAL PAPER (71.5%)
ABN-Amro N.A. Finance, Inc.
1.85%, due 12/6/04 10,000,000 9,982,014
Barclays U.S. Funding Corp.
1.54%, due 12/3/04 9,128,000 9,115,505
BellSouth Corp.
1.80%, due 11/4/04 (a) 10,000,000 9,998,500
Blue Ridge Asset Funding
1.78%, due 11/5/04 (a) 5,000,000 4,999,011
Bristol-Myers Squibb Co.
1.82%, due 11/15/04 (a) 11,037,000 11,029,188
Cafco LLC
1.80%, due 11/17/04 (a) 10,000,000 9,992,000
Caterpillar Financial Services
1.41%, due 11/8/04 6,990,000 6,988,084
Citigroup Global Markets Holdings, Inc.
1.77%, due 11/9/04 12,446,000 12,441,105
1.89%, due 11/30/04 6,434,000 6,424,204
</Table>
<Table>
<Caption>
PRINCIPAL AMORTIZED
AMOUNT COST
COMMERCIAL PAPER (CONTINUED)
Coca-Cola Enterprises, Inc.
1.74%, due 11/3/04 $ 5,641,000 $ 5,640,455
Countrywide Home Loans, Inc.
1.81%, due 11/8/04 11,163,000 11,159,071
CRC Funding LLC
2.02%, due 1/14/05 (a) 7,662,000 7,630,186
CXC, Inc.
1.67%, due 11/22/04 (a) 8,308,000 8,299,907
Delaware Funding Corp.
1.82%, due 11/18/04 (a) 5,000,000 4,995,703
Edison Asset Securitization LLC
1.64%, due 11/10/04 (a) 10,000,000 9,995,900
1.85%, due 12/2/04 (a) 10,000,000 9,984,069
General Electric Capital Co.
1.60%, due 11/9/04 1,644,000 1,643,415
Goldman Sachs Group, Inc.
1.66%, due 11/23/04 10,000,000 9,989,856
Govco, Inc.
1.66%, due 11/18/04 (a) 10,000,000 9,992,161
2.06%, due 1/12/05 (a) 3,062,000 3,049,385
HBOS Treasury Services
1.772%, due 11/24/04 10,000,000 9,988,500
2.03%, due 2/1/05 3,223,000 3,206,280
KFW International Finance, Inc.
1.75%, due 11/10/04 (a) 9,685,000 9,680,763
Kitty Hawk Funding Corp.
1.79%, due 11/12/04 (a) 20,000,000 19,989,061
Lehman Brothers Holdings, Inc.
2.097%, due 4/8/05 8,000,000 7,925,564
Marsh & McLennan Cos., Inc.
1.78%, due 11/22/04 (a) 15,000,000 14,984,425
Morgan Stanley Dean Witter & Co.
1.79%, due 11/4/04 12,234,000 12,232,175
National Rural Utilities Cooperative Finance Corp.
1.78%, due 11/2/04 12,000,000 11,999,407
Park Avenue Receivables Corp.
1.78%, due 11/4/04 (a) 5,000,000 4,999,258
Procter & Gamble Co. (The)
1.76%, due 12/8/04 (a) 14,060,000 14,034,567
Rabobank USA Financial Corp.
1.95%, due 1/28/05 7,462,000 7,426,431
+ Percentages indicated are based on Fund net assets.
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
85
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL AMORTIZED
AMOUNT COST
SHORT-TERM INVESTMENTS (CONTINUED)
- ------------------------------------------------------------------------------
COMMERCIAL PAPER (CONTINUED)
xRoyal Bank of Scotland
1.66%, due 11/12/04 $12,000,000 $ 11,993,913
1.73%, due 11/16/04 8,000,000 7,994,233
SBC Communications, Inc.
2.06%, due 1/25/05 (a) 6,942,000 6,908,235
Sheffield Receivables Corp.
1.89%, due 11/26/04 (a) 4,474,000 4,468,128
Shell Finance (UK) PLC
1.85%, due 12/9/04 21,490,000 21,448,302
Svenska Handelsbanken AB
1.84%, due 12/6/04 15,000,000 14,973,167
Variable Funding Capital Co.
1.85%, due 11/19/04 (a) 10,000,000 9,990,750
Westpac Capital Corp.
1.68%, due 11/29/04 5,115,000 5,108,316
------------
362,701,194
------------
CORPORATE BONDS (5.6%)
3M Co.
5.639%, due 12/13/04 (a)(c) 10,000,000 10,049,408
General Electric Co.
2.15%, due 10/24/05 (b)(c) 13,000,000 13,011,987
Lehman Brothers Holdings, Inc.
Series G
7.75%, due 1/15/05 (a)(b)(c) 5,050,000 5,116,599
------------
28,177,994
------------
MEDIUM-TERM NOTES (5.5%)
Colgate-Palmolive Co.
3.98%, due 4/29/05 (c) 4,000,000 4,040,296
Lehman Brothers Holdings, Inc. Series A
1.86%, due 5/16/05 (c) 7,000,000 7,000,000
Pfizer, Inc.
2.12%, due 11/4/05 (b) 17,000,000 17,000,000
------------
28,040,296
------------
</Table>
<Table>
<Caption>
PRINCIPAL AMORTIZED
AMOUNT COST
U.S. GOVERNMENT & FEDERAL AGENCIES (3.7%)
Federal National Mortgage Association
1.435%, due 12/1/04 $ 890,000 $ 888,936
1.75%, due 5/23/05 (c) 10,000,000 10,000,000
United States Treasury Notes
1.625%, due 3/31/05 (c) 3,000,000 3,003,475
1.625%, due 4/30/05 (c) 5,000,000 5,004,983
------------
18,897,394
------------
Total Short-Term Investments
(Amortized Cost $525,032,408) (e) 103.5% 525,032,408
Liabilities in Excess of Cash and Other Assets (3.5) (17,675,924)
----------- ------------
Net Assets 100.0% $507,356,484
=========== ============
</Table>
<Table>
(a) May be sold to institutional investors only.
(b) Floating rate. Rate shown is the rate in effect at
October 31, 2004.
(c) Coupon interest bearing security.
(d) Yankee certificate of deposit (CD) -- dollar-denominated
CD issued in the United States by foreign banks and
corporations.
(e) The cost stated also represents the aggregate cost for
federal income tax purposes.
</Table>
86 MainStay Cash Reserves Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
The table below sets forth the diversification of Cash Reserves Fund investments
by industry.
INDUSTRY DIVERSIFICATION
<Table>
<Caption>
AMORTIZED
COST PERCENT+
Agency $ 18,897,394 3.7%
Automobile -- Sequential 6,111,690 1.2
Beverages -- Non-Alcoholic 5,640,455 1.1
Commercial Banks -- Central U.S. 5,500,000 1.1
Commercial Banks -- Eastern U.S. 54,195,401 10.7
Commercial Banks -- Non U.S. 15,000,000 3.0
Cosmetics & Toiletries 18,074,863 3.6
Diversified Financial Services 9,069,847 1.8
Diversified Manufacturing 23,061,395 4.5
Finance -- Auto Loans 5,605,426 1.1
Finance -- Commercial 6,988,084 1.4
Finance -- Corporate Loans 4,999,011 1.0
Finance -- Investment Banker/Broker 61,129,503 12.0
Finance -- Mortgage Loan/Banker 11,159,071 2.2
Finance -- Other Services 47,652,410 9.4
Finance -- Receivables 82,715,518 16.3
Insurance -- Brokers 14,984,425 3.0
Medical -- Drugs 28,029,188 5.5
Money Center Banks 52,863,689 10.4
Oil Companies Integrated 21,448,303 4.2
Super-Regional Banks -- U.S. 15,000,000 3.0
Telephone -- Integrated 16,906,735 3.3
------------ --------
525,032,408 103.5
Liabilities in Excess of
Cash and Other Assets (17,675,924) (3.5)
------------ --------
Net Assets $507,356,484 100.0%
============ ========
</Table>
<Table>
+ Percentages indicated are based on Fund net assets.
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com 87
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2004
<Table>
ASSETS:
Investment in securities, at value
(amortized cost $525,032,408) $525,032,408
Cash 694
Receivables:
Interest 1,032,798
Fund shares sold 513,328
Other assets 18,822
------------
Total assets 526,598,050
------------
LIABILITIES:
Payables:
Investment securities purchased 17,000,000
Fund shares redeemed 1,849,931
Manager 172,517
NYLIFE Distributors 110,339
Shareholder communication 44,171
Custodian 10,972
Transfer agent 10,614
Directors 4,762
Accrued expenses 38,260
------------
Total liabilities 19,241,566
------------
Net assets $507,356,484
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
8 billion shares authorized:
Class I $ 246,557
Sweep Shares Class 260,800
Additional paid-in capital 506,851,835
Accumulated net realized loss on investments (2,708)
------------
Net assets $507,356,484
============
CLASS I
Net assets applicable to outstanding shares $246,542,242
============
Shares of capital stock outstanding 246,556,804
============
Net asset value and offering price per share
outstanding $ 1.00
============
SWEEP SHARES CLASS
Net assets applicable to outstanding shares $260,814,242
============
Shares of capital stock outstanding 260,800,225
============
Net asset value and offering price per share
outstanding $ 1.00
============
</Table>
88 MainStay Cash Reserves Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2004
<Table>
INVESTMENT INCOME:
INCOME:
Interest $6,270,401
----------
EXPENSES:
Manager 2,475,666
Distribution -- Sweep Shares Class 670,023
Service -- Sweep Shares Class 670,023
Service -- Service Class 6,946
Shareholder communication 142,135
Professional 129,967
Transfer agent 67,446
Directors 50,915
Custodian 46,663
Registration 40,803
Portfolio pricing 2,915
Miscellaneous 36,163
----------
Total expenses before reimbursement 4,339,665
Expense reimbursement from Manager (516,731)
----------
Net expenses 3,822,934
----------
Net investment income 2,447,467
----------
REALIZED LOSS ON INVESTMENTS:
Net realized loss on investments (2,708)
----------
Net increase in net assets resulting from
operations $2,444,759
==========
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com 89
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003
<Table>
<Caption>
2004 2003
DECREASE IN NET ASSETS:
Operations:
Net investment income $ 2,447,467 $ 3,273,616
Net realized gain (loss) on
investments (2,708) 8,311
-------------------------------
Net increase in net assets
resulting from operations 2,444,759 3,281,927
-------------------------------
Dividends and distributions to shareholders:
From net investment income:
Class I (1,733,035) (2,263,628)
Service Class (10,535) (85,667)
Sweep Shares Class (703,897) (924,321)
From net realized gain on investments:
Class I (3,677) (8,060)
Service Class (208) (313)
Sweep Shares Class (4,426) (7,760)
-------------------------------
Total dividends and distributions
to shareholders (2,455,778) (3,289,749)
-------------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class I 506,072,909 490,606,863
Service Class 2,796,267 29,010,391
Sweep Shares Class 136,261,850 97,731,999
Net asset value of shares
issued to shareholders
in reinvestment of dividends
and distributions:
Class I 1,742,010 2,250,176
Service Class 5,989 84,448
Sweep Shares Class 544,302 932,002
-------------------------------
647,423,327 620,615,879
Cost of shares redeemed:
Class I (482,325,843) (601,715,257)
Service Class (20,300,483) (23,255,832)
Sweep Shares Class (148,842,045) (117,116,374)
-------------------------------
(651,468,371) (742,087,463)
-------------------------------
Decrease in net assets derived
from capital share
transactions (4,045,044) (121,471,584)
-------------------------------
Net decrease in net assets (4,056,063) (121,479,406)
NET ASSETS:
Beginning of year 511,412,547 632,891,953
-------------------------------
End of year $ 507,356,484 $ 511,412,547
===============================
</Table>
90 MainStay Cash Reserves Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
This page intentionally left blank
91
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS I
------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2004 2003 2002 2001 2000
Net asset value at beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Net investment income 0.01 0.01 0.02 0.04 0.06
Net realized gain on investments 0.00(a) 0.00(a) 0.00(a) -- --
-------- -------- -------- -------- --------
Total from investment operations 0.01 0.01 0.02 0.04 0.06
-------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income (0.01) (0.01) (0.02) (0.04) (0.06)
From net realized gain on
investments (0.00)(a) (0.00)(a) (0.00)(a) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (0.01) (0.01) (0.02) (0.04) (0.06)
-------- -------- -------- -------- --------
Net asset value at end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total investment return 0.77% 0.83% 1.65% 4.67% 5.98%
Ratios (to average net assets)/
Supplemental Data:
Net investment income 0.77% 0.84% 1.61% 4.50% 5.81%
Net expenses 0.50% 0.50% 0.50% 0.50% 0.50%
Expenses (before reimbursement) 0.60% 0.60% 0.62% 0.61% 0.57%
Net assets at end of year (in 000's) $246,542 $221,058 $329,921 $199,495 $160,942
</Table>
<Table>
<Caption>
SWEEP SHARES CLASS
--------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2004 2003 2002 2001 2000
Net asset value at beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Net investment income 0.00(a) 0.00(a) 0.01 0.04 0.05
Net realized gain on investments 0.00(a) 0.00(a) 0.00(a) -- --
-------- -------- -------- -------- --------
Total from investment operations 0.00(a) 0.00(a) 0.01 0.04 0.05
-------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income (0.00)(a) (0.00)(a) (0.01) (0.04) (0.05)
From net realized gain on
investments (0.00)(a) (0.00)(a) (0.00)(a) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (0.00)(a) (0.00)(a) (0.01) (0.04) (0.05)
-------- -------- -------- -------- --------
Net asset value at end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total investment return 0.27% 0.33% 1.14% 4.15% 5.46%
Ratios (to average net assets)/
Supplemental Data:
Net investment income 0.27% 0.34% 1.11% 4.00% 5.31%
Net expenses 1.00% 1.00% 1.00% 1.00% 1.00%
Expenses (before reimbursement) 1.10% 1.10% 1.12% 1.11% 1.07%
Net assets at end of year (in 000's) $260,814 $272,856 $291,312 $285,034 $221,935
</Table>
<Table>
* The Fund changed its fiscal year end from December 31 to
October 31.
+ Annualized.
++ Service Class shares ceased operations on January 9, 2004.
(a) Less than one cent per share.
(b) Total return is not annualized.
</Table>
92 MainStay Cash Reserves Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
SERVICE CLASS++
- -------------------------------------------------------------------------------------------------------------
NOVEMBER 1,
2003 JANUARY 1,
THROUGH THROUGH YEAR ENDED
JANUARY 9, YEAR ENDED OCTOBER 31, OCTOBER 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999* 1998
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------- ------- ------ ------ ------ --------
0.00 (a) 0.01 0.01 0.04 0.06 0.04 0.05
0.00 (a) 0.00(a) 0.00(a) -- -- -- --
------ ------- ------- ------ ------ ------ --------
0.00 (a) 0.01 0.01 0.04 0.06 0.04 0.05
------ ------- ------- ------ ------ ------ --------
(0.00)(a) (0.01) (0.01) (0.04) (0.06) (0.04) (0.05)
(0.00)(a) (0.00)(a) (0.00)(a) -- -- -- --
------ ------- ------- ------ ------ ------ --------
(0.00)(a) (0.01) (0.01) (0.04) (0.06) (0.04) (0.05)
------ ------- ------- ------ ------ ------ --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ======= ======= ====== ====== ====== ========
0.07%(b) 0.58% 1.39% 4.41% 5.72% 3.74%(b) 4.99%
0.38%+ 0.59% 1.36% 4.25% 5.56% 4.43%+ 4.87%
0.75%+ 0.75% 0.75% 0.75% 0.75% 0.75%+ 0.75%
0.86%+ 0.85% 0.87% 0.86% 0.82% 0.87%+ 0.88%
$ 0 $17,498 $11,659 $1,685 $1,586 $5,630 $103,765
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com 93
MAINSTAY FLOATING RATE FUND
INVESTMENT AND PERFORMANCE COMPARISON
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY, CURRENT PERFORMANCE MAY
BE LESS OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. FOR CURRENT TO THE MOST RECENT MONTH-END PERFORMANCE
INFORMATION, PLEASE CONTACT 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM.
A REDEMPTION FEE OF 2% WILL BE APPLIED TO SHARES THAT ARE REDEEMED WITHIN 60
DAYS OF PURCHASE.
CLASS A SHARES -- MAXIMUM 3% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
SINCE
TOTAL RETURNS INCEPTION
- ----------------------------------
With sales charges -1.26%
Excluding sales charges 1.79
</Table>
(LINE GRAPH FOR CLASS A SHARES)
<Table>
<Caption>
CREDIT SUISSE FIRST BOSTON
MAINSTAY FLOATING RATE FUND LEVERAGED LOAN INDEX
--------------------------- --------------------------
5/3/04 9700 10000
10/31/04 9874 10226
</Table>
<Table>
-- MainStay Floating Rate Fund -- Credit Suisse First Boston
Leveraged Loan Index
</Table>
CLASS B SHARES -- MAXIMUM 3% CDSC IF REDEEMED WITHIN THE FIRST FOUR YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
SINCE
TOTAL RETURNS INCEPTION
- ----------------------------------
With sales charges -1.59%
Excluding sales charges 1.41
</Table>
(LINE GRAPH FOR CLASS B SHARES)
<Table>
<Caption>
CREDIT SUISSE FIRST BOSTON
MAINSTAY FLOATING RATE FUND LEVERAGED LOAN INDEX
--------------------------- --------------------------
5/3/04 10000 10000
10/31/04 9841 10226
</Table>
<Table>
-- MainStay Floating Rate Fund -- Credit Suisse First Boston
Leveraged Loan Index
</Table>
CLASS C SHARES -- MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
SINCE
TOTAL RETURNS INCEPTION
- ----------------------------------
With sales charges 0.41%
Excluding sales charges 1.41
</Table>
(LINE GRAPH FOR CLASS C SHARES)
<Table>
<Caption>
CREDIT SUISSE FIRST BOSTON
MAINSTAY FLOATING RATE FUND LEVERAGED LOAN INDEX
--------------------------- --------------------------
5/3/04 10000 10000
10/31/04 10041 10226
</Table>
<Table>
-- MainStay Floating Rate Fund -- Credit Suisse First Boston
Leveraged Loan Index
</Table>
Performance tables and graphs do not reflect the deduction of taxes that a
shareholder would pay on distributions or Fund-share redemptions. Total returns
reflect change in share price, reinvestment of dividend and capital-gain
distributions, and maximum applicable sales charges explained in this paragraph.
The graphs assume an initial investment of $10,000 and reflect the deduction of
all sales charges that would have applied for the period of investment. Class A
shares are sold with a maximum initial sales charge of 3.0% and an annual 12b-1
fee of .25%. Class B shares are sold with no initial sales charge, are subject
to a contingent deferred sales charge (CDSC) of up to 3% if redeemed within the
first four years of purchase, and have an annual 12b-1 fee of 1.00%. Class C
shares are sold with no initial sales charge, are subject to a CDSC of 1% if
redeemed within one year of purchase, and have an annual 12b-1 fee of 1.00%.
Class I shares are sold with no initial sales charge or CDSC, have no annual
12b-1 fee, and are generally available to corporate and institutional investors
with a minimum initial investment of $5 million. Performance figures reflect
certain fee waivers and/or expense limitations, without which total returns may
have been lower. The fee waivers and/or expense limitations are voluntary and
may be discontinued at any time.
THE DISCLOSURE AND FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THESE
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
94 MainStay Floating Rate Fund
CLASS I SHARES -- NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
SINCE
TOTAL RETURNS INCEPTION
- ----------------------------------
1.92%
</Table>
(LINE GRAPH FOR CLASS I SHARES)
<Table>
<Caption>
CREDIT SUISSE FIRST BOSTON
MAINSTAY FLOATING RATE FUND LEVERAGED LOAN INDEX
--------------------------- --------------------------
5/3/04 10000.00 10000.00
10/31/04 10192.00 10226.00
</Table>
<Table>
-- MainStay Floating Rate Fund -- Credit Suisse First Boston
Leveraged Loan Index
</Table>
<Table>
<Caption>
SINCE
BENCHMARK PERFORMANCE INCEPTION
Credit Suisse First Boston(TM) Leveraged Loan
Index(1) 2.26%
Average Lipper loan participation fund 1.75
</Table>
1. The Credit Suisse First Boston(TM) Leveraged Loan Index is an unmanaged index
that represents tradable, senior secured, U.S. dollar denominated
non-investment-grade loans. Results assume reinvestment of all income and
capital gains. The Credit Suisse First Boston(TM) Leveraged Loan Index is
considered to be the Fund's broad-based securities-market index for
comparison purposes. An investment cannot be made directly into an index.
2. Lipper Inc. is an independent fund performance monitor. Results are based on
total returns with all dividend and capital-gain distributions reinvested.
THE DISCLOSURE AND FOOTNOTES ON THE PRECEDING PAGE ARE AN INTEGRAL PART OF THESE
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
www.mainstayfunds.com 95
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY FLOATING RATE FUND
Expenses shown in the table are meant to highlight your ongoing costs only and
do not reflect any transactional costs, such as sales charges (loads),
redemption fees, or exchange fees. Therefore, the third data column of the table
is 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 had been included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT ENDING ACCOUNT
VALUE (BASED VALUE (BASED
BEGINNING ON ACTUAL EXPENSES ON HYPOTHETICAL EXPENSES
ACCOUNT RETURNS AND PAID 5% ANNUALIZED PAID
VALUE EXPENSES) DURING RETURN AND DURING
SHARE CLASS(1) 5/1/04 10/31/04 PERIOD ACTUAL EXPENSES) PERIOD
CLASS A SHARES $1,000.00 $1,023.35 $5.44 $1,019.65 $5.43
- -----------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $1,023.30 $9.26 $1,015.90 $9.22
- -----------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $1,023.30 $9.26 $1,015.90 $9.22
- -----------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,023.40 $4.17 $1,020.90 $4.17
- -----------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio multiplied by the
average account value over the period, divided by 366, multiplied by 184 (to
reflect the one-half year period).
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2004
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
Floating Rate Loans 87.6
Short-Term Investment 10.7
Cash and Other Assets (less liabilities) 1.7
</Table>
See Portfolio of Investments on page 99 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2004 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. Hercules, Inc. Term Loan B 3.725%-3.9663%, due
10/8/10
2. CB Richard Ellis Services, Inc. Term Loan
4.315%-6.25%, due 3/31/10
3. Freedom Communications, Inc. Tranche B Term
Loan 3.75%-3.79%, due 5/18/12
4. OSI Group LLC Term Loan 4.27%, due 9/2/11
5. American Tower, Inc. Term Loan B 4.28%-4.48%,
due 8/31/11
6. Rockwood Specialties Group, Inc. Tranche B Term
Loan 4.63%, due 7/30/12
7. Laidlaw International, Inc. Term Loan 5.59%,
due 6/1/09
8. Nextel Finance Co. Term Loan E 4.1875%, due
12/15/10
9. Regal Cinemas, Inc. Term Loan 4.225%, due
11/10/11
10. BWAY Corp. B Term Loan 4.1875%, due 6/30/11
</Table>
96 MainStay Floating Rate Fund
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio manager Anthony Malloy of New York Life
Investment Management LLC
WHEN DID THE FUND BEGIN OPERATION?
The Fund's inception date was May 3, 2004. The information in this report covers
the period from inception through October 31, 2004.
CAN YOU BRIEFLY DESCRIBE THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 80% of its assets in a diversified portfolio
of floating-rate loans and other floating-rate instruments. We also have the
flexibility to purchase bonds and money-market securities. When we believe that
market or economic conditions are unfavorable, we can invest up to 100% of the
portfolio in money-market securities or short-term bonds. In implementing this
strategy, we seek to identify investment opportunities based on the financial
conditions and competitiveness of individual companies. We also seek to invest
in companies that have a high margin of safety and are leaders in industries
with high barriers to entry.
WHAT WAS THE ENVIRONMENT FOR FLOATING-RATE LOANS DURING THE PERIOD FROM THE
FUND'S INCEPTION ON MAY 3, 2004 THOUGH OCTOBER 31, 2004?
The Federal Open Market Committee raised the targeted federal funds rate by 25
basis points three times during the reporting period--in June, August, and
September of 2004. These rate hikes brought the targeted federal funds rate from
1.00% to 1.75%. Demand for floating-rate loan securities was strong during the
period, because of the rising interest rate environment and relatively benign
default rates. With default rates near their historical lows, new-issue credit
quality declined slightly over the period. In addition, leverage multiples have
continued to creep upward, given the robust nature of the market.
HOW DID YOU POSITION THE FUND'S PORTFOLIO DURING THE REPORTING PERIOD?
The Fund invests in floating-rate loans that have an effective duration of less
than three months. These securities may have final maturities of seven to nine
years, but their underlying interest-rate contracts reset primarily every 30,
60, or 90 days. As of the end of the reporting period, the weighted average
reset figure for the Fund was 48 days. This means that as short-term interest
rates rise or fall, the Fund will tend to follow within 48 days, which may
affect the yield the Fund provides to its shareholders.
WHICH INDUSTRIES DID YOU FIND ATTRACTIVE DURING THE PERIOD?
The largest industry concentrations in the Fund were broadcasting & cable TV
(6.6% of net assets), wireless telecommunication services (5.8%), specialty
chemicals (5.2%), metal & glass containers (4.7%), and publishing (4.6%).
Relative to the Credit Suisse First Boston(TM) Leveraged Loan Index,(1) the Fund
was modestly overweighted in specialty chemicals, metal & glass containers, and
publishing. This positioning was based on our favorable view of industry
fundamentals and the strong collateral that has traditionally supported
financings in these industries. Relative to the Index, the Fund held
underweighted positions in broadcast/cable and wireless telecom.
HOW WAS THE FUND PORTFOLIO POSITIONED IN TERMS OF CREDIT QUALITY?
Relative to the Credit Suisse First Boston(TM) Leveraged Loan Index, the Fund
was significantly underweighted in CCC-rated(2) loans. As of October 31, 2004,
the Fund held no investments in loans rated CCC or below, compared to 5.5% in
the benchmark.
WHAT DO YOU ANTICIPATE GOING FORWARD?
We expect further Federal Open Market Committee tightening in November and
December 2004 and in 2005. The combination of rising interest rates and
historically low default rates will likely put further technical pressure on
credit spreads and secondary-market prices. We are cautiously optimistic that a
healthy pipeline of new primary issues may relieve some of this pressure. We
also believe the confluence of rising interest rates and stable credit spreads
may enhance the Fund's yield.
Floating-rate funds are generally considered to have speculative characteristics
that involve default risk of principal and interest, collateral impairment,
nondiversification, borrower industry concentration, and limited liquidity. The
Fund may invest in foreign securities. U.S. dollar denominated securities of
foreign issuers may be subject to greater risks than U.S. investments, including
currency fluctuations, less-liquid trading markets, greater price volatility,
political and economic instability, less publicly available information, and
changes in tax or currency laws or monetary policy.
1. See footnote on page 95 for more information on the Credit Suisse First
Boston Leveraged Loan Index.
2. Debt rated CCC by Standard & Poor's is deemed by Standard & Poor's to be
currently vulnerable to nonpayment and is dependent upon favorable business,
financial, and economic conditions for the obligor. It is the opinion of
Standard & Poor's that in the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the capacity to meet
its financial commitment on the obligation. When applied to Fund holdings,
ratings are based solely on the creditworthiness of the bonds in the
portfolio and are not meant to represent the security or safety of the Fund.
www.mainstayfunds.com 97
In a corporate-credit environment that many view as benign, we remain focused on
issues that may affect credit quality. We are committed to capital preservation
through fundamental research, continual underwriting scrutiny, and portfolio
surveillance. We believe that the Fund is attractively positioned as we look
toward 2005.
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.
INFORMATION ABOUT MAINSTAY FLOATING RATE FUND ON THIS PAGE AND THE PRECEDING
PAGES HAS NOT BEEN AUDITED.
98 MainStay Floating Rate Fund
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
LONG-TERM INVESTMENTS (87.6%)+
FLOATING RATE LOANS (87.6%) (A)
- ------------------------------------------------------------------------------
AEROSPACE & DEFENSE (0.7%)
TransDigm, Inc.
Term Loan
4.09%, due 7/22/10 $ 2,485,013 $ 2,514,522
------------
APPAREL, ACCESSORIES & LUXURY GOODS (0.7%)
Jostens IH Corp.
Tranche B Term Loan
4.54%, due 10/4/11 (b) 2,655,172 2,693,341
------------
AUTO PARTS & EQUIPMENT (3.4%)
Collins & Aikman Co.
Supplemental Revolving Credit
5.65%, due 8/31/09 596,491 594,627
Tranche B-1 Term Loan
5.81%, due 8/31/11 1,403,509 1,398,246
Dayco Products LLC
Term Loan B
4.87%-5.12%, due 6/23/11 2,992,500 3,029,906
Key Automotive Group
Term Loan B
4.78%-4.85%, due 6/29/10 1,577,817 1,594,581
Term Loan C
7.53%-7.71%, due 6/29/11 2,000,000 1,998,750
Safelite Glass Corp.
Tranche A Term Loan
5.50%-6.00%, due 9/30/07 1,000,000 880,000
TRW Automotive, Inc.
Tranche D-1 Term Loan
4.125%, due 2/28/11 2,988,741 3,031,704
United Components, Inc.
Tranche C Term Loan
4.17%, due 6/30/10 385,500 389,837
------------
12,917,651
------------
BROADCASTING & CABLE TV (6.6%)
Atlantic Broadband Finance LLC
Term Loan B
5.05%, due 8/10/11 3,000,000 3,043,749
Bragg Communications, Inc.
Term Loan B
4.293%, due 8/31/11 3,000,000 3,022,500
Charter Operating Co. LLC
Term Loan B
5.29%-5.38%, due 4/7/11 2,992,500 2,966,890
Emmis Operating Co.
Tranche B Term Loan
3.59%, due 11/10/11 3,000,000 3,025,500
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
BROADCASTING & CABLE (CONTINUED)
Insight Midwest Holdings, LLC
Term Loan B
4.75%, due 12/31/09 $ 1,989,975 $ 2,016,231
MCC Iowa LLC
Tranche B Term Loan
4.20%-4.48%, due 9/30/10 1,969,065 1,985,802
Nexstar/Mission Broadcasting, Inc.
Term Loan D
3.73%, due 12/31/10 2,992,500 2,996,241
Olympus Cable Holdings, Inc.
Term Loan B
6.75%, due 9/30/10 3,000,000 2,950,314
Persona Cable, Inc.
Term Loan B
4.975%, due 7/27/11 3,000,000 3,026,250
------------
25,033,477
------------
BUILDING PRODUCTS (1.9%)
Atrium Cos., Inc.
Term Loan
4.70%-4.82%, due 12/8/10 1,985,000 2,013,122
Masonite International Corp.
Tranche C-2 Term Loan
4.0625%, due 8/31/08 994,997 1,005,881
NCI Building Systems, Inc.
Term Loan B
3.82%, due 9/15/08 1,000,000 1,010,625
Nortek, Inc.
Term Loan
4.62%-6.25%, due 8/27/11 3,000,000 3,041,250
------------
7,070,878
------------
CASINOS & GAMING (1.5%)
Boyd Gaming Corp.
Term Loan
3.69%-3.92%, due 6/30/11 2,992,500 3,027,662
Venetian Casino Resort, LLC
Term B Funded Loan
4.29%, due 6/15/11 (b) 2,590,909 2,633,011
------------
5,660,673
------------
COMMODITY CHEMICALS (0.8%)
Huntsman International LLC
Term B Dollar Loan
5.1875%, due 12/31/10 3,000,000 3,048,000
------------
+ Percentages indicated are based on Fund net assets.
V Fund's 10 largest holdings. May be subject to change daily.
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com 99
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FLOATING RATE LOANS (CONTINUED)
- ------------------------------------------------------------------------------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (1.7%)
Agco Corp.
Term Loan
3.9525%-3.9750%,
due 7/31/09 $ 1,344,034 $ 1,362,515
New Flyer
Term Loan B
4.0458%-4.71%, due 2/27/10 1,541,000 1,559,299
Terex Corp.
Term Loan
3.7813%-4.04%, due 7/3/09 3,399,624 3,434,684
------------
6,356,498
------------
CONSTRUCTION MATERIALS (0.5%)
St. Mary's Cement, Inc.
Term Loan B
3.975%, due 12/4/09 1,994,975 2,011,184
------------
DISTILLERS & VINTNERS (0.8%)
Constellation Brands, Inc.
New Tranche B Term Loan
3.50%, due 11/30/08 3,000,000 3,008,571
------------
DIVERSIFIED CHEMICALS (2.8%)
Brentag
Term Loan B-2
4.73%, due 2/27/12 2,000,000 2,030,000
Celanese AG
Dollar Term Loan
4.53%, due 4/6/11 2,150,000 2,184,267
Celanese Americas Corp.
Term Loan C
5.48%, due 4/6/11 1,850,000 1,878,522
FMC Corp.
Term Loan B
3.59%, due 10/21/07 994,856 1,001,322
Kosa Canada Co.
Tranche B-1 Term Loan
4.75%, due 4/29/11 2,429,412 2,471,926
Tranche B-2 Term Loan
4.75%, due 4/29/11 1,070,588 1,086,647
------------
10,652,684
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
DIVERSIFIED COMMERCIAL SERVICES (1.3%)
Central Parking Corp.
Term Loan B
4.46%-4.475%, due 3/31/10 $ 549,790 $ 558,724
Coinstar, Inc.
Term Loan
4.29%, due 7/7/11 1,496,250 1,518,694
Pike Electric, Inc.
Term Loan B
4.125%, due 7/2/12 2,933,689 2,982,585
------------
5,060,003
------------
DIVERSIFIED METALS & MINING (1.3%)
CONSOL Energy, Inc.
Tranche B-Credit Linked Deposit
4.34%, due 6/11/10 3,000,000 3,054,375
Foundation PA Coal Co.
Tranche B Term Loan
3.68%, due 7/30/11 2,000,000 2,021,666
------------
5,076,041
------------
DRUG RETAIL (0.8%)
Jean Coutu Group, Inc. (The)
Term Loan B
4.25%-4.4375%, due 7/30/11 3,000,000 3,044,658
------------
ELECTRIC UTILITIES (0.5%)
CenterPoint Energy, Inc.
Term Loan B
5.34%, due 10/7/06 1,989,130 1,994,103
------------
ELECTRICAL COMPONENTS & EQUIPMENT (1.6%)
Exide Technologies, Inc.
European Borrower Dollar
Term Loan
5.25%, due 5/5/10 1,823,529 1,821,250
U.S. Borrower Term Loan
5.25%, due 5/5/10 1,176,471 1,175,000
PP Acquisition Corp.
Term Loan
4.21%, due 11/12/11 1,995,000 2,017,444
Roper Industries, Inc.
U.S. Term Loans
4.01%-4.12%, due 12/29/08 962,500 962,500
------------
5,976,194
------------
</Table>
100 MainStay Floating Rate Fund The notes to the financial statements are
an integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FLOATING RATE LOANS (CONTINUED)
- ------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS (1.3%)
Invensys International
Holdings, Ltd.
Bonding Facility
4.8213%, due 3/5/09 $ 1,000,000 $ 1,008,750
Tranche B-1 Term Loan
5.477%, due 9/5/09 2,965,736 3,002,807
Sensus Metering Systems, Inc.
Term B-1 Loans
4.3913%-4.9213%, due 12/17/10 858,668 864,750
Term B-2 Loans
4.3913%-4.9213%, due 12/17/10 128,800 129,713
------------
5,006,020
------------
ENVIRONMENTAL SERVICES (0.7%)
Allied Waste Industries, Inc.
Tranche D Term Loan
4.54%, due 1/15/10 983,951 991,604
Allied Waste North America, Inc.
Tranche B Term Loan
4.42%-4.63%, due 1/15/10 983,793 993,252
Tranche A Credit Linked Deposit
4.59%, due 1/15/10 565,488 570,789
------------
2,555,645
------------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.8%)
United Industries Corp.
Term Loan B
4.46%-4.63%, due 4/30/11 1,992,506 2,022,394
Second Lien Term Loan
6.48%-6.63%, due 10/31/11 997,500 1,012,463
------------
3,034,857
------------
FOREST PRODUCTS (0.6%)
RLC Industries Co.
Term Loan B
3.96%, due 2/24/10 2,342,906 2,351,692
------------
HEALTH CARE DISTRIBUTORS (0.7%)
VWR International, Inc.
Term Loan B
4.58%, due 4/7/11 2,746,000 2,788,335
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
HEALTH CARE EQUIPMENT (1.8%)
Kinetic Concepts, Inc.
Tranche B-1 Term Loan
3.98%, due 8/11/10 $ 1,194,828 $ 1,208,021
Medical Device
Manufacturing, Inc.-UTI Corp.
Tranche B Term Loan
4.96%-5.13%, due 6/30/10 2,992,500 3,007,463
Sunrise Medical Holdings, Inc.
B-1 Term Loan
5.125%-5.375%, due 5/13/10 2,487,500 2,506,156
------------
6,721,640
------------
HEALTH CARE FACILITIES (2.2%)
Community Health Systems, Inc.
Term Loan
3.54%, due 8/19/11 3,000,000 3,008,037
Concentra Operating Corp.
Replacement Term Loan
4.26%, due 6/30/10 3,298,902 3,327,767
Vanguard Health Holdings Co. II
Initial Sub Tranche 1
5.21%-5.31%, due 9/23/11 2,000,000 2,031,876
------------
8,367,680
------------
HEALTH CARE SERVICES (2.2%)
DaVita, Inc.
Term Loan C
3.50%-3.71%, due 6/30/10 2,000,000 2,023,126
3.74%-4.17%, due 3/31/09 2,983,707 3,018,207
Fresenius Medical Care AG
Term Loan D
3.2113%-3.475%, due 2/21/10 1,990,000 2,002,851
US Oncology, Inc.
Tranche B Term Loan
4.6875%-4.875%, due 8/20/11 1,496,250 1,507,472
------------
8,551,656
------------
HEALTH CARE SUPPLIES (1.3%)
Advanced Medical Optics, Inc.
Term Loan
4.09%-4.2813%, due 6/25/09 1,635,900 1,655,326
Dade Behring Holdings, Inc.
Term Loan B
4.25%, due 10/3/08 3,253,202 3,261,335
------------
4,916,661
------------
HOME FURNISHINGS (0.7%)
Sealy Mattress Co.
Tranche C Term Loan
4.04%-4.09%, due 8/6/12 2,625,000 2,658,907
------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com 101
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FLOATING RATE LOANS (CONTINUED)
- ------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (1.8%)
Amscan Holdings, Inc.
Term Loan
4.5913%-6.25%, due 4/30/12 $ 1,997,500 $ 2,017,475
Johnsondiversey Holdings, Inc.
Term Loan B
3.95%-4.09%, due 11/3/09 1,903,102 1,932,600
Rayovac Corp.
Term Loan C
4.2113%-4.56%, due 9/30/09 1,000,000 1,014,167
Solo Cup Co.
Term Loan
4.21%-4.475%, due 2/27/11 1,990,000 2,009,070
------------
6,973,312
------------
INDUSTRIAL CONGLOMERATES (0.3%)
SPX Corp.
Tranche B-1 Term Loan
3.9375%, due 9/30/09 1,010,418 1,020,522
------------
INDUSTRIAL MACHINERY (1.6%)
Flowserve Corp.
Tranche C Term Loan
4.5625%-4.75%, due 6/30/09 1,064,958 1,079,602
Gleason Corp.
1st Lien U.S. Term Loan
4.45%-4.70%, due 7/27/11 (c) 1,000,000 1,010,000
2nd Lien Term Loan
7.27%, due 1/31/12 2,000,000 2,010,000
Mueller Industries, Inc.
Initial Term Loan
4.54%-4.88%, due 4/25/11 1,889,908 1,899,358
------------
5,998,960
------------
INTERNET RETAIL (0.5%)
Ftd.com, Inc.
Term Loan
4.6325%, due 2/28/11 1,990,000 2,014,875
------------
INVESTMENT BANKING & BROKERAGE (0.8%)
Refco Finance Holdings LLC
Term Loan B
4.66%, due 8/5/11 3,000,000 3,003,750
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
METAL & GLASS CONTAINERS (4.7%)
Ball Corp.
Term B Dollar Loan
3.725%, due 12/19/09 $ 2,084,852 $ 2,095,276
VBWAY Corp.
B Term Loan
4.1875%, due 6/30/11 3,911,111 3,962,444
Graham Packaging Co., LLC
B Term Loan
4.375%, due 10/7/11 (b) 2,765,363 2,802,955
Second Lien Term Loan
6.125%, due 4/7/12 1,000,000 1,022,292
Greif Bros. Corp.
Term Loan
3.43%, due 8/23/09 1,548,981 1,563,696
Kerr Group, Inc.
Term Advance
5.09%, due 8/13/10 871,419 878,172
Owens-Brockway Glass Container, Inc.
Tranche B-1 Term Loan
4.64%, due 4/1/08 595,238 604,787
Owens-Illinois Group, Inc.
Tranche A-1 Term Loan
4.73%, due 4/1/07 1,509,713 1,531,101
Precise Technology, Inc.
1st Lien Term Loan
5.00%, due 3/22/11 995,050 998,782
Silgan Corp.
Term Loan B
5.50%, due 11/30/08 2,450,000 2,476,031
------------
17,935,536
------------
MOVIES & ENTERTAINMENT (3.4%)
Loews Cineplex
Entertainment Corp.
Closing Date Term Loan
3.94%-4.09%, due 7/30/11 3,000,000 3,035,625
MGM Studios, Inc.
Term Loan B
4.48%, due 4/30/11 3,000,000 3,008,250
VRegal Cinemas, Inc.
Term Loan
4.225%, due 11/10/11 3,924,533 3,968,684
WMG Acquisition Corp.
Term Loan
4.3188%-4.97%, due 2/28/11 2,988,741 3,027,702
------------
13,040,261
------------
</Table>
102 MainStay Floating Rate Fund The notes to the financial statements are
an integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FLOATING RATE LOANS (CONTINUED)
- ------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER (2.5%)
AES Corp. (The)
Term Loan
4.00%-4.25%, due 4/30/08 $ 2,000,000 $ 2,029,376
Allegheny Energy Supply Co. LLC
Term Loan B
4.39%-4.94%, due 3/8/11 2,120,849 2,129,879
Calpine Generating Co.
First Priority Term Loan
5.59%, due 4/1/09 3,000,000 3,010,875
Midwest Generation LLC
Term Loan B
5.09%-5.47%, due 4/27/11 1,992,494 2,019,891
Mission Energy Holdings International, Inc.
Term Loan B
7.00%, due 12/11/06 500,000 500,782
------------
9,690,803
------------
OFFICE SERVICES & SUPPLIES (1.7%)
American Reprographics Co., LLC
Term Loan
4.84%, due 6/18/09 2,982,487 3,030,953
Language Line, Inc.
Term Loan B
6.16%, due 6/10/11 2,467,105 2,490,234
Relizon
Tranche B Term Loan
4.73%, due 2/20/11 901,372 904,752
------------
6,425,939
------------
OIL & GAS DRILLING (0.5%)
Pride Offshore, Inc.
Term Advance
3.61%, due 7/26/11 1,995,000 2,016,612
------------
OIL & GAS EQUIPMENT & SERVICES (0.5%)
Dresser, Inc.
Tranche C Term Loan
4.46%, due 4/10/09 1,853,659 1,867,561
------------
OIL & GAS EXPLORATION & PRODUCTION (0.5%)
Quest Cherokee, LLC
Term B
5.76%, due 7/22/10 1,777,778 1,791,111
LC Facility
5.835%, due 7/22/10 222,222 223,889
------------
2,015,000
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
OIL & GAS REFINING & MARKETING & TRANSPORTATION (2.5%)
BPL Acquisition LP
Term Loan
3.84%-4.01%, due 5/4/10 $ 997,500 $ 1,008,722
La Grange Acquisition LP
Term Loan B
4.96%, due 1/8/08 3,000,000 3,043,125
Lyondell-Citgo Refining LP
Term Loan B
3.59%-3.87%, due 5/21/07 2,493,750 2,506,219
Transwestern Holdings, Inc.
Term Loan
4.09%, due 4/30/09 1,496,250 1,502,485
Williams Production RMT Co.
Term Loan C
4.37%, due 5/30/08 1,392,428 1,410,993
------------
9,471,544
------------
PACKAGED FOODS & MEATS (3.9%)
Dole Food Co., Inc.
Term Loan D
4.00%-6.00%, due 9/28/08 2,943,232 2,981,249
Land O'Lakes, Inc.
Tranche B Term Loan
5.71%, due 10/11/08 405,807 412,063
Michael Foods, Inc.
Term Loan
3.7138%-3.99%, due 11/21/10 2,679,750 2,713,246
Nellson Nutraceutical, Inc.
1st Lien Term Loan
4.98%, due 10/4/09 912,450 901,044
VOSI Group LLC
Term Loan
4.27%, due 9/2/11 4,000,000 4,047,500
Pinnacle Foods Holding Corp.
Delayed Draw Term Loan
4.20%-4.26%, due 11/25/10 1,990,000 2,004,925
Reddy Ice Group, Inc.
Term Loan
4.46%, due 8/15/09 1,989,950 2,009,019
------------
15,069,046
------------
PAPER PACKAGING (0.8%)
Graphic Packaging
International Corp.
Term Loan C
4.46%-4.63%, due 8/8/10 2,984,925 3,025,502
------------
PAPER PRODUCTS (0.8%)
Appleton Papers, Inc.
Term Loan
3.98%-4.33%, due 6/11/10 2,992,500 3,023,921
------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
103
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FLOATING RATE LOANS (CONTINUED)
- ------------------------------------------------------------------------------
PERSONAL PRODUCTS (0.3%)
Aearo Co., Inc.
Term Loan
4.6875%, due 4/7/11 $ 995,000 $ 1,004,950
------------
PUBLISHING (4.6%)
Dex Media East LLC
Term Loan B
3.71%-3.96%, due 5/8/09 1,962,157 1,987,093
Dex Media West LLC
Term Loan B
3.93%-4.21%, due 3/9/10 3,351,484 3,397,567
VFreedom Communications, Inc.
Tranche B Term Loan
3.75%-3.79%, due 5/18/12 4,000,000 4,059,000
Morris Publishing Group LLC
Term Loan A
3.375%, due 9/30/10 1,043,478 1,050,652
Term Loan C
3.625%, due 3/31/11 1,956,522 1,977,310
Network Communications, Inc.
Term Loan B
5.73%-5.90%, due 6/30/11 1,995,000 2,016,197
R.H. Donnelley Corp.
Term Loan B-2
4.05%-4.31%, due 6/30/11 2,992,500 3,034,584
------------
17,522,403
------------
REAL ESTATE MANAGEMENT & DEVELOPMENT (1.1%)
VCB Richard Ellis Services, Inc.
Term Loan
4.315%-6.25%, due 3/31/10 4,372,290 4,402,350
------------
RESTAURANTS (0.6%)
Buffets, Inc.
Term Loan
5.48%, due 6/28/09 2,493,719 2,497,876
------------
SOFT DRINKS (0.5%)
Dr. Pepper/Seven Up Bottling Co.
Term Loan 2
4.16%-4.47%, due 12/19/10 1,820,616 1,843,829
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SPECIALTY CHEMICALS (5.2%)
VHercules, Inc.
Term Loan B
3.725%-3.9663%, due 10/8/10 $ 4,554,058 $ 4,585,367
Koch Cellulose LLC
LC Facility Deposit
3.84%, due 5/7/11 593,660 601,823
Term Loan
4.22%, due 5/7/11 2,366,087 2,398,620
Kraton Polymers LLC
Term Loan
4.375%-4.50%, due 12/23/10 1,425,888 1,435,394
Nalco Chemical Co.
Term Loan B
4.42%-4.43%, due 11/4/10 1,728,881 1,758,326
Polymer Group, Inc.
Term Loan B
5.21%, due 4/27/10 2,942,500 2,960,891
Resolution Specialty
Materials LLC
Term Loan
4.625%, due 8/2/10 2,000,000 2,013,750
VRockwood Specialties Group, Inc.
Tranche B Term Loan
4.63%, due 7/30/12 4,000,000 4,038,124
------------
19,792,295
------------
SPECIALTY STORES (0.4%)
Advanced Stores Co., Inc.
Term Loan E
3.75%-5.75%, due 11/30/07 1,500,000 1,501,250
------------
TEXTILES (1.3%)
Spring Industries, Inc.
Term Loan B
6.00%, due 9/5/08 2,993,939 3,007,975
St. John's Knits International, Inc.
Tranche B Term Loan
5.6875%, due 7/31/07 1,858,872 1,869,910
------------
4,877,885
------------
TIRE & RUBBER (0.5%)
Goodyear Tire & Rubber Co. (The)
Deposit Funded Commitment
6.24%, due 9/30/07 1,750,000 1,766,954
------------
</Table>
104 MainStay Floating Rate Fund The notes to the financial statements are
an integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FLOATING RATE LOANS (CONTINUED)
- ------------------------------------------------------------------------------
TRUCKING (1.3%)
VLaidlaw International, Inc.
Term Loan
5.59%, due 6/1/09 $ 3,957,895 $ 4,012,316
Sirva Worldwide, Inc.
Term Loan
4.34%, due 12/1/10 1,000,000 1,006,250
------------
5,018,566
------------
WIRELESS TELECOMMUNICATION SERVICES (5.8%)
VAmerican Tower, Inc.
Term Loan B
4.28%-4.48%, due 8/31/11 3,990,000 4,041,746
Centennial Cellular
Operating Co. LLC
Term Loan
4.3381%-4.92%, due 2/9/11 2,989,987 3,024,692
VNextel Finance Co.
Term Loan E
4.1875%, due 12/15/10 3,984,950 3,995,741
Nextel Partners Operating Corp.
Term Loan C
4.3125%, due 5/31/11 3,000,000 3,045,000
PanAmSat Corp.
Term Loan
4.66%, due 8/20/11 3,000,000 3,015,681
Spectrasite Communications, Inc.
Incremental Facility 2004
3.87%, due 12/31/07 1,995,446 1,996,444
Western Wireless Corp.
Term Loan B
4.84%-5.12%, due 5/28/11 2,992,500 3,036,319
------------
22,155,623
------------
Total Floating Rate Loans
(Cost $332,857,505) 334,048,696
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENT (10.7%)
- ------------------------------------------------------------------------------
FEDERAL AGENCY (10.7%)
Federal Home Loan Bank
1.69%, due 11/1/04 $40,775,000 $ 40,775,000
------------
Total Short-Term Investment
(Cost $40,775,000) 40,775,000
------------
Total Investments
(Cost $373,632,505) (d) 98.3% 374,823,696(e)
Cash and Other Assets, Less Liabilities 1.7 6,484,053
----------- ------------
Net Assets 100.0% $381,307,749
=========== ============
</Table>
<Table>
(a) Floating Rate Loans generally pay interest at rates
which are periodically re-determined at a margin above
the London Inter-Bank Offered Rate ("LIBOR") or other
short-term rates. The rate shown is the rate(s) in
effect at October 31, 2004. 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 (see Note 2(H)).
(b) This security has additional commitments and
contingencies (see Note 6).
(c) Illiquid security.
(d) The cost stated also represents the aggregate cost for
federal income tax purposes.
(e) At October 31, 2004 net unrealized appreciation was
$1,191,191, based on cost for federal income tax
purposes. This consisted of aggregate gross unrealized
appreciation for all investments on which there was an
excess of market value over cost of $1,721,764 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $530,573.
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
105
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2004
<Table>
ASSETS:
Investment in securities, at value
(identified cost $373,632,505) $374,823,696
Cash 336,483
Receivables:
Fund shares sold 5,967,450
Investment securities sold 3,855,913
Interest 1,445,506
Other assets 143,261
------------
Total assets 386,572,309
------------
LIABILITIES:
Payables:
Investment securities purchased 3,808,228
Fund shares redeemed 654,017
Manager 187,205
NYLIFE Distributors 154,036
Transfer agent 22,450
Custodian 2,618
Accrued expenses 61,841
Dividend payable 374,165
------------
Total liabilities 5,264,560
------------
Net assets $381,307,749
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
1 billion shares authorized:
Class A $ 25,426
Class B 3,811
Class C 8,552
Class I 229
Additional paid-in capital 380,681,713
Distribution in excess of net investment
income (374,165)
Net realized loss on investments (229,008)
Net unrealized appreciation on investments 1,191,191
------------
Net assets $381,307,749
============
CLASS A
Net assets applicable to outstanding shares $254,969,174
============
Shares of capital stock outstanding 25,426,439
============
Net asset value per share outstanding $ 10.03
Maximum sales charge (3.00% of offering price) 0.31
------------
Maximum offering price per share outstanding $ 10.34
============
CLASS B
Net assets applicable to outstanding shares $ 38,233,477
============
Shares of capital stock outstanding 3,810,711
============
Net asset value and offering price per share
outstanding $ 10.03
============
CLASS C
Net assets applicable to outstanding shares $ 85,807,370
============
Shares of capital stock outstanding 8,552,176
============
Net asset value and offering price per share
outstanding $ 10.03
============
CLASS I
Net assets applicable to outstanding shares $ 2,297,728
============
Shares of capital stock outstanding 229,021
============
Net asset value and offering price per share
outstanding $ 10.03
============
</Table>
106 MainStay Floating Rate Fund The notes to the financial statements are
an integral part of, and should be read in conjunction with, the financial
statements.
STATEMENT OF OPERATIONS FOR THE PERIOD MAY 3, 2004 THROUGH OCTOBER 31, 2004
<Table>
INVESTMENT INCOME:
INCOME:
Interest $4,494,671
----------
EXPENSES:
Manager 689,724
Service -- Class A 189,697
Service -- Class B 34,562
Service -- Class C 61,832
Distribution -- Class B 103,686
Distribution -- Class C 185,496
Offering 82,205
Transfer agent 65,786
Professional 42,747
Registration 18,558
Portfolio pricing 11,628
Custodian 10,886
Shareholder communication 5,896
Directors 5,489
Miscellaneous 4,247
----------
Net expenses 1,512,439
----------
Net investment income 2,982,232
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (229,008)
Net unrealized appreciation on investments 1,191,191
----------
Net realized and unrealized gain on investments 962,183
----------
Net increase in net assets resulting from
operations $3,944,415
==========
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
107
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD MAY 3, 2004 THROUGH OCTOBER 31, 2004
<Table>
<Caption>
2004
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 2,982,232
Net realized loss on investments (229,008)
Net unrealized appreciation on investments 1,191,191
------------
Net increase in net assets resulting from
operations 3,944,415
------------
Dividends to shareholders:
From net investment income:
Class A (2,420,439)
Class B (337,800)
Class C (596,756)
Class I (17,539)
------------
Total dividends to shareholders (3,372,534)
------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 269,458,103
Class B 42,644,547
Class C 89,961,938
Class I 2,283,052
Net asset value of shares issued to
shareholders in reinvestment of dividends:
Class A 1,301,078
Class B 269,715
Class C 384,865
Class I 16,626
------------
406,319,924
Cost of shares redeemed: +
Class A (16,151,177)
Class B (4,759,409)
Class C (4,669,150)
Class I (4,320)
------------
(25,584,056)
------------
Increase in net assets derived from capital
share transactions 380,735,868
------------
Net increase in net assets 381,307,749
</Table>
<Table>
<Caption>
2004
NET ASSETS:
Beginning of period $ --
------------
End of period $381,307,749
============
Distribution in excess of net investment
income at end of period $ (374,165)
============
</Table>
+ Cost of shares redeemed net of redemption fee of $47,683 for the period May 3,
2004 through October 31, 2004.
108 MainStay Floating Rate Fund The notes to the financial statements are
an integral part of, and should be read in conjunction with, the financial
statements.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS I
----------- ----------- ----------- -----------
MAY 3, MAY 3, MAY 3, MAY 3,
2004* 2004* 2004* 2004*
THROUGH THROUGH THROUGH THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2004 2004 2004 2004
Net asset value at beginning of period $ 10.00 $ 10.00 $ 10.00 $10.00
-------- ------- ------- ------
Net investment income 0.14(a) 0.10(a) 0.10(a) 0.15(a)
Net realized and unrealized gain (loss) on
investments 0.04 0.04 0.04 0.04
-------- ------- ------- ------
Total from investment operations 0.18 0.14 0.14 0.19
-------- ------- ------- ------
Less dividends:
From net investment income (0.15) (0.11) (0.11) (0.16)
-------- ------- ------- ------
Redemption fee 0.00(b) 0.00(b) 0.00(b) 0.00(b)
-------- ------- ------- ------
Net asset value at end of period $ 10.03 $ 10.03 $ 10.03 $10.03
======== ======= ======= ======
Total investment return (c) 1.79%(d) 1.41%(d) 1.41%(d) 1.92%(d)
Ratios (to average net
assets)/Supplemental Data:
Net investment income 2.83%+ 2.08%+ 2.08%+ 3.08%+
Net expenses 1.07%+ 1.82%+ 1.82%+ 0.82%+
Expenses (before reimbursement) 1.07%+ 1.82%+ 1.82%+ 0.82%+
Portfolio turnover rate 3% 3% 3% 3%
Net assets at end of period (in 000's) $254,969 $38,233 $85,807 $2,298
</Table>
<Table>
* Commencement of Operations.
+ Annualized.
(a) Per share data based on average shares outstanding during
the period.
(b) Less than one cent per share.
(c) Total return is calculated exclusive of sales charges. Class
I is not subject to sales charges.
(d) Total return is not annualized.
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
109
MAINSTAY INDEXED BOND FUND
INVESTMENT AND PERFORMANCE COMPARISON
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY, CURRENT PERFORMANCE MAY
BE LESS OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. FOR CURRENT TO THE MOST RECENT MONTH-END PERFORMANCE
INFORMATION, PLEASE CONTACT 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM.
CLASS A SHARES -- MAXIMUM 3% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 1.68% 6.17% 6.56%
Excluding sales charges 4.82 6.82 6.88
</Table>
(LINE GRAPH FOR CLASS A SHARES)
<Table>
<Caption>
MAINSTAY INDEXED BOND FUND CITIGROUP BIG BOND INDEX
-------------------------- ------------------------
10/31/94 9700 10000
11164 11569
11673 12250
12622 13333
13697 14585
13567 14657
14517 15723
16428 18020
17358 19057
18004 20008
10/31/04 18872 21149
</Table>
<Table>
-- MainStay Indexed Bond Fund -- Citigroup BIG Bond Index
</Table>
CLASS I SHARES -- NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
5.01% 7.07% 7.12%
</Table>
(LINE GRAPH FOR CLASS B SHARES)
<Table>
<Caption>
MAINSTAY INDEXED BOND FUND CITIGROUP BIG BOND INDEX
-------------------------- ------------------------
10/31/94 10000 10000
11534 11569
12088 12250
13101 13333
14249 14585
14138 14657
15165 15723
17203 18020
18222 19057
18945 20008
10/31/04 19895 21149
</Table>
<Table>
-- MainStay Indexed Bond Fund -- Citigroup BIG Bond Index
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
Citigroup Broad Investment Grade (BIG) Bond
Index(1) 5.70% 7.61% 7.78%
Average Lipper general U.S. government fund(2) 4.19 6.28 6.53
</Table>
Performance tables and graphs do not reflect the deduction of taxes that a
shareholder would pay on distributions or Fund-share redemptions. Total returns
reflect change in share price, reinvestment of dividend and capital-gain
distributions, and maximum applicable sales charges explained in this paragraph.
The graphs assume an initial investment of $10,000 and reflect the deduction of
all sales charges that would have applied for the period of investment. Class A
shares are sold with a maximum initial sales charge of 3% and an annual 12b-1
fee of .25%. Class I shares are sold with no initial sales charge or CDSC, have
no annual 12b-1 fee, and are generally available to corporate and institutional
investors with a minimum initial investment of $5 million. Performance figures
reflect certain fee waivers and/or expense limitations, without which total
returns may have been lower. The fee waivers and/or expense limitations are
voluntary and may be discontinued at any time. Performance for Class A shares,
first offered 1/2/04, includes the historical performance of Class I shares from
inception (1/2/91) through 12/31/03 adjusted to reflect the applicable sales
charge and fees and expenses for Class A shares.
1. The Citigroup Broad Investment Grade (BIG) Bond Index--the BIG Index--is an
unmanaged index that is considered representative of the U.S.
investment-grade bond market. Results assume reinvestment of all income and
capital gains. The BIG Index is considered to be the Fund's broad-based
securities-market index for comparison purposes. An investment cannot be made
directly into an index.
2. Lipper Inc. is an independent fund performance monitor. Results are based on
total returns with all dividend and capital-gain distributions reinvested.
110 MainStay Indexed Bond Fund
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY INDEXED BOND FUND
Expenses shown in the table are meant to highlight your ongoing costs only and
do not reflect any transactional costs, such as sales charges (loads),
redemption fees, or exchange fees. Therefore, the third data column of the table
is 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 had been included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT ENDING ACCOUNT
VALUE (BASED VALUE (BASED
BEGINNING ON ACTUAL EXPENSES ON HYPOTHETICAL EXPENSES
ACCOUNT RETURNS AND PAID 5% ANNUALIZED PAID
VALUE EXPENSES) DURING RETURN AND DURING
SHARE CLASS(1) 5/1/04 10/31/04 PERIOD ACTUAL EXPENSES) PERIOD
CLASS A SHARES $1,000.00 $1,039.10 $4.00 $1,021.10 $3.96
- -----------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,039.60 $2.56 $1,022.50 $2.54
- -----------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio multiplied by the
average account value over the period, divided by 366, multiplied by 184 (to
reflect the one-half year period).
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2004
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
U.S. Government & Federal Agencies 68.60
Corporate Bonds 19.70
Short-Term Investments (collateral from securities lending 27.80
is 14.2%)
Foreign Corporate Bonds 3.70
Yankee Bonds 1.50
Asset-Backed Securities 0.90
Liabilities in Excess of Cash and Other Assets -22.20
</Table>
See Portfolio of Investments on page 114 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2004 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. Federal Home Loan Mortgage Corporation
(Mortgage Pass-Through Security) 5.50%, due
11/15/33 TBA
2. United States Treasury Note 4.00%, due 2/15/14
3. United States Treasury Note 1.625%, due
10/31/05
4. United States Treasury Note 3.125%, due 5/15/07
5. United States Treasury Note 2.625%, due
11/15/06
6. United States Treasury Note 2.375%, due 8/15/06
7. United States Treasury Note 2.00%, due 5/15/06
8. Federal National Mortgage Association 1.875%,
due 9/15/05
9. United States Treasury Note 4.75%, due 5/15/14
10. Federal Home Loan Mortgage Corporation 2.875%,
due 12/15/06
</Table>
www.mainstayfunds.com 111
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio manager Donald F. Serek of New York Life
Investment Management LLC
CAN YOU BRIEFLY DESCRIBE THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 80% of its total assets in fixed-income
securities, including investment-grade corporate bonds, U.S. dollar denominated
securities of foreign issuers, U.S. Treasury or agency issues, and other
securities. In implementing this strategy, we employ a specialized method to
track the performance of the Citigroup Broad Investment Grade Bond Index (the
"BIG Index").(1) Typically, the Fund does not invest in all of the securities in
the BIG Index. Instead it invests in a representative selection of fixed-income
securities that, in the aggregate, are expected to mirror the performance of the
BIG Index. As outlined in the prospectus supplement dated November 5, 2004,
Donald F. Serek has become portfolio manager of the Fund.
WHAT WERE THE MAJOR FACTORS THAT AFFECTED THE INVESTMENT GRADE BOND MARKET AND
THE FUND DURING THE 12-MONTH REPORTING PERIOD?
Bond prices fluctuated during the Fund's fiscal year in response to the changing
outlook for the U.S. economy. As expected, when the economy appeared to be
strengthening, interest rates rose and bond prices fell (interest rates and bond
prices tend to move in opposite directions). On the other hand, when the
economic recovery appeared to be losing momentum, interest rates declined and
bond prices rose.
During the reporting period, oil prices reached record highs and job growth was
uneven. The Federal Open Market Committee raised interest rates 25 basis points
three times--in June, August, and September 2004. (A basis point is 1/100th of
one percent.) These three rate hikes brought the targeted federal funds rate
from 1.00% at the beginning of the reporting period to 1.75% at the end. The
10-year Treasury note closed the reporting period at 4.02%, although it traded
as low as 3.68% in March 2004 and as high as 4.87% in June 2004.
HOW DID YOU POSITION THE FUND DURING THE PERIOD?
The Fund seeks to track the total return performance of the BIG Index. Since the
portfolio doesn't hold every security in the Index, its performance will vary.
Aside from activity to accommodate new investments and share redemptions, most
of the Fund's investment activity during the reporting period was intended to
reduce excess exposure of the Fund relative to the benchmark.
HOW DID THE FUND PERFORM RELATIVE TO THE BIG INDEX?
The Fund's results and those of its benchmark are provided on page 110. The Fund
underperformed the BIG Index for the 12 months ended October 31, 2004, largely
because of sector and issue selection. Of course, the Fund incurs expenses that
an unmanaged index does not. As a result, there will be times when the Fund's
performance will lag the Index.
HOW DID THE VARIOUS SECTORS OF THE BIG INDEX PERFORM?
For the 12 months ended October 31, 2004, bonds rated BBB(2) showed the
strongest performance, with a total return of 8.41%.(3) Bonds rated A were next,
Index funds generally seek to reflect the performance of an index or an
allocation among indices, unlike other funds, whose objectives may, in some
cases, involve seeking to outperform an index or other benchmark. Foreign
securities may be subject to greater risks than U.S. investments, including
currency fluctuations, less-liquid trading markets, greater price volatility,
political and economic instability, less publicly available information, and
changes in tax or currency laws or monetary policy. These risks are likely to be
greater in emerging markets than in developed markets. The Fund may invest in
derivatives, which may increase the volatility of the Fund's net asset value and
may result in a loss to the Fund. Funds that invest in bonds are subject to
credit, inflation, and interest-rate risk and can lose principal value when
interest rates rise.
1. See footnote on page 110 for more information on the Citigroup Broad
Investment Grade Bond Index.
2. Debt rated BBB by Standard & Poor's is deemed by Standard & Poor's to exhibit
adequate protection parameters. It is the opinion of Standard & Poor's,
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 than would be the case for debt in higher- rated
categories. Debt rated A by Standard & Poor's is deemed by Standard & Poor's
to be somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
In the opinion of Standard & Poor's, however, the obligor's capacity to meet
its financial commitment on the obligation is still strong. Debt rated AA by
Standard & Poor's is deemed by Standard and Poor's to differ from the
highest-rated issues only in small degree. In the opinion of Standard &
Poor's, the obligor's capacity to meet its financial commitment on the
obligation is very strong. Debt rated AAA has the highest rating assigned by
Standard & Poor's, and in the opinion of Standard & Poor's, the obligor's
capacity to meet its financial commitment on the obligation is extremely
strong. When applied to Fund holdings, ratings are based solely on the
creditworthiness of the bonds in the portfolio and are not meant to represent
the security or safety of the Fund.
3. Performance figures represent total-return performance for BIG Index
securities in the sectors mentioned. Since the Fund does not invest in all of
the securities in the Index, Fund results may differ.
112 MainStay Indexed Bond Fund
returning 6.45%. Mortgage-backed bonds were also strong at 5.68%. AA-rated bonds
and U.S. Treasury bonds both returned 4.98%. AAA-rated bonds returned 4.86%, and
government-sponsored agency bonds returned 4.66%. At 3.67%, asset-backed
securities provided the weakest performance.
WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE FUND GOING FORWARD?
As we come to the close of 2004, we believe the performance of the
investment-grade fixed-income market and the Fund may be affected by several
factors. Economic reports that indicate strength in the economy--such as an
improving job market or the potential for inflation--will likely cause interest
rates to rise. Other issues, such as geopolitical unrest, terrorism, and issuer
specific uncertainties could also have an impact on the bond market and on the
Fund.
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.
INFORMATION ABOUT MAINSTAY INDEXED BOND FUND ON THIS PAGE AND THE PRECEDING
PAGES HAS NOT BEEN AUDITED.
www.mainstayfunds.com 113
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
LONG-TERM BONDS (94.4%)+
ASSET-BACKED SECURITIES (0.9%)
- ------------------------------------------------------------------------------
AIRLINES (0.1%)
Northwest Airlines, Inc. Series 2000-1 Class G
8.072%, due 10/1/19 $ 180,009 $ 200,220
------------
CREDIT CARDS (0.8%)
Bank One Issuance Trust Series 2002-A3 Class A3
3.59%, due 9/15/07 1,000,000 1,010,281
MBNA Credit Card
Master Note Trust
Series 2002-A1 Class A1
4.95%, due 1/15/07 1,000,000 1,044,483
------------
2,054,764
------------
Total Asset-Backed Securities (Cost $2,213,978) 2,254,984
------------
CORPORATE BONDS (19.7%)
- ------------------------------------------------------------------------------
AEROSPACE (0.5%)
Boeing Co. (The)
6.125%, due 2/15/33 250,000 266,276
General Dynamics Corp.
4.25%, due 5/15/13 100,000 98,104
Goodrich Corp.
6.45%, due 12/15/07 100,000 108,279
Litton Industries, Inc.
8.00%, due 10/15/09 100,000 116,465
Lockheed Martin Corp.
7.65%, due 5/1/16 250,000 306,030
Northrop Grumman Corp.
7.125%, due 2/15/11 100,000 115,302
Raytheon Co.
5.50%, due 11/15/12 100,000 105,949
6.75%, due 8/15/07 150,000 163,842
------------
1,280,247
------------
AUTOMOTIVE MANUFACTURERS (1.6%)
DaimlerChrysler North America Holdings, Inc.
4.05%, due 6/4/08 250,000 251,686
6.40%, due 5/15/06 250,000 262,851
8.50%, due 1/18/31 250,000 309,170
Ford Motor Credit Co.
6.50%, due 1/25/07 250,000 262,663
7.00%, due 10/1/13 (d) 250,000 264,014
7.25%, due 10/25/11 250,000 269,426
7.375%, due 2/1/11 500,000 542,398
7.875%, due 6/15/10 504,000 559,267
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
AUTOMOTIVE MANUFACTURERS (CONTINUED)
General Motors Acceptance Corp.
5.85%, due 1/14/09 $ 100,000 $ 102,654
6.125%, due 9/15/06 250,000 259,481
6.75%, due 1/15/06 250,000 258,733
6.875%, due 8/28/12 250,000 260,262
General Motors Corp.
7.125%, due 7/15/13 100,000 103,754
8.375%, due 7/15/33 500,000 520,293
------------
4,226,652
------------
BANKING (3.0%)
ABN-Amro Bank N.V.
7.55%, due 6/28/06 403,000 434,075
Aristar, Inc.
6.875%, due 5/15/11 100,000 114,240
Bank of America Corp.
3.875%, due 1/15/08 250,000 254,149
5.375%, due 6/15/14 250,000 262,620
7.40%, due 1/15/11 500,000 585,793
Bank One Corp.
5.90%, due 11/15/11 250,000 270,469
6.875%, due 8/1/06 250,000 267,425
Bankers Trust Corp.
8.25%, due 5/1/05 250,000 256,917
Branch Banking & Trust Co. Wilson North Carolina
4.875%, due 1/15/13 100,000 101,500
Capital One Bank
5.125%, due 2/15/14 100,000 100,447
6.875%, due 2/1/06 100,000 104,953
Citigroup, Inc.
5.00%, due 3/6/07 250,000 260,849
5.875%, due 2/22/33 250,000 253,265
Fleet National Bank
5.75%, due 1/15/09 250,000 269,134
JPMorgan Chase & Co.
4.875%, due 3/15/14 250,000 250,243
6.75%, due 2/1/11 500,000 564,119
Key Bank National Association
5.00%, due 7/17/07 100,000 104,161
MBNA America Bank
5.375%, due 1/15/08 300,000 316,107
</Table>
<Table>
+ Percentages indicated are based on Fund net assets.
V Among the Fund's 10 largest holdings, excluding short-term investments. May
be subject to change daily.
</Table>
114 MainStay Indexed Bond Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
BANKING (CONTINUED)
Mellon Funding Corp.
5.00%, due 12/1/14 $ 250,000 $ 255,535
National City Bank of Pennsylvania
6.25%, due 3/15/11 250,000 274,851
PNC Funding Corp.
7.50%, due 11/1/09 100,000 115,600
SunTrust Banks, Inc.
5.05%, due 7/1/07 250,000 261,648
U.S. Bank National Association
6.375%, due 8/1/11 250,000 280,287
UFJ Bank Ltd.
7.40%, due 6/15/11 100,000 115,671
Union Bank of Switzerland-New York
7.25%, due 7/15/06 250,000 268,531
Wachovia Bank National Association
4.85%, due 7/30/07 500,000 521,803
Washington Mutual, Inc.
7.50%, due 8/15/06 250,000 269,421
Wells Fargo Bank NA
6.45%, due 2/1/11 500,000 563,241
------------
7,697,054
------------
BEVERAGE/BOTTLING (0.3%)
Anheuser-Busch Cos., Inc.
5.95%, due 1/15/33 250,000 268,255
Coca-Cola Enterprises, Inc.
8.50%, due 2/1/22 252,000 335,150
Pepsi Bottling Holdings, Inc.
5.625%, due 2/17/09 (a) 250,000 269,938
------------
873,343
------------
BROADCAST/OUTDOOR (0.1%)
Clear Channel Communications, Inc.
6.00%, due 11/1/06 100,000 104,945
7.65%, due 9/15/10 100,000 114,387
------------
219,332
------------
BUILDING PRODUCTS (0.1%)
CRH America, Inc.
5.30%, due 10/15/13 100,000 103,307
Masco Corp.
6.75%, due 3/15/06 100,000 105,477
------------
208,784
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CABLE (1.0%)
Comcast Cable Communications, Inc.
7.125%, due 6/15/13 $ 250,000 $ 287,012
Comcast Corp.
5.50%, due 3/15/11 250,000 263,565
7.05%, due 3/15/33 100,000 112,952
Cox Communications, Inc.
7.75%, due 8/15/06-11/1/10 200,000 222,570
Liberty Media Corp.
8.25%, due 2/1/30 100,000 114,238
News America, Inc.
7.25%, due 5/18/18 100,000 116,188
Time Warner, Inc.
5.625%, due 5/1/05 250,000 253,775
6.625%, due 5/15/29 250,000 266,086
6.75%, due 4/15/11 250,000 281,344
6.875%, due 5/1/12 125,000 142,185
Viacom, Inc.
5.625%, due 8/15/12 250,000 267,194
Walt Disney Co. (The)
6.375%, due 3/1/12 250,000 278,496
------------
2,605,605
------------
CHEMICALS (0.3%)
Dow Chemical Co. (The)
6.00%, due 10/1/12 100,000 109,042
E.I. du Pont de Nemours & Co.
4.75%, due 11/15/12 250,000 256,204
Eastman Chemical Co.
7.25%, due 1/15/24 100,000 113,014
ICI Wilmington, Inc.
4.375%, due 12/1/08 100,000 101,058
Praxair, Inc.
3.95%, due 6/1/13 100,000 96,066
Rohm & Haas Co.
7.85%, due 7/15/29 100,000 128,453
------------
803,837
------------
CONGLOMERATE/DIVERSIFIED MANUFACTURING (0.3%)
Emerson Electric Co.
7.125%, due 8/15/10 250,000 290,091
Honeywell International, Inc.
7.50%, due 3/1/10 100,000 116,930
United Technologies Corp.
6.35%, due 3/1/11 250,000 280,702
------------
687,723
------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
115
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
CONSUMER PRODUCTS (0.2%)
Procter & Gamble Co. (The)
6.875%, due 9/15/09 $ 250,000 $ 285,290
Unilever Capital Corp.
6.875%, due 11/1/05 285,000 296,919
------------
582,209
------------
DIVERSIFIED TELECOMMUNICATIONS (1.0%)
ALLTEL Corp.
7.00%, due 7/1/12 250,000 289,068
BellSouth Corp.
6.875%, due 10/15/31 250,000 277,419
CenturyTel, Inc., Series H
8.375%, due 10/15/10 100,000 119,193
SBC Communications, Inc.
5.875%, due 2/1/12 100,000 107,906
6.25%, due 3/15/11 250,000 276,021
Sprint Capital Corp.
8.375%, due 3/15/12 500,000 613,642
Telecom Italia Capital
6.375%, due 11/15/33 100,000 103,787
Verizon Global Funding Corp.
6.125%, due 6/15/07 250,000 268,075
7.75%, due 12/1/30 250,000 306,717
Verizon Pennsylvania
Series A
5.65%, due 11/15/11 250,000 265,941
------------
2,627,769
------------
ELECTRIC UTILITIES (1.5%)
American Electric Power Co., Inc.
5.375%, due 3/15/10 200,000 211,807
Arizona Public Service Co.
6.375%, due 10/15/11 100,000 111,214
CenterPoint Energy Houston Electric LLC
Series K2
6.95%, due 3/15/33 100,000 116,290
Consolidated Edison Co. of New York
Series 2002 A
5.625%, due 7/1/12 100,000 108,029
Constellation Energy Group, Inc.
6.125%, due 9/1/09 100,000 109,193
Consumers Energy Co.
Series B
5.375%, due 4/15/13 100,000 103,538
Dominion Resources, Inc.
5.00%, due 3/15/13 100,000 101,160
Series B
6.25%, due 6/30/12 150,000 164,504
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
ELECTRIC UTILITIES (CONTINUED)
DTE Energy Co.
7.05%, due 6/1/11 $ 100,000 $ 113,650
Duke Energy Corp.
6.45%, due 10/15/32 250,000 266,384
FirstEnergy Corp.
Series B
6.45%, due 11/15/11 200,000 219,135
FPL Group Capital, Inc.
7.375%, due 6/1/09 250,000 286,766
MidAmerican Energy Holdings Co.
5.875%, due 10/1/12 100,000 107,009
MidAmerican Funding LLC
6.75%, due 3/1/11 100,000 112,747
Northern States Power Co.
6.875%, due 8/1/09 100,000 112,700
Oncor Electric Delivery Co.
6.375%, due 5/1/12 100,000 110,951
7.00%, due 9/1/22 100,000 113,634
Pacific Electric & Gas Co.
6.05%, due 3/1/34 150,000 154,489
Pepco Holdings, Inc.
6.45%, due 8/15/12 100,000 110,268
Progress Energy, Inc.
6.85%, due 4/15/12 250,000 280,462
PSI Energy, Inc.
5.00%, due 9/15/13 100,000 100,857
Scana Corp.
6.25%, due 2/1/12 100,000 110,520
Sempra Energy
6.00%, due 2/1/13 100,000 107,035
Southern California Edison Co.
5.00%, due 1/15/14 100,000 102,446
Southern Power Co.
Series B
6.25%, due 7/15/12 100,000 109,848
Union Electric Co.
4.65%, due 10/1/13 100,000 100,148
Wisconsin Energy Corp.
6.50%, due 4/1/11 100,000 111,622
------------
3,756,406
------------
ELECTRONICS (0.0%) (G)
Motorola, Inc.
7.50%, due 5/15/25 100,000 116,329
------------
</Table>
116 MainStay Indexed Bond Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
ENVIRONMENTAL SERVICES (0.1%)
Waste Management, Inc.
7.00%, due 10/15/06 $ 100,000 $ 107,313
7.125%, due 12/15/17 100,000 115,748
------------
223,061
------------
FINANCE -- OTHER (0.3%)
American Express Treasury
Series E
3.625%, due 2/20/09 250,000 248,048
National Rural Utilities Cooperative Finance Corp.
5.75%, due 8/28/09 250,000 269,912
SLM Corp.
5.625%, due 8/1/33 250,000 246,120
UFJ Finance Aruba AEC
6.75%, due 7/15/13 100,000 111,468
------------
875,548
------------
FOOD PROCESSORS (0.7%)
Archer-Daniels-Midland Co.
8.125%, due 6/1/12 250,000 310,392
Campbell Soup Co.
4.875%, due 10/1/13 100,000 101,695
ConAgra Foods, Inc.
6.00%, due 9/15/06 100,000 105,302
7.875%, due 9/15/10 100,000 118,317
General Mills, Inc.
5.125%, due 2/15/07 100,000 104,113
H.J. Heinz Finance Co.
6.625%, due 7/15/11 250,000 284,325
Kellogg Co.
Series B
6.00%, due 4/1/06 100,000 104,409
6.60%, due 4/1/11 100,000 113,328
Kraft Foods, Inc.
6.25%, due 6/1/12 250,000 275,155
Sara Lee Corp.
6.25%, due 9/15/11 150,000 167,736
Tyson Foods, Inc.
7.25%, due 10/1/06 140,000 150,256
------------
1,835,028
------------
GAMING (0.1%)
Harrah's Operating Co., Inc.
8.00%, due 2/1/11 100,000 117,570
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
GAS PIPELINES (0.2%)
Enterprise Products Partners L.P.
Series B
6.875%, due 3/1/33 $ 100,000 $ 104,814
Kinder Morgan Energy Partners, L.P.
6.75%, due 3/15/11 100,000 112,463
7.125%, due 3/15/12 150,000 172,528
------------
389,805
------------
GAS UTILITIES -- LOCAL DISTRIBUTORS (0.1%)
KeySpan Corp.
4.65%, due 4/1/13 100,000 100,835
NiSource Finance Corp.
6.15%, due 3/1/13 100,000 109,288
7.625%, due 11/15/05 100,000 104,814
------------
314,937
------------
HEALTH CARE FACILITIES (0.1%)
HCA, Inc.
6.75%, due 7/15/13 100,000 103,984
7.125%, due 6/1/06 100,000 104,895
------------
208,879
------------
HOME BUILDERS (0.1%)
Centex Corp.
7.50%, due 1/15/12 100,000 115,747
Pulte Homes, Inc.
7.875%, due 8/1/11 100,000 116,707
------------
232,454
------------
INDEPENDENT FINANCE (1.3%)
CIT Group, Inc.
7.75%, due 4/2/12 250,000 297,599
CitiFinancial Credit Co.
8.70%, due 6/15/10 227,000 278,513
General Electric Capital Corp.
5.00%, due 6/15/07 250,000 261,744
6.00%, due 6/15/12 750,000 823,465
6.75%, due 3/15/32 250,000 291,555
Series A
6.80%, due 11/1/05 250,000 260,290
Household Finance Corp.
5.75%, due 1/30/07 250,000 264,247
6.375%, due 10/15/11 250,000 278,835
6.40%, due 6/17/08 250,000 273,781
International Lease Finance Corp.
Series O
4.375%, due 11/1/09 250,000 250,577
------------
3,280,606
------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
117
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
INFORMATION/DATA TECHNOLOGY (0.3%)
Computer Sciences Corp.
5.00%, due 2/15/13 $ 100,000 $ 102,307
Electronic Data Systems Corp.
Series B
6.00%, due 8/1/13 100,000 102,131
First Data Corp.
4.70%, due 8/1/13 100,000 100,884
Hewlett-Packard Co.
3.625%, due 3/15/08 250,000 251,726
International Business Machines Corp.
4.25%, due 9/15/09 150,000 153,907
6.50%, due 1/15/28 100,000 112,441
------------
823,396
------------
INTEGRATED OIL (0.6%)
Amerada Hess Corp.
7.30%, due 8/15/31 100,000 112,563
Amoco Co.
6.50%, due 8/1/07 250,000 272,351
Conoco, Inc.
6.35%, due 4/15/09 150,000 166,168
ConocoPhillips
5.90%, due 10/15/32 250,000 259,801
Marathon Oil Corp.
6.80%, due 3/15/32 100,000 113,027
Pemex Project Funding Master Trust
7.375%, due 12/15/14 350,000 387,800
Texaco Capital, Inc.
9.75%, due 3/15/20 176,000 259,000
------------
1,570,710
------------
LIFE INSURANCE (0.3%)
AIG Sunamer Global Financing VI
6.30%, due 5/10/11 (a) 250,000 275,715
Assurant, Inc.
5.625%, due 2/15/14 100,000 103,101
MetLife, Inc.
6.125%, due 12/1/11 100,000 109,021
Prudential Financial, Inc.
5.10%, due 9/20/14 100,000 100,267
UnitedHealth Group, Inc.
5.00%, due 8/15/14 100,000 101,306
------------
689,410
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
MACHINERY (0.3%)
Caterpillar, Inc.
8.00%, due 2/15/23 $ 250,000 $ 322,488
Deere (John) Capital Corp.
7.00%, due 3/15/12 250,000 290,395
------------
612,883
------------
METALS/MINING (0.2%)
Alcoa, Inc.
6.00%, due 1/15/12 250,000 275,437
BHP Finance USA Ltd.
4.80%, due 4/15/13 100,000 101,749
Phelps Dodge Corp.
8.75%, due 6/1/11 100,000 123,603
------------
500,789
------------
MORTGAGE BANKING (0.2%)
Countrywide Home Loans, Inc.
3.25%, due 5/21/08 250,000 245,546
5.625%, due 5/15/07 100,000 105,382
------------
350,928
------------
OIL REFINING & MARKETING (0.0%) (G)
Valero Energy Corp.
7.50%, due 4/15/32 100,000 119,600
------------
OIL SERVICE (0.0%) (G)
Halliburton Co.
5.50%, due 10/15/10 100,000 105,741
------------
PAPER/FOREST PRODUCTS (0.3%)
International Paper Co.
5.25%, due 4/1/16 100,000 99,065
5.85%, due 10/30/12 100,000 106,765
MeadWestvaco Corp.
6.85%, due 4/1/12 100,000 112,494
Weyerhaeuser Co.
6.75%, due 3/15/12 200,000 226,353
7.375%, due 3/15/32 100,000 116,649
------------
661,326
------------
PHARMACEUTICALS (0.5%)
Bristol-Myers Squibb Co.
5.75%, due 10/1/11 250,000 269,824
Merck & Co., Inc.
4.375%, due 2/15/13 250,000 248,443
Pfizer, Inc.
4.65%, due 3/1/18 250,000 244,638
Schering-Plough Corp.
6.50%, due 12/1/33 100,000 109,978
Wyeth
5.50%, due 3/15/13 250,000 257,239
------------
1,130,122
------------
</Table>
118 MainStay Indexed Bond Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
POWER (0.1%)
Exelon Corp.
6.75%, due 5/1/11 $ 200,000 $ 225,350
PSE&G Power LLC
7.75%, due 4/15/11 100,000 116,744
------------
342,094
------------
PROPERTY & CASUALTY INSURANCE (0.3%)
Allstate Corp. (The)
7.20%, due 12/1/09 100,000 115,356
Aon Corp.
7.375%, due 12/14/12 100,000 109,858
Chubb Corp. (The)
5.20%, due 4/1/13 100,000 101,850
Hartford Financial Services Group, Inc. (The)
7.90%, due 6/15/10 100,000 117,247
Marsh & McLennan Cos., Inc.
5.375%, due 7/15/14 100,000 97,740
SAFECO Corp.
4.20%, due 2/1/08 100,000 101,895
Travelers Property Casualty Corp.
5.00%, due 3/15/13 100,000 99,429
------------
743,375
------------
PUBLISHING (0.0%) (G)
Belo Corp.
8.00%, due 11/1/08 100,000 114,038
------------
RAILROADS (0.3%)
Burlington Northern Santa Fe Corp.
6.75%, due 7/15/11 100,000 113,330
7.125%, due 12/15/10 100,000 115,029
CSX Corp.
6.30%, due 3/15/12 100,000 109,670
7.95%, due 5/1/27 100,000 124,046
Norfolk Southern Corp.
7.80%, due 5/15/27 150,000 185,586
Union Pacific Corp.
6.125%, due 1/15/12 100,000 109,132
------------
756,793
------------
REAL ESTATE INVESTMENT TRUST (0.3%)
Boston Properties, Inc.
6.25%, due 1/15/13 100,000 108,797
EOP Operating LP
4.75%, due 3/15/14 100,000 97,223
7.75%, due 11/15/07 175,000 195,663
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
REAL ESTATE INVESTMENT TRUST (CONTINUED)
ERP Operating LP
6.95%, due 3/2/11 $ 100,000 $ 113,525
Simon Property Group, L.P.
5.375%, due 8/28/08 100,000 105,313
------------
620,521
------------
RESTAURANTS (0.0%) (G)
Yum! Brands, Inc.
8.875%, due 4/15/11 100,000 124,809
------------
RETAIL STORES -- FOOD/DRUGS (0.2%)
Albertson's, Inc.
8.00%, due 5/1/31 100,000 122,216
Kroger Co. (The)
5.50%, due 2/1/13 250,000 261,433
Safeway, Inc.
5.80%, due 8/15/12 200,000 211,188
------------
594,837
------------
RETAIL STORES -- OTHER (0.4%)
Federated Department Stores, Inc.
6.625%, due 9/1/08 100,000 110,171
Lowe's Cos., Inc.
6.875%, due 2/15/28 100,000 117,790
May Department Stores Co. (The)
6.70%, due 9/15/28 100,000 103,900
Target Corp.
5.875%, due 3/1/12 150,000 164,559
7.00%, due 7/15/31 100,000 120,742
Wal-Mart Stores, Inc.
6.875%, due 8/10/09 250,000 284,609
7.55%, due 2/15/30 100,000 128,790
------------
1,030,561
------------
SECONDARY OIL & GAS PRODUCERS (0.3%)
Burlington Resources, Inc.
7.375%, due 3/1/29 104,000 125,356
Devon Financing Corp. ULC
6.875%, due 9/30/11 200,000 229,006
Kerr-McGee Corp.
6.625%, due 10/15/07 100,000 108,555
Occidental Petroleum Corp.
7.20%, due 4/1/28 100,000 118,957
Union Oil Co. of California
7.35%, due 6/15/09 100,000 114,169
------------
696,043
------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
119
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
SECURITIES (1.7%)
Bear Stearns Cos., Inc. (The)
5.70%, due 11/15/14 $ 250,000 $ 265,448
Credit Suisse First Boston USA, Inc.
4.625%, due 1/15/08 250,000 258,825
5.125%, due 1/15/14 100,000 101,946
6.50%, due 1/15/12 250,000 280,122
Goldman Sachs Group, Inc. (The)
4.75%, due 7/15/13 250,000 247,730
5.15%, due 1/15/14 250,000 253,656
5.70%, due 9/1/12 250,000 266,283
6.875%, due 1/15/11 250,000 284,415
Lehman Brothers Holdings, Inc.
6.625%, due 2/5/06 250,000 262,004
7.00%, due 2/1/08 250,000 276,090
Merrill Lynch & Co., Inc.
Series B
5.30%, due 9/30/15 250,000 256,676
6.00%, due 2/17/09 250,000 271,361
Morgan Stanley
3.625%, due 4/1/08 250,000 251,383
6.10%, due 4/15/06 250,000 261,830
6.60%, due 4/1/12 350,000 394,468
Salomon, Smith Barney Holdings, Inc.
6.875%, due 6/15/05 504,000 518,033
------------
4,450,270
------------
SERVICE -- OTHER (0.2%)
Bunge Limited Finance Corp.
5.35%, due 4/15/14 (a) 100,000 102,393
Cendant Corp.
6.25%, due 1/15/08 200,000 215,833
IAC/InterActive Corp.
7.00%, due 1/15/13 100,000 110,617
Science Applications International Corp.
6.25%, due 7/1/12 100,000 110,014
------------
538,857
------------
SUPRANATIONAL (0.0%) (G)
International Bank of Reconstruction & Development
Series C
zero coupon, due 3/11/31 504,000 113,091
------------
TOBACCO (0.0%) (G)
Altria Group, Inc.
7.65%, due 7/1/08 100,000 108,833
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
VEHICLE PARTS (0.1%)
Delphi Corp.
6.50%, due 5/1/09 $ 100,000 $ 104,784
------------
WIRELESS (0.2%)
AT&T Wireless Services, Inc.
7.35%, due 3/1/06 150,000 158,879
8.125%, due 5/1/12 100,000 121,997
8.75%, due 3/1/31 100,000 134,252
Cingular Wireless LLC
6.50%, due 12/15/11 100,000 112,208
------------
527,336
------------
Total Corporate Bonds (Cost $48,583,663) 50,594,325
------------
FOREIGN CORPORATE BONDS (3.7%)
- ------------------------------------------------------------------------------
BANKING (0.3%)
Bank of Tokyo-Mitsubishi, Ltd.
8.40%, due 4/15/10 100,000 119,889
HSBC Holding PLC
7.50%, due 7/15/09 250,000 289,095
Landwirtschaftliche Rentenbank
Series E
3.25%, due 6/16/08 250,000 249,233
Royal Bank of Scotland Group PLC
5.00%, due 11/12/13 100,000 102,319
------------
760,536
------------
BEVERAGE/BOTTLING (0.1%)
Diageo Capital PLC
3.375%, due 3/20/08 250,000 249,864
------------
BUILDING PRODUCTS (0.0%) (G)
Hanson Australia Funding
5.25%, due 3/15/13 100,000 102,173
------------
DIVERSIFIED TELECOMMUNICATIONS (0.6%)
British Telecommunications PLC
8.375%, due 12/15/10 100,000 121,346
8.875%, due 12/15/30 100,000 133,650
Deutsche Telekom International Finance
5.25%, due 7/22/13 100,000 103,391
8.50%, due 6/15/10 350,000 421,666
France Telecom S.A.
9.25%, due 3/1/31 250,000 337,485
Koninklijke (Royal) KPN N.V.
8.00%, due 10/1/10 100,000 119,674
</Table>
120 MainStay Indexed Bond Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FOREIGN CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATIONS (CONTINUED)
xTelefonica Europe B.V.
7.35%, due 9/15/05 $ 150,000 $ 156,139
8.25%, due 9/15/30 100,000 132,192
Telefonos de Mexico, S.A. de C.V.
4.50%, due 11/19/08 100,000 100,881
------------
1,626,424
------------
FOREIGN AGENCY (0.3%)
Korea Development Bank
4.25%, due 11/13/07 100,000 102,240
Kreditanstalt fuer Wiederaufbau
3.375%, due 1/23/08 550,000 555,586
------------
657,826
------------
FOREIGN SOVEREIGN (1.6%)
Canadian Government
5.25%, due 11/5/08 500,000 535,914
Malaysian Government
7.50%, due 7/15/11 100,000 117,800
Republic of Chile
5.50%, due 1/15/13 100,000 104,640
Republic of Finland
4.75%, due 3/6/07 250,000 260,452
Republic of Italy
Series DTC
4.375%, due 10/25/06 250,000 257,066
Series DTC
5.625%, due 6/15/12 750,000 820,088
Republic of Korea
8.875%, due 4/15/08 250,000 294,750
Republic of Poland
5.25%, due 1/15/14 100,000 103,875
Republic of South Africa
7.375%, due 4/25/12 100,000 114,250
United Mexican States
Series A
5.875%, due 1/15/14 350,000 358,225
6.375%, due 1/16/13 550,000 584,375
7.50%, due 1/14/12 250,000 284,000
Series A
8.50%, due 2/1/06 250,000 267,000
------------
4,102,435
------------
LIFE INSURANCE (0.1%)
Axa
8.60%, due 12/15/30 105,000 136,968
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
OIL EQUIPMENT (0.1%)
Transocean, Inc.
7.375%, due 4/15/18 $ 100,000 $ 119,470
------------
REGIONAL GOVERNMENT (0.4%)
Hydro-Quebec
Series JL
6.30%, due 5/11/11 250,000 281,652
Province of British Columbia
5.375%, due 10/29/08 250,000 268,079
Province of Ontario
6.00%, due 2/21/06 511,000 532,669
------------
1,082,400
------------
SATELLITE (0.0%) (G)
Intelsat Ltd.
7.625%, due 4/15/12 100,000 92,736
------------
SECONDARY OIL & GAS PRODUCERS (0.1%)
Anadarko Finance Co.
Series B
6.75%, due 5/1/11 100,000 113,813
------------
SERVICE-OTHER (0.0%) (G)
Thomson Corp. (The)
6.20%, due 1/5/12 100,000 110,774
------------
WIRELESS (0.1%)
Vodafone Group PLC
7.75%, due 2/15/10 250,000 294,150
------------
Total Foreign Corporate Bonds (Cost $9,191,749) 9,449,569
------------
U.S. GOVERNMENT & FEDERAL AGENCIES (68.6%)
- ------------------------------------------------------------------------------
FEDERAL HOME LOAN BANK (1.8%)
2.875%, due 9/15/06 (d) 1,000,000 1,002,862
3.375%, due 9/14/07 1,500,000 1,514,704
4.25%, due 5/15/09 2,000,000 2,052,454
------------
4,570,020
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (5.3%)
1.875%, due 2/15/06 2,000,000 1,983,132
2.75%, due 8/15/06 1,000,000 1,000,401
V2.875%, due 12/15/06 (c) 3,000,000 3,002,673
4.50%, due 7/15/13 1,000,000 1,010,979
5.00%, due 7/15/14 1,000,000 1,039,302
5.25%, due 1/15/06 2,000,000 2,064,576
5.50%, due 9/15/11 1,000,000 1,085,284
6.25%, due 7/15/32 2,000,000 2,292,398
------------
13,478,745
------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
121
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
U.S. GOVERNMENT & FEDERAL AGENCIES (CONTINUED)
- ------------------------------------------------------------------------------
x
FEDERAL HOME LOAN MORTGAGE CORPORATION
(MORTGAGE PASS-THROUGH SECURITIES) (13.3%)
4.00%, due 12/15/19 TBA (b) $ 3,000,000 $ 2,940,000
4.50%, due 7/1/18-6/1/34 3,721,779 3,708,033
5.00%, due 5/1/18-8/1/34 8,432,412 8,495,370
5.00%, due 11/13/33 TBA (b) 500,000 498,437
5.50%, due 3/1/17-11/1/33 1,306,258 1,351,820
V 5.50%, due 11/15/33 TBA (b) 9,500,000 9,675,161
6.00%, due 12/1/13-4/1/33 2,824,328 2,942,055
6.00%, due 12/15/34 TBA (b) 2,000,000 2,065,000
6.50%, due 4/1/11-7/1/32 1,463,195 1,543,594
7.00%, due 6/1/11-3/1/32 673,457 714,915
7.50%, due 9/1/11-2/1/32 245,142 262,878
8.00%, due 7/1/26 18,122 19,794
------------
34,217,057
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (4.3%)
V 1.875%, due 9/15/05 4,000,000 3,983,088
3.25%, due 11/15/07-8/15/08 3,000,000 2,999,313
4.625%, due 10/15/13 2,000,000 2,033,782
5.00%, due 1/15/07 1,500,000 1,568,612
6.21%, due 8/6/38 475,000 542,563
------------
11,127,358
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (17.3%)
4.50%, due 4/1/18-7/1/34 6,875,997 6,878,563
5.00%, due 10/1/17-5/1/34 10,483,170 10,525,243
5.00%, due 11/15/19 TBA (b) 1,500,000 1,530,468
5.50%, due 6/1/16-9/1/34 9,344,148 9,545,595
5.50%, due 11/15/19-11/15/34 TBA (b) 2,000,000 2,053,437
6.00%, due 6/1/16-5/1/33 4,386,224 4,562,703
6.00%, due 12/15/33 TBA (b) 2,000,000 2,067,500
6.50%, due 3/1/11-9/1/32 4,242,961 4,473,719
6.50%, due 12/15/34 TBA (b) 500,000 524,531
7.00%, due 2/1/09-5/1/32 1,592,998 1,692,450
7.50%, due 3/1/30-8/1/31 167,927 180,014
8.00%, due 7/1/07-1/1/28 142,953 155,508
9.50%, due 3/1/16-9/1/19 116,820 127,376
------------
44,317,107
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (4.2%)
5.00%, due 7/15/33-8/15/33 1,309,662 1,317,245
5.00%, due 12/15/33 TBA (b) 500,000 499,844
5.50%, due 3/15/33-6/15/34 2,843,108 2,914,383
5.50%, due 11/15/34 TBA (b) 500,000 511,406
6.00%, due 3/20/29-11/15/33 1,648,671 1,719,230
6.00%, due 11/15/34-11/22/34 TBA (b) 1,000,000 1,038,594
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (MORTGAGE PASS-THROUGH SECURITIES)
(CONTINUED)
6.50%, due 2/15/29-10/15/32 $ 1,240,918 $ 1,314,455
7.00%, due 3/15/07-8/15/32 757,194 807,288
7.50%, due 8/15/08-3/15/32 342,623 368,536
8.00%, due 6/15/26-11/15/30 150,198 163,854
8.50%, due 7/15/26-11/15/26 16,821 18,453
------------
10,673,288
------------
UNITED STATES TREASURY BONDS (4.9%)
5.375%, due 2/15/31 (d) 2,500,000 2,715,332
6.00%, due 2/15/26 (d) 2,500,000 2,885,450
6.25%, due 8/15/23- 5/15/30 (d) 2,807,000 3,337,168
7.50%, due 11/15/16 403,000 521,932
8.50%, due 2/15/20 201,000 287,163
8.75%, due 5/15/17-8/15/20 756,000 1,095,314
8.875%, due 2/15/19 302,000 439,846
9.875%, due 11/15/15 302,000 453,024
10.375%, due 11/15/12 252,000 306,190
11.25%, due 2/15/15 201,000 321,294
12.75%, due 11/15/10 201,000 222,278
------------
12,584,991
------------
UNITED STATES TREASURY NOTES (17.5%)
V 1.625%, due
10/31/05-2/28/06 (d) 8,000,000 7,945,388
V 2.00%, due 5/15/06 (d) 5,000,000 4,971,290
V 2.375%, due 8/15/06 5,000,000 4,991,015
V 2.625%, due 11/15/06 (d) 5,000,000 5,005,470
2.75%, due 6/30/06-8/15/07 (d) 3,000,000 3,003,828
V 3.125%, due 5/15/07 (d) 5,000,000 5,050,780
3.875%, due 5/15/09 500,000 514,062
V 4.00%, due 6/15/09-2/15/14 (d) 8,150,000 8,195,927
V 4.75%, due 5/15/14 (d) 3,100,000 3,277,766
5.00%, due 2/15/11 648,000 699,739
6.00%, due 8/15/09 327,000 366,457
6.125%, due 8/15/07 705,000 768,120
------------
44,789,842
------------
Total U.S. Government & Federal Agencies (Cost
$173,031,697) 175,758,408(f)
------------
YANKEE BONDS (1.5%) (H)
- ------------------------------------------------------------------------------
BANKING (0.3%)
Abbey National PLC
7.95%, due 10/26/29 100,000 128,577
Australia & New Zealand Banking Group Ltd.
7.55%, due 9/15/06 353,000 380,630
</Table>
122 MainStay Indexed Bond Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
YANKEE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
BANKING (CONTINUED)
HSBC Bank PLC
6.95%, due 3/15/11 $ 200,000 $ 233,036
Santander Financial Issuances
6.375%, due 2/15/11 100,000 111,640
------------
853,883
------------
CONGLOMERATE/DIVERSIFIED MANUFACTURING (0.1%)
Tyco International Group Ltd. SA
6.375%, due 10/15/11 250,000 278,291
------------
DIVERSIFIED TELECOMMUNICATION (0.0%) (G)
TELUS Corp.
7.50%, due 6/1/07 100,000 109,878
------------
ELECTRIC UTILITIES (0.0%) (G)
United Utilities PLC
5.375%, due 2/1/19 100,000 99,264
------------
GAS PIPELINES (0.0%) (G)
TransCanada Pipelines Ltd.
4.00%, due 6/15/13 100,000 95,705
------------
INTEGRATED OIL (0.2%)
Norsk Hydro ASA
7.25%, due 9/23/27 250,000 300,450
Petro-Canada
4.00%, due 7/15/13 100,000 94,366
------------
394,816
------------
METALS/MINING (0.1%)
Alcan, Inc.
6.45%, due 3/15/11 100,000 111,992
Inco Ltd.
5.70%, due 10/15/15 100,000 104,301
------------
216,293
------------
RAILROADS (0.1%)
Canadian National Railway Co.
6.375%, due 10/15/11 100,000 111,853
------------
REGIONAL GOVERNMENT (0.3%)
Province of Manitoba
5.50%, due 10/1/08 250,000 268,215
Province of Quebec
Series NJ
7.50%, due 7/15/23 302,000 386,308
------------
654,523
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SECONDARY OIL & GAS PRODUCERS (0.1%)
Canadian National Resources Ltd.
5.45%, due 10/1/12 $ 100,000 $ 105,586
EnCana Corp.
4.75%, due 10/15/13 100,000 99,860
------------
205,446
------------
SUPRANATIONAL (0.3%)
Inter-American Development Bank
6.80%, due 10/15/25 604,000 722,172
------------
Total Yankee Bonds (Cost $3,458,915) 3,742,124
------------
Total Long-Term Bonds (Cost $236,480,002) 241,799,410
------------
SHORT-TERM INVESTMENTS (27.8%)
- ------------------------------------------------------------------------------
COMMERCIAL PAPER (3.9%) (C)
Morgan Stanley Dean Witter & Co.
1.78%, due 11/10/04 5,000,000 4,997,774
National Rural Utilities Cooperative Finance Corp.
1.82%, due 11/17/04 5,000,000 4,995,953
------------
Total Commercial Paper (Cost $9,993,727) 9,993,727
------------
<Caption>
SHARES
INVESTMENT COMPANY (0.0%) (G)
AIM Institutional Funds Group
1.77%, due 11/1/04 (e) 77,287 77,287
------------
Total Investment Company (Cost $77,287) 77,287
------------
<Caption>
PRINCIPAL
AMOUNT
MASTER NOTE (1.4%)
Bank of America LLC
1.955%, due 11/1/04 (e) $ 3,500,000 3,500,000
------------
Total Master Note (Cost $3,500,000) 3,500,000
------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
123
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONTINUED)
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (12.8%)
Credit Suisse First Boston Corp.
1.925%, dated 10/31/04
due 11/1/04
Proceeds at Maturity
$11,000,588 (e)
(Collateralized by Various Bonds with a
Principal Amount of $11,029,485 and a Market
Value of $11,219,094) $11,000,000 $ 11,000,000
Lehman Brothers, Inc.
1.925%, dated 10/31/04
due 11/1/04
Proceeds at Maturity $6,800,364 (e)
(Collateralized by Various Bonds with a
Principal Amount of $13,559,156 and a Market
Value of $7,018,949) 6,800,000 6,800,000
Merrill Lynch Pierce Fenner & Smith, Inc.
1.955%, dated 10/31/04
due 11/1/04
Proceeds at Maturity $4,000,217 (e)
(Collateralized by Various Bonds with a
Principal Amount of $3,945,731 and a Market
Value of $4,189,638) 4,000,000 4,000,000
Morgan Stanley & Co., Inc.
1.925%, dated 10/31/04
due 11/1/04
Proceeds at Maturity $11,000,588 (e)
(Collateralized by Various Bonds with a
Principal Amount of $16,795,795 and a Market
Value of $11,578,936) 11,000,000 11,000,000
------------
Total Repurchase Agreements (Cost $32,800,000) 32,800,000
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
U.S. GOVERNMENT & FEDERAL AGENCIES (9.7%) (C)
Federal Home Loan Bank
1.73%, due 11/3/04 $ 5,795,000 $ 5,794,442
Federal Mortgage Corporation
1.83%, due 11/16/04 4,500,000 4,496,568
Federal National Mortgage Association
1.74%, due 11/1/04 4,590,000 4,590,000
1.78%, due 11/15/04 4,705,000 4,701,743
1.80%, due 11/17/04 5,000,000 4,995,999
United States Treasury Bill
1.75%, due 3/3/05 300,000 298,226
------------
Total U.S. Government & Federal Agencies
(Cost $24,876,978) 24,876,978
------------
Total Short-Term Investments (Cost $71,247,992) 71,247,992
------------
Total Investments (Cost $307,727,994) (i) 122.2% 313,047,402(j)
Liabilities in Excess of Cash and Other Assets (22.2) (56,777,228)
----------- ------------
Net Assets 100.0% $256,270,174
=========== ============
</Table>
124 MainStay Indexed Bond Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
CONTRACTS UNREALIZED
LONG APPRECIATION (K)
FUTURES CONTRACTS (0.2%)
- --------------------------------------------------------------------------------
United States Treasury Note
December 2004 (5 Year) 104 $ 61,804
----------------
Total Futures Contracts
(Settlement Value $11,521,196) (f) $ 61,804
================
</Table>
<Table>
(a) May be sold to institutional investors only.
(b) 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, 2004 is $23,404,378.
(c) Segregated, partially segregated or designated as
collateral for futures contracts and TBAs.
(d) Represents securities out on loan or a portion which is
out on loan.
(e) Represents a security or a portion thereof, purchased
with cash collateral received for securities on loan.
(f) The combined market value of U.S. Government & Federal
Agencies investments and settlement value of U.S.
Treasury Note futures contracts represents 73.1% of net
assets.
(g) Less than one tenth of a percent.
(h) Yankee bond -- dollar-denominated bond issued in the
United States by foreign banks and corporations.
(i) The cost for federal income tax purposes is
$307,830,420.
(j) At October 31, 2004 net realized appreciation was
$5,216,982, based on cost for federal income tax
purposes. This consisted of aggregate gross unrealized
appreciation for all investments on which there was an
excess of market value over cost of $5,808,206 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $591,224.
(k) Represents the difference between the value of the con-
tracts at the time they were opened and the value at
October 31, 2004.
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
125
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2004
<Table>
ASSETS:
Investment in securities, at value
(identified cost $307,727,994) including
$35,940,734 market value of securities
loaned $313,047,402
Cash 4,353
Cash at lending agent 61
Receivables:
Investment securities sold 8,137,976
Interest 2,153,807
Fund shares sold 1,084,621
Variation margin on futures contracts 21,401
Other assets 12,814
------------
Total assets 324,462,435
------------
LIABILITIES:
Securities lending collateral 36,377,348
Payables:
Investment securities purchased 31,483,150
Fund shares redeemed 155,279
Manager 75,211
Custodian 14,182
NYLIFE Distributors 10,021
Transfer agent 9,802
Directors 2,211
Accrued expenses 62,011
Dividend payable 3,046
------------
Total liabilities 68,192,261
------------
Net assets $256,270,174
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
500 million shares authorized:
Class A $ 4,343
Class I 18,806
Additional paid-in capital 253,068,837
Accumulated undistributed net investment
income 1,380,880
Accumulated net realized loss on investments
and futures contracts (3,583,904)
Net unrealized appreciation on investments and
futures contracts 5,381,212
------------
Net assets $256,270,174
============
CLASS A
Net assets applicable to outstanding shares $ 48,062,529
============
Shares of capital stock outstanding 4,343,097
============
Net asset value per share outstanding $ 11.07
Maximum sales charge (3.00% of offering price) 0.34
------------
Maximum offering price per share outstanding $ 11.41
============
CLASS I
Net assets applicable to outstanding shares $208,207,645
============
Shares of capital stock outstanding 18,806,271
============
Net asset value and offering price per share
outstanding $ 11.07
============
</Table>
126 MainStay Indexed Bond Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2004
<Table>
INVESTMENT INCOME:
INCOME:
Interest $ 9,211,127
Income from securities loaned -- net 32,401
-----------
Total income 9,243,528
-----------
EXPENSES:
Manager 1,174,506
Service -- Class A 88,423
Service -- Service Class 14,118
Professional 79,265
Portfolio pricing 77,404
Custodian 61,897
Shareholder communication 28,528
Registration 27,131
Directors 25,819
Miscellaneous 26,319
Transfer agent -- Class A 21,069
Transfer agent -- Class I 36,841
-----------
Total expenses before reimbursement 1,661,320
Expense reimbursement from Manager (370,987)
-----------
Net expenses 1,290,333
-----------
Net investment income 7,953,195
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from:
Security transactions 774,974
Futures transactions 143,973
-----------
Net realized gain on investments 918,947
-----------
Net change in unrealized appreciation on
investments:
Security transactions 2,399,972
Futures transactions 29,601
-----------
Net unrealized gain on investments 2,429,573
-----------
Net realized and unrealized gain on investments 3,348,520
-----------
Net increase in net assets resulting from
operations $11,301,715
===========
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
127
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003
<Table>
<Caption>
2004 2003
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 7,953,195 $ 5,782,093
Net realized gain on investments
and futures contracts 918,947 1,010,704
Net change in unrealized
appreciation (depreciation) on
investments and futures contracts 2,429,573 (1,651,848)
----------------------------
Net increase in net assets
resulting from operations 11,301,715 5,140,949
----------------------------
Dividends to shareholders:
From net investment income:
Class A (1,084,652) --
Class I (6,323,062) (5,405,294)
Service Class (156,873) (688,954)
----------------------------
Total dividends to shareholders (7,564,587) (6,094,248)
----------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 66,652,900 --
Class I 62,155,413 114,645,556
Service Class 5,106,292 27,017,252
Net asset value of shares issued to shareholders
in reinvestment of dividends:
Class A 1,078,191 --
Class I 6,314,766 5,371,984
Service Class 156,825 688,954
----------------------------
141,464,387 147,723,746
Cost of shares redeemed:
Class A (20,219,408) --
Class I (47,411,486) (60,146,907)
Service Class (36,166,785) (14,596,471)
----------------------------
(103,797,679) (74,743,378)
----------------------------
Increase in net assets derived
from capital share
transactions 37,666,708 72,980,368
----------------------------
Net increase in net assets 41,403,836 72,027,069
NET ASSETS:
Beginning of year 214,866,338 142,839,269
----------------------------
End of year $ 256,270,174 $214,866,338
============================
Accumulated undistributed net
investment income at end of year $ 1,380,880 $ 327,233
============================
</Table>
128 MainStay Indexed Bond Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
This page intentionally left blank
129
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A CLASS I
----------- ----------------------------------------------------------
JANUARY 2,
2004*
THROUGH
OCTOBER 31, YEAR ENDED OCTOBER 31,
2004 2004 2003 2002 2001 2000
Net asset value at beginning of
period $ 10.95 $ 10.89 $ 10.86 $ 11.21 $ 10.73 $ 10.76
------- -------- -------- -------- ------- --------
Net investment income 0.33 0.34 0.39 0.52(d) 0.65(d)(e) 0.72
Net realized and unrealized gain
(loss) on investments 0.13 0.19 0.04 0.08 0.72(e) 0.00(c)
------- -------- -------- -------- ------- --------
Total from investment operations 0.46 0.53 0.43 0.60 1.37 0.72
------- -------- -------- -------- ------- --------
Less dividends:
From net investment income (0.34) (0.35) (0.40) (0.95) (0.89) (0.75)
------- -------- -------- -------- ------- --------
Net asset value at end of period $ 11.07 $ 11.07 $ 10.89 $ 10.86 $ 11.21 $ 10.73
======= ======== ======== ======== ======= ========
Total investment return (a) 3.65%(b) 5.01% 3.97% 5.92% 13.44% 7.27%
Ratios (to average net
assets)/Supplemental Data:
Net investment income 3.16%+ 3.43% 3.39% 4.83% 6.00%(e) 6.63%
Net expenses 0.78%+ 0.50% 0.50% 0.50% 0.50% 0.50%
Expenses (before reimbursement) 0.94%+ 0.66% 0.68% 0.74% 0.71% 0.63%
Portfolio turnover rate 104% 104% 110% 56% 57% 20%
Net assets at end of period (in
000's) $48,062 $208,208 $184,051 $125,169 $81,890 $136,033
</Table>
<Table>
* Commencement of Operations.
** The Fund changed its fiscal year end from December 31 to
October 31.
+ Annualized.
++ Service Class shares ceased operations on January 9, 2004.
(a) Total return is calculated exclusive of sales charges. Class
I and Service Class are not subject to sales charges.
(b) Total return is not annualized.
(c) Less than one cent per share.
(d) Per share data based on average shares outstanding during
the period.
(e) As required, effective November 1, 2000, the Fund has
adopted the provisions of the AICPA Audit and Accounting
Guide for Investment Companies and began amortizing premium
on debt securities. The effect of this change for the year
ended October 31, 2001 is shown below. Per share ratios and
supplemental data for periods prior to November 1, 2000 have
not been restated to reflect this change in presentation.
</Table>
<Table>
<Caption>
SERVICE
CLASS I CLASS
------- -------
Decrease net investment income ($0.02) ($0.02)
Increase net realized and unrealized gains and losses 0.02 0.02
Decrease ratio of net investment income (0.16%) (0.15%)
</Table>
130 MainStay Indexed Bond Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
SERVICE CLASS++
- --------------------------------------------------------------------------------------------------
NOVEMBER 1,
2003
THROUGH
JANUARY 9, YEAR ENDED OCTOBER 31,
2004 2003 2002 2001 2000
$10.88 $ 10.85 $ 11.19 $ 10.70 $10.74
------ ------- ------- ------- ------
0.05 0.36 0.49(d) 0.62(d)(e) 0.67
0.17 0.04 0.08 0.73(e) 0.01
------ ------- ------- ------- ------
0.22 0.40 0.57 1.35 0.68
------ ------- ------- ------- ------
(0.05) (0.37) (0.91) (0.86) (0.72)
------ ------- ------- ------- ------
$11.05 $ 10.88 $ 10.85 $ 11.19 $10.70
====== ======= ======= ======= ======
2.05%(b) 3.71% 5.61% 13.21% 6.87%
3.23%+ 3.14% 4.58% 5.75%(e) 6.38%
0.75%+ 0.75% 0.75% 0.75% 0.75%
0.93%+ 0.93% 0.99% 0.96% 0.88%
45% 110% 56% 57% 20%
$ 0 $30,815 $17,670 $10,470 $3,634
<Caption>
SERVICE CLASS++
- --- ----------------------------------
JANUARY 1,
THROUGH YEAR ENDED
OCTOBER 31, DECEMBER 31,
1999** 1998
$10.92 $10.74
------ ------
0.61 0.66
(0.79) 0.18
------ ------
(0.18) 0.84
------ ------
-- (0.66)
------ ------
$10.74 $10.92
====== ======
(1.65%)(b) 7.86%
6.17%+ 6.12%
0.75%+ 0.75%
0.87%+ 0.90%
31% 14%
$3,345 $3,881
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
131
MAINSTAY INTERMEDIATE TERM BOND FUND
INVESTMENT AND PERFORMANCE COMPARISON
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY, CURRENT PERFORMANCE MAY
BE LESS OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. FOR CURRENT TO THE MOST RECENT MONTH-END PERFORMANCE
INFORMATION, PLEASE CONTACT 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM.
CLASS A SHARES -- MAXIMUM 4.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 0.24% 5.28% 6.01%
Excluding sales charges 4.96 6.25 6.50
</Table>
(LINE GRAPH FOR CLASS A SHARES)
<Table>
<Caption>
MAINSTAY INTERMEDIATE TERM LEHMAN BROTHERS AGGREGATE
BOND FUND BOND INDEX
-------------------------- -------------------------
10/31/94 9550.00 10000.00
10938.00 11565.00
11479.00 12241.00
12364.00 13330.00
13412.00 14574.00
13236.00 14652.00
14024.00 15721.00
15962.00 18010.00
16197.00 19070.00
17078.00 20006.00
10/31/04 17925.00 21112.00
</Table>
<Table>
-- MainStay Intermediate -- Lehman Brothers Aggregate
Term Bond Fund Bond Index
</Table>
CLASS B SHARES -- MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges -0.71% 5.16% 5.73%
Excluding sales charges 4.29 5.48 5.73
</Table>
(LINE GRAPH FOR CLASS B SHARES)
<Table>
<Caption>
MAINSTAY INTERMEDIATE TERM LEHMAN BROTHERS AGGREGATE
BOND FUND BOND INDEX
-------------------------- -------------------------
10/31/94 10000.00 10000.00
11373.00 11565.00
11848.00 12241.00
12666.00 13330.00
13635.00 14574.00
13368.00 14652.00
14053.00 15721.00
15878.00 18010.00
15990.00 19070.00
16737.00 20006.00
10/31/04 17455.00 21112.00
</Table>
<Table>
-- MainStay Intermediate -- Lehman Brothers Aggregate
Term Bond Fund Bond Index
</Table>
CLASS C SHARES -- MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 3.29% 5.48% 5.73%
Excluding sales charges 4.29 5.48 5.73
</Table>
(LINE GRAPH FOR CLASS C SHARES)
<Table>
<Caption>
MAINSTAY INTERMEDIATE TERM LEHMAN BROTHERS AGGREGATE
BOND FUND BOND INDEX
-------------------------- -------------------------
10/31/94 10000.00 10000.00
11373.00 11565.00
11848.00 12241.00
12666.00 13330.00
13635.00 14574.00
13368.00 14652.00
14053.00 15721.00
15878.00 18010.00
15990.00 19070.00
16737.00 20006.00
10/31/04 17455.00 21112.00
</Table>
<Table>
-- MainStay Intermediate -- Lehman Brothers Aggregate
Term Bond Fund Bond Index
</Table>
Performance tables and graphs do not reflect the deduction of taxes that a
shareholder would pay on distributions or Fund-share redemptions. Total returns
reflect change in share price, reinvestment of dividend and capital-gain
distributions, and maximum applicable sales charges explained in this paragraph.
The graphs assume an initial investment of $10,000 and reflect the deduction of
all sales charges that would have applied for the period of investment. Class A
shares are sold with a maximum initial sales charge of 4.5% and an annual 12b-1
fee of .25%. Class B shares are sold with no initial sales charge, are subject
to a contingent deferred sales charge (CDSC) of up to 5% if redeemed within the
first six years of purchase, and have an annual 12b-1 fee of 1.00%. Class C
shares are sold with no initial sales charge, are subject to a CDSC of 1% if
redeemed within one year of purchase, and have an annual 12b-1 fee of 1.00%.
Class I shares are sold with no initial sales charge or CDSC, have no annual
12b-1 fee, and are generally available to corporate and institutional investors
with a minimum initial investment of $5 million. Performance figures reflect
certain fee waivers and/or expense limitations, without which total returns may
have been lower. The fee waivers and/or expense limitations are voluntary and
may be discontinued at any time. Performance for Class A, B, and C shares, first
offered 1/2/04, includes the historical performance of Class I shares from
inception (1/2/91) through 12/31/03 adjusted to reflect the applicable sales
charge (or CDSC) and fees and expenses for Class A, B, and C shares.
THE DISCLOSURE AND FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THESE
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
132 MainStay Intermediate Term Bond Fund
CLASS I SHARES -- NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
5.30% 6.52% 6.76%
</Table>
(LINE GRAPH FOR CLASS A SHARES)
<Table>
<Caption>
MAINSTAY INTERMEDIATE TERM LEHMAN BROTHERS AGGREGATE
BOND FUND BOND INDEX
-------------------------- -------------------------
10/31/94 10000 10000
11481 11565
12077 12241
13038 13330
14176 14574
14028 14652
14898 15721
16992 18010
17286 19070
18269 20006
10/31/04 19238 21112
</Table>
<Table>
-- MainStay Intermediate -- Lehman Brothers Aggregate
Term Bond Fund Bond Index
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
Lehman Brothers(R) Aggregate Bond Index(1) 5.53% 7.58% 7.76%
Average Lipper intermediate investment grade
fund(2) 4.86 6.75 6.93
</Table>
1. The Lehman Brothers(R) Aggregate Bond Index is an unmanaged index that
includes the following other unmanaged Lehman Brothers(R) indices: the
Government Index, the Corporate Index, the Mortgage-Backed Securities Index
and the Asset-Backed Securities Index. To qualify for inclusion in the Lehman
Brothers(R) Aggregate Bond Index, securities must be U.S. dollar denominated
and investment grade and have a fixed-rate coupon, a remaining maturity of at
least one year, and a par amount outstanding of at least $150 million.
Results assume reinvestment of all income and capital-gains. The Lehman
Brothers(R) Aggregate Bond Index is considered to be the Fund's broad-based
securities-market index for comparison purposes. An investment cannot be made
directly into an index.
2. Lipper Inc. is an independent fund performance monitor. Results are based on
total returns with all dividend and capital-gain distributions reinvested.
THE DISCLOSURE AND FOOTNOTES ON THE PRECEDING PAGE ARE AN INTEGRAL PART OF THESE
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
www.mainstayfunds.com 133
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY INTERMEDIATE TERM BOND FUND
Expenses shown in the table are meant to highlight your ongoing costs only and
do not reflect any transactional costs, such as sales charges (loads),
redemption fees, or exchange fees. Therefore, the third data column of the table
is 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 had been included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT ENDING ACCOUNT
VALUE (BASED VALUE (BASED
BEGINNING ON ACTUAL EXPENSES ON HYPOTHETICAL EXPENSES
ACCOUNT RETURNS AND PAID 5% ANNUALIZED PAID
VALUE EXPENSES) DURING RETURN AND DURING
SHARE CLASS(1) 5/1/04 10/31/04 PERIOD ACTUAL EXPENSES) PERIOD
CLASS A SHARES $1,000.00 $1,041.45 $6.11 $1,019.05 $6.04
- -------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $1,037.60 $9.94 $1,015.30 $9.83
- -------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $1,037.70 $9.94 $1,015.30 $9.83
- -------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,043.55 $3.85 $1,021.25 $3.81
- -------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio multiplied by the
average account value over the period, divided by 366, multiplied by 184 (to
reflect the one-half year period).
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2004
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
U.S. Government & Federal Agencies 57.9
Short-Term Investments (collateral from securities lending 25.3
is 5.1%)
Corporate Bonds 27.6
Asset-Backed Securities 3.8
Mortgage-Backed Securities 2.6
Foreign Corporate Bonds 4.4
Foreign Government Bonds 1.0
Yankee Bonds 1.2
Municipal Bond 0.2
Liabilities in Excess of Cash and Other Assets -24.0
</Table>
See Portfolio of Investments on page 137 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2004 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. Federal National Mortgage Association (Mortgage
Pass-Through Security) 6.00%, due 12/13/34
2. Federal Home Loan Mortgage Corporation
(Mortgage Pass-Through Security) 5.50%, due
12/13/34
3. United States Treasury Note 4.75%, due 5/15/14
4. Federal National Mortgage Association (Mortgage
Pass-Through Security) 5.50%, due 11/18/19
5. United States Treasury Note 4.625%, due 5/15/06
6. Federal National Mortgage Association (Mortgage
Pass-Through Security) 4.50%, due 11/1/18
7. Federal Home Loan Mortgage Corporation
(Mortgage Pass-Through Security) 5.00%, due
8/1/33
8. Federal National Mortgage Association 5.50%,
due 5/2/06
9. Federal National Mortgage Association 4.75%,
due 1/2/07
10. Federal National Mortgage Association 6.625%,
due 9/15/09
</Table>
134 MainStay Intermediate Term Bond Fund
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio managers Gary Goodenough and Christopher Harms
of MacKay Shields LLC
CAN YOU BRIEFLY DESCRIBE THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 80% of its assets in bonds, and at least 65%
of the Fund's total assets will be invested in debt securities rated Baa or
better by Moody's Investors Service, Inc.,(1) or BBB or better by S&P when
purchased, or if unrated, determined to be of comparable quality. The effective
maturity of the portfolio is usually in the three- to 10-year range. The Fund
may invest in both U.S. and foreign debt securities. In implementing this
strategy, we conduct a continuing review of yields and other information from a
proprietary data base. Among the principal factors we consider in determining
whether to increase or decrease the emphasis placed upon a particular type of
security or industry sector, are fundamental economic cycle analysis, credit
quality, and interest rate trends. We make shifts in maturity based on a broad
range of fundamental and technical indicators.
WHAT ECONOMIC FACTORS INFLUENCED THE BOND MARKET DURING THE 12 MONTHS ENDED
OCTOBER 31, 2004?
The Federal Reserve maintained the targeted federal funds a rate at an
accommodative 1.00% through the first half of the Fund's fiscal year, but from
November 2003 through March 2004, economic data was mixed. With slack in the
labor markets, slack in manufacturing capacity, and little pricing power in most
industries, the downside risk of an overheated economy appeared small. In April
2004, however, uniformly firm economic releases challenged that view. The risk
of deflation appeared to be waning, while trend-level growth appeared
sustainable. The consensus was that the Federal Reserve's cautionary stance
would be relatively short-lived. Consistent with market expectations, the
Federal Open Market Committee tightened monetary policy at its June 30, 2004,
meeting by raising the targeted federal funds rate to 1.25%. Another 25 basis
point rate hike followed in August, and yet another came in September. These
moves brought the targeted federal funds rate to 1.75% at the end of October
2004.
HOW DID THESE FACTORS AFFECT TREASURY YIELDS?
During the 12-month reporting period, the U.S. Treasury yield curve pivoted
around the five-year maturity benchmark. Two-year Treasury yields rose from 1.8%
to 2.6%; five-year yields were basically unchanged at 3.25%; 10-year yields fell
from 4.3% to 4.0%; and 30-year yields declined from 5.1% to 4.8%. The narrowing
of the yield spread between the two-year and 30-year maturities (commonly known
as a flattening of the yield curve) was not solely a result of Federal Open
Market Committee interest-rate tightening. The flattening also stemmed from
lower inflation expectations and large block purchases of U.S. Treasury
securities by foreign governments.
HOW DID YOU POSITION THE FUND'S PORTFOLIO AMONG THE VARIOUS BOND SECTORS?
A recurring theme for us during the 12-month reporting period was harvesting
strong excess returns from prudent risk-taking and savvy issue selection in
BBB-rated corporate, high-yield corporate, and emerging-market bonds. These
sectors were rejuvenated as default rates declined, U.S. investors hunted for
yield, and foreign investors shifted their asset allocations toward credit risk.
We introduced high-yield corporate bonds to the Fund in May 2004 to take
advantage of the sector's attractive risk/reward profile. Emerging-market bonds
performed well, based on fiscal discipline and a global economic recovery. The
Fund's position in credit-related securities contributed the majority of the
Fund's excess return. Also contributing to the Fund's return were positions in
mortgage-backed and asset-backed securities. These sectors tend to do well when
U.S. Treasury yields are range-bound, since cash flows are more predictable
under these conditions.
Foreign securities may be subject to greater risks than U.S. investments,
including currency fluctuations, less-liquid trading markets, greater price
volatility, political and economic instability, less publicly available
information, and changes in tax or currency laws or monetary policy. These risks
are likely to be greater in emerging markets than in developed markets. The Fund
may invest in derivatives, which may increase the volatility of the Fund's net
asset value and may result in a loss to the Fund. Funds that invest in bonds are
subject to credit, inflation, and interest-rate risk and can lose principal
value when interest rates rise.
1. Bonds rated Baa by Moody's Investors Service are considered by Moody's to be
medium-grade obligations (i.e., obligations that Moody's believes are neither
highly protected nor poorly secured). It is Moody's opinion that interest
payments and principal security appear adequate for the present, but that
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Moody's believes that such bonds
lack outstanding investment characteristics and that they in fact have
speculative characteristics as well. Debt rated BBB by Standard & Poor's is
deemed by Standard & Poor's to exhibit adequate protection parameters. It is
the opinion of Standard & Poor's, 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 than would be
the case for debt in higher-rated categories. 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.
www.mainstayfunds.com 135
As we already noted, Treasury yields for maturities of five years and longer
held to a fairly tight range during the annual period. As of October 31, 2004,
the Fund's net assets were invested 13% in U.S. Treasuries, 9% in agency
debentures, 26% in investment-grade corporates, 9% in high-yield corporates, 36%
in residential mortgage-backed securities, 3% in commercial mortgage-backed
securities, and 4% in asset-backed securities. Compared to the Lehman
Brothers(R) Aggregate Bond Index,(2) the Fund had overweighted positions in
investment-grade corporates, high-yield corporates, residential mortgage-backed
securities, and asset-backed securities. The Fund held a neutral-to-the-Index
position in commercial mortgage-backed securities and held underweighted
positions in U.S. Treasuries and agency debentures.
DID THE FUND'S YIELD-CURVE AND DURATION POSITIONING AFFECT PERFORMANCE?
We maintained a neutral yield-curve posture during the 12-month reporting
period, so the flattening of the yield curve had minimal impact on the Fund's
performance. The Fund's duration, however, detracted from the Fund's relative
results. We maintained a modestly shorter-than-benchmark duration for much of
the reporting period, as intermediate-and long-term Treasury yields rallied. We
had decided to shorten the Fund's duration early in the Fund's fiscal year,
anticipating that the unusually low average yield of the U.S. Treasury sector
was unsustainable. What we failed to appreciate was the sizeable impact of a
weaker U.S. dollar on interest rates. Specifically, foreign central banks bought
large blocks of U.S. Treasuries to stall the appreciation of their currencies
against the weaker U.S. dollar. Foreign central banks undertook this action to
keep the price of U.S. exports from falling relative to the prices of domestic
goods. The foreign central banks sought to ease deflationary pressures that
might impede the recovery of their home economies. At the end of the reporting
period, the Fund's duration stood at 4.25 years. This modestly shorter-than-
benchmark posture reflected our view that interest rates would gradually rise as
the Federal Reserve continued to increase the targeted federal funds rate in
response to an improving economy.
WHAT DO YOU ANTICIPATE FOR THE ECONOMY AND INTEREST RATES GOING FORWARD?
At the end of the fiscal year, the eurodollar futures market predicted a 2.5%
targeted U.S. federal funds rate by March 2005. We agree with this view. As we
move toward 2005, we feel that a pick-up in economic growth is a reasonable
assumption given low interest rates, lower marginal tax rates, low inflation,
firm consumer-spending patterns, and improved corporate confidence. We believe
that the balance of the Federal Reserve's move in interest rates can be
accomplished at a reasonable, measured pace. As long as consumers remain highly
leveraged and productivity growth continues to drive labor costs lower, the
Federal Reserve has little incentive to be more aggressive, unless inflation
begins to accelerate.
HOW ARE YOU POSITIONING THE FUND GOING FORWARD?
We intend to maintain the Fund's shorter-than-benchmark duration for the near
term. This positioning supports our view of the economy and interest rates, as
well as the need for increased Treasury issuance to fund the federal budget
imbalance. We also intend to continue favoring moderate- and lower-quality
corporate bonds over U.S. Treasuries and agencies, since we believe that
corporate bonds will continue to offer a significant yield advantage. At the
same time, the rapid price appreciation of high-yield securities has tempered
our enthusiasm for this sector, and we are unlikely to commit additional Fund
assets until prices moderate. Among residential mortgage-backed securities, we
favor lower-coupon securities and 15-year loan terms for their less-volatile
cash-flow profiles. For asset-backed securities, we prefer non-mortgage-related
collateral, such as auto loans, credit-card receivables, and electric-utility
tariffs. We are cautious about agency debentures in light of their small yield
advantages and the potential vulnerability of government-sponsored housing
enterprises to additional regulation.
2. See footnote on page 133 for more information on the Lehman Brothers(R)
Aggregate Bond Index.
The opinions expressed are those of the portfolio managers as of the date of
this report and are subject to change. There is no guarantee that any forecasts
made will come to pass. This material does not constitute investment advice and
is not intended as an endorsement of any specific investment.
INFORMATION ABOUT MAINSTAY INTERMEDIATE TERM BOND FUND ON THIS PAGE AND THE
PRECEDING PAGES HAS NOT BEEN AUDITED.
136 MainStay Intermediate Term Bond Fund
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
LONG-TERM INVESTMENTS (98.7%)+
ASSET-BACKED SECURITIES (3.8%)
- ------------------------------------------------------------------------------
CONSUMER FINANCE (2.3%)
BMW Vehicle Owner Trust
Series 2003-A Class A3
1.94%, due 2/25/07 $ 696,808 $ 695,105
Harley-Davidson Motorcycle Trust
Series 2004-1 Class A2
2.53%, due 11/15/11 1,695,000 1,677,587
Volkswagen Auto Loan Enhanced Trust
Series 2003-2 Class A3
2.27%, due 10/22/07 1,495,000 1,489,269
------------
3,861,961
------------
CONSUMER LOANS (0.4%)
Atlantic City Electric
Transition Funding LLC
Series 2002-1 Class A4
5.55%, due 10/20/23 675,000 718,286
------------
DIVERSIFIED FINANCIAL SERVICES (0.3%)
Capital One Master Trust
Series 2001-5 Class A
5.30%, due 6/15/09 460,000 479,261
------------
MULTI-UTILITIES & UNREGULATED POWER (0.6%)
Public Service of New Hampshire Funding LLC
Pass-Through Certificates Series 2002-1 Class A
4.58%, due 2/1/08 1,002,655 1,030,391
------------
THRIFTS & MORTGAGE FINANCE (0.2%)
Vanderbilt Mortgage Finance
Series 1999-B Class 1A4
6.545%, due 4/7/18 263,551 269,200
------------
Total Asset-Backed Securities (Cost $6,323,279) 6,359,099
------------
CORPORATE BONDS (27.6%)
- ------------------------------------------------------------------------------
AEROSPACE & DEFENSE (0.2%)
General Dynamics Corp.
4.50%, due 8/15/10 325,000 334,301
------------
AIRLINES (0.2%)
Southwest Airlines Co.
5.25%, due 10/1/14 320,000 321,198
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
AUTO COMPONENTS (0.8%)
Advanced Accessory Systems
10.75%, due 6/15/11 $ 20,000 $ 18,200
Collins & Aikman Products
12.875%, due 8/24/12 (a)(d) 185,000 160,025
Dana Corp.
7.00%, due 3/1/29 180,000 176,400
Goodyear Tire & Rubber Co. (The)
6.625%, due 12/1/06 530,000 545,900
Visteon Corp.
7.00%, due 3/10/14 85,000 79,900
8.25%, due 8/1/10 (d) 345,000 358,800
------------
1,339,225
------------
AUTOMOBILES (0.7%)
DaimlerChrysler North America Holdings, Inc.
6.50%, due 11/15/13 580,000 633,353
General Motors Corp.
8.375%, due 7/15/33 515,000 535,902
------------
1,169,255
------------
BEVERAGES (0.5%)
Miller Brewing Co.
4.25%, due 8/15/08 (a) 825,000 841,725
------------
BUILDING PRODUCTS (0.1%)
Dayton Superior Corp.
10.75%, due 9/15/08 160,000 170,400
------------
CAPITAL MARKETS (1.6%)
Bear Stearns Cos., Inc. (The)
4.00%, due 1/31/08 450,000 457,307
Goldman Sachs Group, Inc. (The)
6.345%, due 2/15/34 1,180,000 1,202,605
LaBranche & Co., Inc.
11.00%, due 5/15/12 (a) 215,000 220,643
Morgan Stanley
3.625%, due 4/1/08 630,000 633,486
4.75%, due 4/1/14 110,000 107,760
------------
2,621,801
------------
CHEMICALS (0.2%)
Crompton Corp.
9.875%, due 8/1/12 (a) 255,000 281,138
------------
+ Percentages indicated are based on Fund net assets.
V Among the Fund's 10 largest holdings, excluding short-term investments. May
be subject to change daily.
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
137
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
COMMERCIAL BANKS (0.8%)
BankBoston NA
7.00%, due 9/15/07 $ 520,000 $ 574,529
FleetBoston Financial Corp.
3.85%, due 2/15/08 500,000 507,184
UGS Corp.
10.00%, due 6/1/12 (a) 265,000 296,800
------------
1,378,513
------------
COMMERCIAL SERVICES & SUPPLIES (0.1%)
Geo Sub Corp.
11.00%, due 5/15/12 (a) 200,000 192,000
------------
CONSUMER FINANCE (1.3%)
Capital One Bank
5.75%, due 9/15/10 355,000 379,370
Ford Motor Credit Co.
7.00%, due 10/1/13 (d) 658,000 694,884
General Motors
Acceptance Corp.
6.875%, due 9/15/11-8/28/12 430,000 447,624
Household Finance Corp.
7.25%, due 5/15/06 208,000 221,719
MBNA Corp.
6.25%, due 1/17/07 370,000 393,143
------------
2,136,740
------------
CONTAINERS & PACKAGING (0.5%)
Owens-Illinois, Inc.
8.10%, due 5/15/07 320,000 339,200
Rock-Tenn Co.
8.20%, due 8/15/11 345,000 407,969
Tekni-Plex, Inc.
8.75%, due 11/15/13 (a) 140,000 133,525
------------
880,694
------------
DIVERSIFIED FINANCIAL SERVICES (1.8%)
Citigroup, Inc.
5.00%, due 9/15/14 (a) 1,105,000 1,121,128
FGIC Corp.
6.00%, due 1/15/34 (a) 835,000 871,048
J Paul Getty Trust, Series 2003 5.875%, due
10/1/33 460,000 482,112
National Beef Packing Co. LLC/NB Finance Corp.
Series REGS
10.50%, due 8/1/11 145,000 148,625
Rainbow National Services LLC
8.75%, due 9/1/12 (a) 395,000 422,650
------------
3,045,563
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
DIVERSIFIED TELECOMMUNICATION SERVICES (1.1%)
Citizens Communications Co.
9.00%, due 8/15/31 $ 110,000 $ 117,425
Qwest Communications International, Inc.
7.25%, due 2/15/11 (a) 280,000 277,900
Qwest Corp.
9.125%, due 3/15/12 (a) 20,000 22,550
SBC Communications, Inc.
4.125%, due 9/15/09 415,000 417,074
Sprint Capital Corp.
8.75%, due 3/15/32 650,000 851,703
TSI Telecommunication
Services, Inc., Series B
12.75%, due 2/1/09 160,000 179,200
------------
1,865,852
------------
ELECTRIC UTILITIES (1.0%)
American Electric Power Co., Inc.
5.375%, due 3/15/10 215,000 227,692
PPL Energy Supply LLC
5.40%, due 8/15/14 380,000 389,577
Tenaska Virginia Partners L.P.
6.119%, due 3/30/24 (a) 984,112 1,041,703
------------
1,658,972
------------
ELECTRICAL EQUIPMENT (0.2%)
Emerson Electric Co.
6.00%, due 8/15/32 340,000 364,537
------------
ENERGY EQUIPMENT & SERVICES (0.8%)
Entergy-Koch, L.P.
3.65%, due 8/20/06 (a) 1,195,000 1,214,189
Parker Drilling Co.
9.625%, due 10/1/13 170,000 189,125
------------
1,403,314
------------
FOOD & STAPLES RETAILING (0.5%)
CVS Corp.
5.789%, due 1/10/26 (a) 432,218 450,242
Safeway, Inc.
4.125%, due 11/1/08 355,000 356,749
------------
806,991
------------
FOOD PRODUCTS (0.4%)
Cargill, Inc.
5.00%, due 11/15/13 (a) 570,000 583,302
Pinnacle Foods Holding Corp.
8.25%, due 12/1/13 (a) 20,000 18,900
------------
602,202
------------
HEALTH CARE EQUIPMENT & SUPPLIES (0.2%)
Fisher Scientific International, Inc.
6.75%, due 8/15/14 (a) 270,000 288,900
------------
</Table>
138 MainStay Intermediate Term Bond Fund The notes to the financial
statements are an integral part of, and should be read in conjunction with, the
financial statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES (1.3%)
AmeriPath, Inc.
10.50%, due 4/1/13 $ 170,000 $ 166,600
Anthem, Inc.
3.50%, due 9/1/07 290,000 288,022
Highmark, Inc.
6.80%, due 8/15/13 (a) 920,000 1,000,640
Medco Health Solutions, Inc.
7.25%, due 8/15/13 345,000 383,271
Vanguard Health Holding Co. II
9.00%, due 10/1/14 (a) 275,000 287,375
------------
2,125,908
------------
HOTELS, RESTAURANTS & LEISURE (1.3%)
Caesars Entertainment, Inc.
9.375%, due 2/15/07 860,000 961,050
MGM Mirage, Inc.
6.75%, due 9/1/12 (a) 365,000 386,900
Six Flags, Inc.
9.625%, due 6/1/14 105,000 100,275
Venetian Casino Resort LLC
11.00%, due 6/15/10 640,000 735,200
------------
2,183,425
------------
HOUSEHOLD PRODUCTS (0.3%)
Procter & Gamble Co. (The)
5.80%, due 8/15/34 490,000 518,820
------------
INSURANCE (0.7%)
Fund American Cos., Inc.
5.875%, due 5/15/13 850,000 866,723
Marsh & McLennan Cos., Inc.
7.125%, due 6/15/09 55,000 59,549
Provident Cos., Inc.
7.25%, due 3/15/28 60,000 56,100
UnumProvident Corp.
6.75%, due 12/15/28 135,000 120,825
------------
1,103,197
------------
MACHINERY (0.0%) (B)
Mark IV Industries, Inc.
7.50%, due 9/1/07 60,000 56,700
------------
MACHINERY & ENGINEERING (0.0%) (B)
Dresser-Rand Group
7.375%, due 11/1/14 (a) 45,000 47,138
------------
MARINE (0.1%)
Gulfmark Offshore, Inc.
7.75%, due 7/15/14 (a) 145,000 152,250
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
MEDIA (3.6%)
American Media Operations, Inc.
8.875%, due 1/15/11 $ 170,000 $ 181,050
AT&T Broadband Corp.
9.455%, due 11/15/22 370,000 507,899
Clear Channel Communications, Inc.
5.50%, due 9/15/14 520,000 524,732
Dex Media East LLC
12.125%, due 11/15/12 41,000 50,943
PanAmSat Corp.
9.00%, due 8/15/14 (a) 115,000 121,900
PRIMEDIA, Inc.
8.00%, due 5/15/13 (a) 70,000 70,175
Tele-Communications, Inc.
9.80%, due 2/1/12 810,000 1,043,715
Time Warner Entertainment Co. L.P.
8.375%, due 3/15/23 513,000 628,141
10.15%, due 5/1/12 1,736,000 2,275,252
Time Warner, Inc.
8.05%, due 1/15/16 455,000 546,385
------------
5,950,192
------------
METALS AND MINING (0.1%)
Foundation PA Coal Co.
7.25%, due 8/1/14 (a) 180,000 192,375
------------
MULTILINE RETAIL (1.1%)
Kohl's Corp.
6.00%, due 1/15/33 810,000 838,015
Target Corp.
6.35%, due 11/1/32 500,000 561,125
8.60%, due 1/15/12 390,000 492,252
------------
1,891,392
------------
MULTI-UTILITIES & UNREGULATED POWER (2.0%)
AES Eastern Energy L.P.
Series 1999-A
9.00%, due 1/2/17 100,324 112,864
Series 1999-B
9.67%, due 1/2/29 25,000 29,250
Dynegy Holdings, Inc.
9.875%, due 7/15/10 (a) 265,000 301,106
10.125%, due 7/15/13 (a) 85,000 99,025
NRG Energy, Inc.
8.00%, due 12/15/13 (a) 270,000 297,338
Pacific Electric & Gas Co.
6.05%, due 3/1/34 570,000 587,059
PSE&G Power LLC
6.875%, due 4/15/06 1,805,000 1,901,531
------------
3,328,173
------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
139
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
OIL & GAS (1.0%)
Belden & Blake Corp.
8.75%, due 7/15/12 (a) $ 105,000 $ 113,400
Enterprise Products Partners L.P.
5.60%, due 10/15/14 (a) 300,000 305,707
Goldman Sachs Group, Inc. (The)
5.00%, due 10/1/14 465,000 464,869
Kern River Funding Corp.
4.893%, due 4/30/18 (a) 638,435 649,263
Tosco Corp.
8.125%, due 2/15/30 115,000 151,906
------------
1,685,145
------------
PAPER & FOREST PRODUCTS (0.4%)
Georgia-Pacific Corp.
8.875%, due 5/15/31 475,000 585,438
------------
PERSONAL PRODUCTS (0.3%)
Estee Lauder Cos., Inc.
5.75%, due 10/15/33 395,000 406,881
------------
PHARMACEUTICALS (0.2%)
Wyeth
5.50%, due 2/1/14 335,000 343,262
------------
REAL ESTATE (1.9%)
American Real Estate Partners L.P.
American Real Estate Finance
8.125%, due 6/1/12 (a) 320,000 337,600
CB Richard Ellis Services, Inc.
9.75%, due 5/15/10 156,000 177,840
Host Marriot L.P.
7.00%, due 8/15/12 (a) 340,000 367,200
HRPT Properties Trust
5.75%, due 2/15/14 845,000 868,539
6.25%, due 8/15/16 190,000 200,074
iStar Financial, Inc.
Series B
5.125%, due 4/1/11 280,000 283,667
6.00%, due 12/15/10 595,000 631,258
OMEGA Healthcare Investors, Inc.
7.00%, due 4/1/14 260,000 266,500
------------
3,132,678
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (0.0%) (B)
Amkor Technology, Inc.
7.125%, due 3/15/11 15,000 12,938
7.75%, due 5/15/13 20,000 17,250
------------
30,188
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
TRANSPORTATION INFRASTRUCTURE (0.0%) (B)
Great Lakes Dredge & Dock Corp.
7.75%, due 12/15/13 $ 70,000 $ 62,650
------------
WIRELESS TELECOMMUNICATION SERVICES (0.3%)
AirGate PCS, Inc.
(zero coupon), due 10/15/11 (a) 115,000 117,875
Dobson Cellular Systems
(zero coupon), due 11/1/11 (a) 65,000 66,788
8.375%, due 11/1/11 (a) 65,000 67,031
9.875%, due 11/1/12 (a) 70,000 69,650
Dobson Communications Corp.
8.875%, due 10/1/13 25,000 16,812
10.875%, due 7/1/10 40,000 30,800
Triton PCS, Inc.
8.50%, due 6/1/13 140,000 128,450
------------
497,406
------------
Total Corporate Bonds (Cost $44,489,923) 45,996,539
------------
FOREIGN CORPORATE BONDS (4.4%)
- ------------------------------------------------------------------------------
BRAZIL (0.6%)
CIA Brazileira de Bebidas
10.50%, due 12/15/11 800,000 984,000
------------
CANADA (0.4%)
Acetex Corp.
10.875%, due 8/1/09 210,000 231,000
BP Canada Finance Co.
3.375%, due 10/31/07 305,000 307,022
Quebecor Media, Inc.
(zero coupon), due 7/15/11 25,000 24,375
Tembec Industries, Inc.
8.50%, due 2/1/11 65,000 66,463
------------
628,860
------------
CAYMAN ISLANDS (0.6%)
Arcel Finance Ltd.
6.361%, due 5/1/12 (a) 450,000 455,611
Hutchison Whamp International Ltd.
5.45%, due 11/24/10 (a) 580,000 597,141
------------
1,052,752
------------
CHILE (0.2%)
Corporacion Nacional del Cobre-Codelco, Inc.
5.50%, due 10/15/13 (a) 330,000 345,440
------------
</Table>
140 MainStay Intermediate Term Bond Fund The notes to the financial
statements are an integral part of, and should be read in conjunction with, the
financial statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FOREIGN CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
DENMARK (0.1%)
Citigroup (JSC Severstal) Series REGS
9.25%, due 4/19/14 $ 80,000 $ 78,192
Heckler & Koch GmbH
9.25%, due 7/15/11 (a) 100,000 135,473
------------
213,665
------------
GERMANY (0.2%)
Citibank Global Markets
Deutschland for Severstal
9.25%, due 4/19/14 (a) 335,000 328,300
------------
LUXEMBOURG (0.3%)
Gazprom International S.A.
7.201%, due 2/1/20 (a) 420,000 441,000
Millicom International Cellular S.A.
10.00%, due 12/1/13 (a) 165,000 166,650
------------
607,650
------------
MEXICO (0.5%)
Banco Nacional de Comercio Exterior S.N.C.
11.25%, due 5/30/06 (a)(d) 145,000 164,212
Telefonos de Mexico S.A. de C.V.
4.50%, due 11/19/08 350,000 353,084
8.25%, due 1/26/06 315,000 334,923
------------
852,219
------------
NETHERLANDS (0.2%)
Coca-Cola HBC Finance BV
5.125%, due 9/17/13 260,000 268,117
------------
SINGAPORE (0.3%)
PSA Corp. Ltd.
7.125%, due 8/1/05 (a) 80,000 82,471
Singapore Powerassets Ltd.
5.00%, due 10/22/13 (a) 305,000 312,325
------------
394,796
------------
UNITED KINGDOM (1.0%)
Ono Finance PLC
10.50%, due 5/15/14 (a) 290,000 370,739
Vodafone Group PLC
3.95%, due 1/30/08 1,190,000 1,211,052
------------
1,581,791
------------
Total Foreign Corporate Bonds (Cost $6,963,885) 7,257,590
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FOREIGN GOVERNMENT BONDS (1.0%)
- ------------------------------------------------------------------------------
CANADA (0.2%)
Province of Quebec
5.00%, due 7/17/09 $ 315,000 $ 332,519
------------
DENMARK (0.2%)
Aries Vermogensverwaltungs GmbH
9.60%, due 10/25/14 (a) 250,000 291,875
------------
MEXICO (0.4%)
United Mexican States
4.625%, due 10/8/08 90,000 91,530
6.625%, due 3/3/15 245,000 262,640
7.50%, due 1/14/12 240,000 272,640
------------
626,810
------------
RUSSIA (0.2%)
Russian Federation
5.00%, due 3/31/30 488,000 488,000
------------
Total Foreign Government Bonds (Cost $1,573,883) 1,739,204
------------
MORTGAGE-BACKED SECURITIES (2.6%)
- ------------------------------------------------------------------------------
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE OBLIGATIONS) (2.6%)
Banc of America Commercial Mortgage, Inc.
Series 2001-PB1 Class A1
4.907%, due 5/11/35 968,463 1,000,521
LB-UBS Commercial Mortgage Trust
Series 2004-C7 Class A1
3.625%, due 10/15/29 1,090,000 1,096,104
Merrill Lynch Mortgage Trust
Series 2004-MKB1 Class A1
3.563%, due 2/12/42 1,027,352 1,028,882
Morgan Stanley Capital I
Series 2003-IQ5 Class A1
3.02%, due 4/15/38 776,553 770,527
Wachovia Bank National Association
Series 2004-C14 Class A1
3.477%, due 8/15/41 (g) 408,298 408,957
------------
Total Mortgage-Backed Securities (Cost $4,305,488) 4,304,991
------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
141
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
MUNICIPAL BOND (0.2%)
- ------------------------------------------------------------------------------
TEXAS (0.2%)
Harris County Texas Industrial Development Corp.
Solid Waste Deer Park
5.683%, due 3/1/23 (g) $ 390,000 $ 397,683
------------
Total Municipal Bond (Cost $390,000) 397,683
------------
U.S. GOVERNMENT & FEDERAL AGENCIES (57.9%)
- ------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (0.5%)
3.625%, due 9/15/08 780,000 788,446
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(MORTGAGE PASS-THROUGH SECURITIES) (9.7%)
3.00%, due 8/1/10 478,047 463,632
V 5.00%, due 8/1/33 (f) 3,050,332 3,049,851
5.00%, due 12/16/19 TBA (c) 2,405,000 2,447,087
5.50%, due 2/1/33 (f) 2,497,306 2,550,626
V 5.50%, due 12/13/34 TBA (c) 7,580,000 7,700,810
------------
16,212,006
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (8.0%)
4.625%, due 5/1/13 670,000 668,810
V 4.75%, due 1/2/07 2,715,000 2,814,374
5.125%, due 1/2/14 550,000 565,099
5.25%, due 8/1/12 1,845,000 1,929,523
V 5.50%, due 5/2/06 2,860,000 2,976,213
6.25%, due 2/1/11 255,000 283,133
V 6.625%, due 9/15/09 2,455,000 2,778,918
7.00%, due 7/15/05 1,175,000 1,213,330
------------
13,229,400
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(COLLATERALIZED MORTGAGE OBLIGATION) (0.5%)
Series 1998-M6 Class A2
6.32%, due 8/15/08 709,150 763,531
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (24.1%)
V 4.50%, due 4/1/18-11/1/18 (f) 7,283,663 7,322,305
5.00%, due 9/1/17 (f) 1,799,497 1,838,858
5.00%, due 12/13/34 TBA (c) 1,655,000 1,644,656
5.50%, due 2/1/17-11/1/33 (f) 6,314,441 6,465,005
V 5.50%, due 11/18/19-12/13/34 TBA (c) 7,450,000 7,693,374
6.00%, due 8/1/17 256,317 269,144
V 6.00%, due 11/15/34-12/13/34 TBA (c) 11,205,000 11,587,907
6.50%, due 6/1/31-6/1/32 (f) 1,101,882 1,160,804
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (CONTINUED)
7.00%, due 2/1/32-4/1/32 (f) $ 1,198,996 $ 1,273,930
7.50%, due 8/1/31 (f) 781,090 837,706
------------
40,093,689
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (2.5%)
6.00%, due 2/15/29-8/15/32 (f) 2,751,691 2,870,397
6.50%, due 7/15/28-5/15/29 315,107 334,209
7.50%, due 12/15/28-8/15/30 (f) 866,823 934,800
------------
4,139,406
------------
UNITED STATES TREASURY BONDS (1.9%)
5.375%, due 2/15/31 830,000 901,490
6.25%, due 8/15/23 810,000 956,812
6.875%, due 8/15/25 1,070,000 1,358,817
------------
3,217,119
------------
UNITED STATES TREASURY NOTES (10.7%)
4.375%, due 5/15/07 825,000 858,676
V 4.625%, due 5/15/06 (d) 5,955,000 6,155,285
V 4.75%, due 5/15/14 6,765,000 7,152,932
4.875%, due 2/15/12 265,000 283,995
5.75%, due 11/15/05- 8/15/10 (d) 2,305,000 2,455,925
6.00%, due 8/15/09 805,000 902,135
------------
17,808,948
------------
Total U.S. Government &
Federal Agencies
(Cost $95,152,982) 96,252,545
------------
YANKEE BONDS (1.2%) (H)
- ------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES (0.4%)
Petroleum Geo-Services ASA
8.00%, due 11/5/06 170,000 172,975
10.00%, due 11/5/10 345,000 393,300
------------
566,275
------------
INSURANCE (0.7%)
Fairfax Financial Holdings Ltd.
7.375%, due 4/15/18 20,000 17,650
7.75%, due 7/15/37 50,000 42,000
8.30%, due 4/15/26 20,000 18,050
Montpelier Re Holdings Ltd.
6.125%, due 8/15/13 1,010,000 1,052,692
------------
1,130,392
------------
MEDIA (0.0%) (B)
Rogers Cablesystem, Ltd.
11.00%, due 12/1/15 25,000 28,250
------------
</Table>
142 MainStay Intermediate Term Bond Fund The notes to the financial
statements are an integral part of, and should be read in conjunction with, the
financial statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
YANKEE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS (0.1%)
Tembec Industries, Inc.
8.625%, due 6/30/09 $ 215,000 $ 218,762
------------
Total Yankee Bonds (Cost $1,853,823) 1,943,679
------------
Total Long-Term Investments (Cost $161,053,263) 164,251,330
------------
SHARES
WARRANTS (0.0%) (B)
- ------------------------------------------------------------------------------
MEDIA (0.0%) (B)
Ono Finance PLC
Strike Price $0.01
Expire 2/15/11 (a) 60 1
Ziff Davis Media, Inc.
Strike Price $0.001
Expire 8/12/12 (a) 1,210 121
------------
Total Warrants
(Cost $2,393) 122
------------
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS (25.3%)
- ------------------------------------------------------------------------------
COMMERCIAL PAPER (24.7%)
AIG Funding, Inc.
1.78%, due 11/2/04 $ 5,000,000 4,999,753
American Express Credit Corp.
1.80%, due 11/18/04 (f) 4,000,000 3,996,599
General Electric Co.
1.78%, due 11/10/04 6,560,000 6,557,080
Harvard University
1.73%, due 11/19/04 (f) 1,690,000 1,688,537
ING Funding LLC
1.78%, due 11/12/04 (f) 6,880,000 6,876,255
International Business Machines Corp.
1.70%, due 11/1/04 1,560,000 1,560,000
Lilly (Eli) & Co.
1.72%, due 11/3/04 (a) 470,000 469,955
Liquid Funding Ltd.
1.8794%, due 12/10/04 (e) 7,605,000 7,589,841
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
COMMERCIAL PAPER (CONTINUED)
Prudential Funding LLC
1.76%, due 11/2/04 $ 245,000 $ 244,988
UBS Finance Delaware LLC
1.84%, due 11/1/04 6,060,000 6,060,000
USAA Capital Corp.
1.75%, due 11/2/04 1,120,000 1,119,946
------------
Total Commercial Paper
(Cost $41,162,954) 41,162,954
------------
<Caption>
SHARES
INVESTMENT COMPANY (0.5%)
AIM Institutional Funds Group (e) 756,500 756,500
------------
Total Investment Company
(Cost $756,500) 756,500
------------
PRINCIPAL
AMOUNT
MASTER NOTE (0.0%) (B)
Bank of America LLC
1.9549%, due 11/1/04 (e) $ 50,000 50,000
------------
Total Master Note
(Cost $50,000) 50,000
------------
REPURCHASE AGREEMENTS (0.1%)
Credit Suisse First Boston LLC
1.9249%, dated 2/9/04
due 11/1/04
Proceeds at Maturity $100,016 (e)
(Collateralized by Various Bonds with a
Principal Amount of $100,280 and a Market Value
of
$102,004) 100,000 100,000
Lehman Brothers, Inc.
1.9249%, dated 4/14/04
due 11/1/04
Proceeds at Maturity $50,008 (e)
(Collateralized by Various Bonds with a
Principal Amount of $99,624 and a Market Value
of $51,571) 50,000 50,000
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
143
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONTINUED)
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (CONTINUED)
Morgan Stanley & Co., Inc.
1.9249%, dated 1/9/04
due 11/1/04
Proceeds at Maturity $50,008 (e)
(Collateralized by Various Bonds with a
Principal Amount of $76,289 and a Market Value
of $52,593) $ 50,000 $ 50,000
------------
Total Repurchase Agreements (Cost $200,000) 200,000
------------
Total Short-Term Investments (Cost $42,169,454) 42,169,454
------------
Total Investments (Cost $203,225,110) (i) 124.0% 206,420,906(j)
Liabilities in Excess of
Cash and Other Assets (24.0) (40,047,542)
----------- ------------
Net Assets 100.0% $166,373,364
=========== ============
</Table>
<Table>
(a) May be sold to institutional investors only.
(b) Less than one tenth of a percent.
(c) 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, 2004 is $31,073,834.
(d) Represents securities out on loan or a portion which is
out on loan.
(e) Represents a security or a portion thereof, purchased
with cash collateral received for securities on loan.
(f) Segregated or partially segregated as collateral for
TBAs.
(g) Floating rate. Rate shown is the rate in effect at
October 31, 2004.
(h) Yankee bond -- dollar-denominated bond issued in the
United States by foreign banks and corporations.
(i) The cost for federal income tax purposes is
$203,239,860.
(j) At October 31, 2004 net unrealized appreciation was
$3,181,046, based on cost for federal income tax
purposes. This consisted of aggregate gross unrealized
appreciation for all investments on which there was an
excess of market value over cost of $3,438,911 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $257,865.
</Table>
144 MainStay Intermediate Term Bond Fund The notes to the financial
statements are an integral part of, and should be read in conjunction with, the
financial statements.
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2004
<Table>
ASSETS:
Investment in securities, at value
(identified cost $203,225,110) including
$8,112,185 market value of securities loaned $206,420,906
Cash 2,836
Receivables:
Investment securities sold 4,377,521
Dividends and interest 1,715,627
Fund shares sold 68,093
Other assets 13,137
------------
Total assets 212,598,120
------------
LIABILITIES:
Securities lending collateral 8,596,341
Payables:
Investment securities purchased 37,034,807
Fund shares redeemed 351,504
Manager 67,281
Transfer agent 20,561
Custodian 8,129
NYLIFE Distributors 4,759
Accrued expenses 58,183
Dividend payable 83,191
------------
Total liabilities 46,224,756
------------
Net assets $166,373,364
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
1 billion shares authorized:
Class A $ 810
Class B 274
Class C 94
Class I 15,463
Additional paid-in capital 172,546,005
Accumulated undistributed net investment
income 113,989
Accumulated net realized loss on investments (9,500,361)
Net unrealized appreciation on investments 3,195,796
Net unrealized appreciation on translation of
other assets and liabilities in foreign
currencies 1,294
------------
Net assets $166,373,364
============
CLASS A
Net assets applicable to outstanding shares $ 8,083,817
============
Shares of capital stock outstanding 810,331
============
Net asset value per share outstanding $ 9.98
Maximum sales charge (4.50% of offering price) 0.47
------------
Maximum offering price per share outstanding $ 10.45
============
CLASS B
Net assets applicable to outstanding shares $ 2,731,976
============
Shares of capital stock outstanding 273,590
============
Net asset value and offering price per share
outstanding $ 9.99
============
CLASS C
Net assets applicable to outstanding shares $ 937,228
============
Shares of capital stock outstanding 93,861
============
Net asset value and offering price per share
outstanding $ 9.99
============
CLASS I
Net assets applicable to outstanding shares $154,620,343
============
Shares of capital stock outstanding 15,462,630
============
Net asset value and offering price per share
outstanding $ 10.00
============
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
145
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2004
<Table>
INVESTMENT INCOME:
INCOME:
Interest $6,732,502
Dividends 51,431
Income from securities loaned -- net 33,183
----------
Total income 6,817,116
----------
EXPENSES:
Manager 1,252,713
Professional 64,559
Custodian 33,824
Registration 30,760
Portfolio pricing 21,129
Transfer agent -- Classes A, B and C 20,806
Transfer agent -- Class I 84,924
Directors 20,290
Shareholder communication 19,274
Service -- Class A 13,825
Service -- Class B 3,617
Service -- Class C 1,244
Service -- Service Class 2,607
Distribution -- Class B 10,851
Distribution -- Class C 3,732
Miscellaneous 23,422
----------
Total expenses before reimbursement 1,607,577
Expense reimbursement from Manager (302,744)
----------
Net expenses 1,304,833
----------
Net investment income 5,512,283
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain from:
Security transactions 1,522,264
Foreign currency transactions 2,287
----------
Net realized gain on investments and foreign
currency transactions 1,524,551
----------
Net change in unrealized appreciation on:
Security transactions 1,143,710
Translation of other assets and liabilities in
foreign currencies 1,294
----------
Net unrealized gain on investments and foreign
currency transactions 1,145,004
----------
Net realized and unrealized gain on investments
and foreign currency transactions 2,669,555
----------
Net increase in net assets resulting from
operations $8,181,838
==========
</Table>
146 MainStay Intermediate Term Bond Fund The notes to the financial
statements are an integral part of, and should be read in conjunction with, the
financial statements.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003
<Table>
<Caption>
2004 2003
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 5,512,283 $ 4,993,706
Net realized gain on investments
and foreign currency transactions 1,524,551 2,529,860
Net change in unrealized
appreciation on investments and
foreign currency transactions 1,145,004 (117,475)
---------------------------
Net increase in net assets
resulting from operations 8,181,838 7,406,091
---------------------------
Dividends to shareholders:
From net investment income:
Class A (172,999) --
Class B (34,439) --
Class C (12,080) --
Class I (5,382,172) (4,956,086)
Service Class (34,690) (216,223)
---------------------------
Total dividends to shareholders (5,636,380) (5,172,309)
---------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 9,342,314 --
Class B 3,085,894 --
Class C 1,131,696 --
Class I 41,460,887 25,071,012
Service Class 122,232 2,413,628
Net asset value of shares issued in
connection with acquisition of
Eclipse Core Bond Plus Fund: 26,793,396 --
Net asset value of shares issued to shareholders
in reinvestment of dividends:
Class A 160,488 --
Class B 26,657 --
Class C 8,931 --
Class I 4,629,462 4,950,953
Service Class 34,517 214,243
---------------------------
86,796,474 32,649,836
Cost of shares redeemed:
Class A (1,514,090) --
Class B (415,152) --
Class C (205,362) --
Class I (53,701,731) (29,935,885)
Service Class (5,930,466) (2,840,675)
---------------------------
(61,766,801) (32,776,560)
---------------------------
Increase (decrease) in net assets
derived from capital share
transactions 25,029,673 (126,724)
---------------------------
Net increase in net assets 27,575,131 2,107,058
</Table>
<Table>
<Caption>
2004 2003
NET ASSETS:
Beginning of year $138,798,233 $136,691,175
---------------------------
End of year $166,373,364 $138,798,233
===========================
Accumulated undistributed net
investment income at end of year $ 113,989 $ 146,030
===========================
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
147
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A CLASS B CLASS C
----------- ----------- -----------
JANUARY 2, JANUARY 2, JANUARY 2,
2004* 2004* 2004*
THROUGH THROUGH THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31,
2004 2004 2004
Net asset value at beginning of period $ 9.86 $ 9.86 $ 9.86
------ ------ ------
Net investment income 0.25 0.19 0.19
Net realized and unrealized gain (loss) on
investments 0.12 0.13 0.13
------ ------ ------
Total from investment operations 0.37 0.32 0.32
------ ------ ------
Less dividends:
From net investment income (0.25) (0.19) (0.19)
------ ------ ------
Net asset value at end of period $ 9.98 $ 9.99 $ 9.99
====== ====== ======
Total investment return (b) 3.79%(c) 3.25%(c) 3.25%(c)
Ratios (to average net
assets)/Supplemental Data:
Net investment income 2.89%+ 2.14%+ 2.14%+
Net expenses 1.19%+ 1.94%+ 1.94%+
Expenses (before reimbursement) 1.37%+ 2.12%+ 2.12%+
Portfolio turnover rate 193% 193% 193%
Net assets at end of period (in 000's) $8,084 $2,732 $ 937
</Table>
<Table>
* Commencement of Operations.
+ Annualized.
(a) Less than one cent per share.
(b) Total return is calculated exclusive of sales charges. Class
I is not subject to sales charges.
(c) Total return is not annualized.
(d) Per share data based on average shares outstanding during
the period.
(e) As required, effective November 1, 2000, the Fund has
adopted the provisions of the AICPA Audit and Accounting
Guide for Investment Companies and began amortizing premium
on debt securities. The effect of this change for the year
ended October 31, 2001 is shown below. Per share ratios and
supplemental data for periods prior to November 1, 2000 have
not been restated to reflect this change in presentation.
</Table>
<Table>
<Caption>
CLASS I
-------
Decrease net investment income ($0.02)
Increase net realized and unrealized gains and losses 0.02
Decrease ratio of net investment income (0.21%)
</Table>
148 MainStay Intermediate Term Bond Fund The notes to the financial
statements are an integral part of, and should be read in conjunction with, the
financial statements.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS I
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2004 2003 2002 2001 2000
$ 9.83 $ 9.66 $ 10.32 $ 9.75 $ 9.75
-------- -------- -------- -------- --------
0.34 0.36(d) 0.45(d) 0.55(d)(e) 0.57
0.17 0.18 (0.30) 0.76(e) (0.01)
-------- -------- -------- -------- --------
0.51 0.54 0.15 1.31 0.56
-------- -------- -------- -------- --------
(0.34) (0.37) (0.81) (0.74) (0.56)
-------- -------- -------- -------- --------
$ 10.00 $ 9.83 $ 9.66 $ 10.32 $ 9.75
======== ======== ======== ======== ========
5.30% 5.69% 1.73% 14.06% 6.21%
3.33% 3.66% 4.62% 5.53%(e) 6.05%
0.75% 0.75% 0.75% 0.75% 0.75%
0.93% 0.90% 0.91% 0.88% 0.83%
193% 153% 159% 257% 361%
$154,620 $133,041 $130,813 $116,344 $193,466
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
149
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
SERVICE CLASS++
-----------------------------------------------------------------------------------------------
NOVEMBER 1,
2003
THROUGH
JANUARY 9, YEAR ENDED OCTOBER 31,
2004 2003 2002 2001 2000
Net asset value at beginning
of period $ 9.81 $ 9.64 $10.28 $ 9.70 $ 9.69
------ ------ ------ ------ ------
Net investment income 0.05 0.34(d) 0.42(d) 0.53(d)(e) 0.55
Net realized and unrealized
gain (loss) on investments 0.17 0.18 (0.28) 0.76(e) (0.01)
------ ------ ------ ------ ------
Total from investment
operations 0.22 0.52 0.14 1.29 0.54
------ ------ ------ ------ ------
Less dividends:
From net investment income (0.06) (0.35) (0.78) (0.71) (0.53)
------ ------ ------ ------ ------
Net asset value at end of
period $ 9.97 $ 9.81 $ 9.64 $10.28 $ 9.70
====== ====== ====== ====== ======
Total investment return (b) 2.24%(c) 5.43% 1.57% 13.87% 5.96%
Ratios (to average net
assets)/Supplemental Data:
Net investment income 3.22%+ 3.41% 4.37% 5.28%(e) 5.80%
Net expenses 1.00%+ 1.00% 1.00% 1.00% 1.00%
Expenses (before
reimbursement) 1.15%+ 1.15% 1.16% 1.13% 1.08%
Portfolio turnover rate 35% 153% 159% 257% 361%
Net assets at end of period
(in 000's) $ 0 $5,757 $5,879 $4,981 $3,181
<Caption>
SERVICE CLASS++
----------------------------------
JANUARY 1,
THROUGH YEAR ENDED
OCTOBER 31, DECEMBER 31,
1999* 1998
Net asset value at beginning
of period $ 9.88 $ 9.68
------ ------
Net investment income 0.47 0.54
Net realized and unrealized
gain (loss) on investments (0.66) 0.20
------ ------
Total from investment
operations (0.19) 0.74
------ ------
Less dividends:
From net investment income (0.00)(a) (0.54)
------ ------
Net asset value at end of
period $ 9.69 $ 9.88
====== ======
Total investment return (b) (1.92%)(c) 7.73%
Ratios (to average net
assets)/Supplemental Data:
Net investment income 5.30%+ 5.32%
Net expenses 1.00%+ 1.00%
Expenses (before
reimbursement) 1.10%+ 1.11%
Portfolio turnover rate 245% 335%
Net assets at end of period
(in 000's) $3,742 $4,290
</Table>
<Table>
* The Fund changed its fiscal year end from December 31 to
October 31.
+ Annualized.
++ Service Class ceased operations on January 9, 2004.
(a) Less than one cent per share.
(b) Total return is calculated exclusive of sales charges.
Service Class is not subject to sales charges.
(c) Total return is not annualized.
(d) Per share data based on average shares outstanding during
the period.
(e) As required, effective November 1, 2000, the Fund has
adopted the provisions of the AICPA Audit and Accounting
Guide for Investment Companies and began amortizing premium
on debt securities. The effect of this change for the year
ended October 31, 2001 is shown below. Per share ratios and
supplemental data for periods prior to November 1, 2000 have
not been restated to reflect this change in presentation.
</Table>
<Table>
<Caption>
SERVICE
CLASS
-------
Decrease net investment income ($0.02)
Increase net realized and unrealized gains and losses 0.02
Decrease ratio of net investment income (0.21%)
</Table>
150 MainStay Intermediate Term Bond Fund The notes to the financial
statements are an integral part of, and should be read in conjunction with, the
financial statements.
MAINSTAY SHORT TERM BOND FUND INVESTMENT AND PERFORMANCE COMPARISON
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY, CURRENT PERFORMANCE MAY
BE LESS OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. FOR CURRENT TO THE MOST RECENT MONTH-END PERFORMANCE
INFORMATION, PLEASE CONTACT 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM.
CLASS A SHARES -- MAXIMUM 3% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges -1.96% 3.70% 4.65%
Excluding sales charges 1.07 4.33 4.97
</Table>
<Table>
<Caption>
MAINSTAY SHORT TERM BOND CITIGROUP 1-3 YEAR TREASURY
FUND INDEX
------------------------ ---------------------------
10/31/94 9700 10000
10484 10875
11043 11528
11685 12270
12466 13216
12746 13609
13485 14433
14892 15996
15331 16782
15591 17117
10/31/04 15758 17412
</Table>
<Table>
-- MainStay Short Term Bond Fund -- Citigroup 1-3 Year Treasury Index
</Table>
CLASS I SHARES -- NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
1.50% 4.62% 5.23%
</Table>
<Table>
<Caption>
MAINSTAY SHORT TERM BOND CITIGROUP 1-3 YEAR TREASURY
FUND INDEX
------------------------ ---------------------------
10/31/94 10000 10000
10834 10875
11440 11528
12133 12270
12962 13216
13287 13609
14091 14433
15596 15996
16096 16782
16409 17117
10/31/04 16655 17412
</Table>
<Table>
-- MainStay Short Term Bond Fund -- Citigroup 1-3 Year Treasury Index
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
Citigroup 1-3 Year Treasury Index(1) 1.72% 5.05% 5.70%
Average Lipper short U.S. government
fund(2) 1.31 4.43 5.09
</Table>
Performance tables and graphs do not reflect the deduction of taxes that a
shareholder would pay on distributions or Fund-share redemptions. Total returns
reflect change in share price, reinvestment of dividend and capital-gain
distributions, and maximum applicable sales charges explained in this paragraph.
The graphs assume an initial investment of $10,000 and reflect the deduction of
all sales charges that would have applied for the period of investment. Class A
shares are sold with a maximum initial sales charge of 3% and an annual 12b-1
fee of .25%. Class I shares are sold with no initial sales charge or CDSC, have
no annual 12b-1 fee, and are generally available to corporate and institutional
investors with a minimum initial investment of $5 million. Performance figures
reflect certain fee waivers and/or expense limitations, without which total
returns may have been lower. The fee waivers and/or expense limitations are
voluntary and may be discontinued at any time. Performance for Class A shares,
first offered 1/2/04, includes the historical performance of Class I shares from
inception (1/2/91) through 12/31/03 adjusted to reflect the applicable sales
charge and fees and expenses for Class A shares.
1. The Citigroup 1-3 Year Treasury Index is an unmanaged index comprised of U.S.
Treasury notes and bonds with maturities of one year or greater, but less
than three years (minimum amount outstanding is $1 billion per issue).
Results assume reinvestment of all income and capital gains. The Citigroup
1-3 Year Treasury Index is considered to be the Fund's broad-based
securities-market index for comparison purposes. An investment cannot be made
directly into an index.
2. Lipper Inc. is an independent fund performance monitor. Results are based on
total returns with all dividend and capital-gain distributions reinvested.
www.mainstayfunds.com 151
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY SHORT TERM BOND FUND
Expenses shown in the table are meant to highlight your ongoing costs only and
do not reflect any transactional costs, such as sales charges (loads),
redemption fees, or exchange fees. Therefore, the third data column of the table
is 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 had been included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT ENDING ACCOUNT
VALUE (BASED VALUE (BASED
BEGINNING ON ACTUAL EXPENSES ON HYPOTHETICAL EXPENSES
ACCOUNT RETURNS AND PAID 5% ANNUALIZED PAID
VALUE EXPENSES) DURING RETURN AND DURING
SHARE CLASS(1) 5/1/04 10/31/04 PERIOD ACTUAL EXPENSES) PERIOD
CLASS A SHARES $1,000.00 $1,007.50 $5.05 $1,020.00 $5.08
- ------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,010.50 $3.03 $1,022.00 $3.05
- ------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio multiplied by the
average account value over the period, divided by 366, multiplied by 184 (to
reflect the one-half year period).
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2004
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
U.S. Government & Federal Agencies 71.9
Short-Term Investments (collateral from securities lending 20.1
is 19.8%)
Corporate Bonds 16.1
Asset-Backed Securities 2.2
Foreign Corporate Bonds 1.5
Liabilities in Excess of Cash and Other Assets -18.0
Mortgage-Backed Securities 6.2
</Table>
See Portfolio of Investments on page 155 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2004 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. United States Treasury Note 3.50%, due 11/15/06
2. United States Treasury Note 4.625%, due 5/15/06
3. Federal National Mortgage Association 2.50%,
due 6/15/06
4. United States Treasury Note 5.75%, due 11/15/05
5. Federal National Mortgage Association 5.50%,
due 5/2/06
6. Federal National Mortgage Association 1.75%,
due 6/16/06
7. Federal National Mortgage Association 3.125%,
due 12/15/07
8. Federal Home Loan Mortgage Corporation Series 3
2.15%, due 2/17/06
9. United States Treasury Note 3.00%, due 11/15/07
10. Household Finance Corp. 6.50%, due 1/24/06
</Table>
152 MainStay Short Term Bond Fund
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio managers Claude Athaide, Ph.D., CFA, and Gary
Goodenough of MacKay Shields LLC
CAN YOU BRIEFLY DESCRIBE THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 80% of its assets in an actively managed,
diversified portfolio of fixed-income securities. Normally, the Fund will have a
dollar-weighted average maturity of three years or less. In implementing this
strategy, we continually review yields and other information derived from
databases that we maintain to manage fixed-income portfolios. Fundamental
economic cycle analysis, credit quality, and interest rate trends are the
principal factors that we consider in determining whether to increase or
decrease the investment emphasis placed on a particular type of security or
industry sector within the Fund's portfolio.
WHAT ECONOMIC FORCES WERE AT WORK DURING THE REPORTING PERIOD?
The Commerce Department estimated that the U.S. economy grew at a 3.9%
annualized rate during the four quarters ended September 30, 2004. Personal
consumption grew at a 3.5% pace during this period, while business fixed
investment grew at a 9.8% rate. Following the recession in 2001, the first two
years of the economic recovery were characterized by lackluster employment
gains. During March, April, and May of 2004, however, U.S. payrolls expanded
strongly, adding a total of nearly 900,000 jobs. In the next few months,
employment growth moderated. The most recent employment report showed that
337,000 new jobs were created in October 2004, and figures for jobs created
during August and September were revised upward. In all, payrolls have increased
by more than two million during the 12 months ended October 31, 2004.
HOW DID THE EXPANDING ECONOMY AFFECT INTEREST RATES?
During the spring of 2004, markets were surprised by higher-than-expected
inflation. This, combined with an improving employment picture, caused interest
rates to move sharply higher. From late March 2004 through June 2004, two-year
Treasury-note yields rose from 1.46% to 2.93%. During the summer, yields
declined as job growth slowed and inflation concerns were reduced. On October
31, 2004, two-year Treasury notes yielded 2.56%. The yield curve flattened
substantially during the 12-month reporting period. The difference between
yields on the two-year and 10-year Treasury note declined from 247 basis points
at the end of October 2003 to 147 basis points at the end of October 2004. (A
basis point is 1/100th of one percent.)
WHAT WAS THE FEDERAL RESERVE'S RESPONSE TO THE ECONOMY?
The Federal Open Market Committee raised the targeted federal funds rate in
June, August, and September of 2004--by 25 basis points each time. These three
rate hikes brought the targeted federal funds rate from 1.00% to 1.75%.
HOW DID THE FUND INVEST DURING THE REPORTING PERIOD?
The Fund was positioned to benefit from a flattening yield curve during the
reporting period. In fact, the difference between one-year and five-year
constant-maturity Treasury rates declined from 196 basis points to 102 basis
points during the Fund's fiscal year.
Corporate spreads(1) were relatively stable to somewhat tighter over the 12
months ended October 31, 2004. Yield spreads on agency securities were mostly
unchanged for the reporting period. In September of 2004, spreads on bonds
issued by Fannie Mae widened after its regulator, the Office of Federal Housing
Enterprise Oversight, issued a report charging that Fannie Mae improperly
accounted for several types of transactions. We raised the Fund's exposure to
agencies from 30% to 36.8% following this event. Spreads subsequently returned
to levels that were in effect before the release of the report.
We believe that corporate bonds have performed very well over the last two
years. At the end of October 2004, spreads were at very tight levels and we have
started to reduce the Fund's exposure to the sector. During the last three
months of the reporting period, we increased the Fund's holdings in commercial
mortgage-backed securities with an average remaining maturity of two to three
years. The Fund's exposure to this sector was approximately 6.8% on October 31,
2004.
The Fund may invest in derivatives, which may increase the volatility of the
Fund's net asset value and may result in a loss to the Fund. Funds that invest
in bonds are subject to credit, inflation, and interest-rate risk and can lose
principal value when interest rates rise.
1. The terms "spread" and "yield spread" refer to the difference in yield
between a specific security or type of security and comparable U.S. Treasury
issues.
www.mainstayfunds.com 153
WHAT DO YOU ANTICIPATE GOING FORWARD?
Consumer spending grew at 4.6% in the third quarter of 2004, while the personal
savings rate declined to 0.4%. We do not believe that these trends are
sustainable. Consumers received substantial stimulus from tax cuts and mortgage
refinancings earlier in the year, but we are unlikely to see additional support
from these sources. For consumer spending to remain at current levels, we will
either need strong employment growth, higher consumer debt, or further
deterioration in savings. In our opinion, personal spending is unlikely to grow
faster than wages in the next few quarters.
If the Federal Open Market Committee continues to tighten interest rates, we
believe that the yield curve may flatten further. We have positioned the
portfolio to benefit from such a move. The Fund continues to maintain an
overweighted position relative to its benchmark in agency securities. With
regulators requiring Freddie Mac and Fannie Mae to maintain a 30% capital
surplus target both companies have been slowing the growth rate of their
mortgage portfolios and have been issuing fewer bonds.
Whatever the markets or the economy may bring, the Fund will continue to seek to
maximize total return consistent with liquidity, preservation of capital, and
investments in short-term debt securities.
The opinions expressed are those of the portfolio managers as of the date of
this report and are subject to change. There is no guarantee that any forecasts
made will come to pass. This material does not constitute investment advice and
is not intended as an endorsement of any specific investment.
INFORMATION ABOUT MAINSTAY SHORT TERM BOND FUND ON THIS PAGE AND THE PRECEDING
PAGES HAS NOT BEEN AUDITED.
154 MainStay Short Term Bond Fund
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
LONG-TERM BONDS (97.9%)+
ASSET-BACKED SECURITIES (2.2%)
- ------------------------------------------------------------------------------
CONSUMER FINANCE (0.9%)
BMW Vehicle Owner Trust
Series 2003-A Class A3
1.94%, due 2/25/07 $ 160,477 $ 160,085
Harley-Davidson Motorcycle Trust
Series 2002-1 Class A2
4.50%, due 1/15/10 455,229 463,912
Volkswagen Auto Loan
Enhanced Trust
Series 2003-2 Class A3
2.27%, due 10/22/07 310,000 308,812
------------
932,809
------------
CONSUMER LOANS (1.0%)
Atlantic City Electric Transition Funding LLC
Series 2002-1 Class A1
2.89%, due 7/20/08 1,000,361 999,070
------------
DIVERSIFIED FINANCIAL SERVICES (0.1%)
Capital One Master Trust
Series 2001-5 Class A
5.30%, due 6/15/09 110,000 114,606
------------
THRIFTS & MORTGAGE FINANCE (0.2%)
Vanderbilt Mortgage Finance
Series 1999-B Class 1A4
6.545%, due 4/7/18 184,485 188,440
------------
Total Asset-Backed Securities
(Cost $2,238,340) 2,234,925
------------
CORPORATE BONDS (16.1%)
- ------------------------------------------------------------------------------
AEROSPACE & DEFENSE (1.0%)
Honeywell International, Inc.
6.875%, due 10/3/05 1,000,000 1,036,820
------------
BEVERAGES (0.6%)
Coca-Cola Co. (The)
4.00%, due 6/1/05 630,000 635,150
------------
COMMERCIAL BANKS (0.3%)
Banco Nacional de Comercio Exterior S.N.C.
11.25%, due 5/30/06 (a)(c) 263,000 297,847
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CONSUMER FINANCE (4.4%)
VHousehold Finance Corp.
6.50%, due 1/24/06 $ 2,530,000 $ 2,644,500
SLM Corp.
3.50%, due 9/30/06 1,790,000 1,817,983
------------
4,462,483
------------
DIVERSIFIED TELECOMMUNICATION SERVICES (0.5%)
BellSouth Telecommunications, Inc.
6.50%, due 6/15/05 470,000 481,821
------------
ELECTRIC UTILITIES (0.6%)
Alabama Power Co.
2.65%, due 2/15/06 625,000 624,861
------------
ELECTRICAL EQUIPMENT (0.3%)
Emerson Electric Co.
7.875%, due 6/1/05 300,000 309,585
------------
FOOD & STAPLES RETAILING (0.8%)
Wal-Mart Stores, Inc.
5.45%, due 8/1/06 750,000 784,591
------------
FOOD PRODUCTS (1.3%)
Cargill, Inc.
6.25%, due 5/1/06 (a) 1,210,000 1,271,751
------------
HEALTH CARE PROVIDERS & SERVICES (2.0%)
Quest Diagnostics, Inc.
6.75%, due 7/12/06 1,860,000 1,972,329
------------
INSURANCE (1.5%)
Marsh & McLennan Cos., Inc.
5.375%, due 3/15/07 1,430,000 1,462,081
------------
MULTI-UTILITIES & UNREGULATED POWER (1.3%)
PSE&G Power LLC
6.875%, due 4/15/06 200,000 210,696
</Table>
<Table>
+ Percentages indicated are based on Fund net assets.
V Among the Fund's 10 largest holdings, excluding short-term investments. May
be subject to change daily.
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
155
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER (CONTINUED)
Public Service Electric & Gas Co.
Series WW
6.25%, due 1/1/07 $ 1,065,000 $ 1,132,502
------------
1,343,198
------------
PHARMACEUTICALS (1.5%)
Abbott Laboratories
3.50%, due 2/17/09 535,000 532,871
Merck & Co., Inc.
Series E
4.125%, due 1/18/05 1,000,000 1,003,826
------------
1,536,697
------------
Total Corporate Bonds
(Cost $16,210,099) 16,219,214
------------
FOREIGN CORPORATE BONDS (1.5%)
- ------------------------------------------------------------------------------
COMMERCIAL BANKS (1.0%)
Landwirtschaftliche Rentenbank
4.50%, due 10/23/06 1,000,000 1,032,566
------------
DIVERSIFIED TELECOMMUNICATION SERVICES (0.2%)
Telefonos de Mexico S.A. de C.V.
8.25%, due 1/26/06 200,000 212,650
------------
TRANSPORTATION INFRASTRUCTURE (0.3%)
PSA Corp. Ltd.
7.125%, due 8/1/05 (a) 300,000 309,265
------------
Total Foreign Corporate Bonds
(Cost $1,559,289) 1,554,481
------------
MORTGAGE-BACKED SECURITIES (6.2%)
- ------------------------------------------------------------------------------
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE OBLIGATIONS) (6.2%)
Banc of America Commercial Mortgage, Inc.
Series 2001-PB1 Class A1
4.907%, due 5/11/35 641,190 662,414
JP Morgan Chase Commercial Mortgage Securities
Corp.
Series 2004-CB9 Series A1
3.475%, due 6/12/41 1,626,922 1,625,763
LB-UBS Commercial Mortgage Trust
Series 2004-C7 Class A1
3.625%, due 10/15/29 725,000 729,060
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE OBLIGATIONS) (CONTINUED)
Merrill Lynch Mortgage Trust
Series 2004-MKB1 Class A1
3.563%, due 2/12/42 $ 1,512,491 $ 1,514,743
Morgan Stanley Capital I
Series 2003-IQ5 Class A1
3.02%, due 4/15/38 512,195 508,220
Wachovia Bank National Association
Series 2004-C14 Class A1
3.477%, due 8/15/41 (b) 1,142,263 1,144,106
------------
Total Mortgage-Backed Securities
(Cost $6,185,487) 6,184,306
------------
U.S. GOVERNMENT & FEDERAL AGENCIES (71.9%)
- ------------------------------------------------------------------------------
FEDERAL FARM CREDIT BANK (2.5%)
2.125%, due 8/15/05 1,000,000 998,264
2.25%, due 9/1/06 500,000 495,619
3.875%, due 12/15/04 1,000,000 1,002,201
------------
2,496,084
------------
FEDERAL HOME LOAN BANK (1.2%)
Series 392
2.50%, due 3/15/06 750,000 749,262
Series 2704
4.125%, due 11/15/04 500,000 500,393
------------
1,249,655
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (4.8%)
Series 3
V 2.15%, due 2/17/06 3,080,000 3,064,545
2.50%, due 12/4/06 1,735,000 1,723,311
------------
4,787,856
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(COLLATERALIZED MORTGAGE OBLIGATION) (0.1%)
Series 1364 Class K
5.00%, due 9/15/07 134,044 135,369
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(MORTGAGE-PASS THROUGH SECURITY) (0.1%)
5.00%, due 1/1/07 75,559 77,436
------------
</Table>
156 MainStay Short Term Bond Fund The notes to the financial statements are
an integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
U.S. GOVERNMENT & FEDERAL AGENCIES (CONTINUED)
- ------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (26.8%)
V 1.75%, due 6/16/06 $ 5,961,000 $ 5,875,794
V 2.50%, due 6/15/06 9,885,000 9,860,999
V 3.125%, due 12/15/07 4,100,000 4,099,717
3.15%, due 5/28/08 330,000 328,758
3.25%, due 11/15/07 400,000 401,800
V 5.50%, due 5/2/06 6,100,000 6,347,867
------------
26,914,935
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(COLLATERALIZED MORTGAGE OBLIGATION) (0.5%)
Series 1998-M6 Class A2
6.32%, due 8/15/08 469,697 505,715
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITY) (1.0%)
4.50%, due 11/1/18 832,732 837,150
7.50%, due 4/1/31 144,503 155,433
------------
992,583
------------
OVERSEAS PRIVATE INVESTMENT CORPORATION (1.5%)
3.74%, due 4/15/15 1,532,723 1,529,274
------------
UNITED STATES TREASURY NOTES (33.4%)
V 3.00%, due 11/15/07 (c) 2,860,000 2,874,746
V 3.50%, due 11/15/06 (c) 11,650,000 11,864,337
4.375%, due 5/15/07 540,000 562,043
V 4.625%, due 5/15/06 (c) 11,325,000 11,705,894
V 5.75%, due 11/15/05 (c) 6,360,000 6,587,319
------------
33,594,339
------------
Total U.S. Government &
Federal Agencies
(Cost $72,445,495) 72,283,246
------------
Total Long-Term Bonds
(Cost $98,638,710) 98,476,172
------------
SHORT-TERM INVESTMENTS (20.1%)
- ------------------------------------------------------------------------------
COMMERCIAL PAPER (6.6%)
Laguna CDO Corp.
1.98%, due 11/5/04 (d) 2,000,000 1,999,567
Liquid Funding Ltd.
1.88%, due 12/10/04 (d) 4,350,000 4,341,329
UBS Finance Delaware LLC
1.02%, due 11/1/04 265,000 265,000
------------
Total Commercial Paper
(Cost $6,605,896) 6,605,896
------------
SHARES VALUE
INVESTMENT COMPANY (1.4%)
AIM Institutional Funds Group (d) 1,436,811 $ 1,436,811
------------
Total Investment Company
(Cost $1,436,811) 1,436,811
------------
PRINCIPAL
AMOUNT
MASTER NOTE (4.9%)
Banc of America Securities LLC
1.9549%, due 11/1/04 (d) $ 4,900,000 4,900,000
------------
Total Master Note
(Cost $4,900,000) 4,900,000
------------
REPURCHASE AGREEMENTS (7.2%)
Credit Suisse First Boston LLC
1.9249%, dated 10/29/04
due 11/1/04
Proceeds at Maturity
$4,250,682 (d)
(Collateralized by Various Bonds
with a Principal Amount of
$4,261,888 and a Market Value
of $4,335,154) 4,250,000 4,250,000
Lehman Brothers, Inc.
1.9249%, dated 10/29/04
due 11/1/04
Proceeds at Maturity
$1,500,241 (d)
(Collateralized by Various Bonds
with a Principal Amount of
$2,988,714 and a Market Value
of $1,547,119) 1,500,000 1,500,000
Merrill Lynch Pierce Fenner & Smith, Inc.
1.9549%, dated 10/29/04
due 11/1/04
Proceeds at Maturity $510,083 (d)
(Collateralized by Various Bonds
with a Principal Amount of
$504,342 and a Market Value
of $535,518) 510,000 510,000
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
157
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONTINUED)
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (CONTINUED)
Morgan Stanley & Co., Inc.
1.9249%, dated 10/29/04
due 11/1/04
Proceeds at Maturity $1,000,160 (d)
(Collateralized by Various Bonds
with a Principal Amount of
$1,525,781 and a Market Value
of $1,051,866) $ 1,000,000 $ 1,000,000
------------
Total Repurchase Agreements (Cost $7,260,000) 7,260,000
------------
Total Short-Term Investments
(Cost $20,202,707) 20,202,707
------------
Total Investments
(Cost $118,841,417) (e) 118.0% 118,678,879(f)
Liabilities in Excess of
Cash and Other Assets (18.0) (18,085,062)
----------- ------------
Net Assets 100.0% $100,593,817
=========== ============
</Table>
<Table>
(a) May be sold to institutional investors only.
(b) Floating rate. Rate shown is the rate in effect at
October 31, 2004.
(c) Represents securities out on loan or a portion which is
out on loan.
(d) Represents a security or a portion thereof, purchased
with cash collateral received for securities on loan.
(e) The cost for federal income tax purposes is
$118,867,787.
(f) At October 31, 2004 net unrealized depreciation was
$188,908, based on cost for federal income tax purposes.
This consisted of aggregate gross unrealized
appreciation for all investments on which there was an
excess of market value over cost of $81,091 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $269,999.
</Table>
158 MainStay Short Term Bond Fund The notes to the financial statements are
an integral part of, and should be read in conjunction with, the financial
statements.
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2004
<Table>
ASSETS:
Investment in securities, at value (identified
cost $118,841,417) including $19,151,256
market value of securities loaned $118,678,879
Cash 172
Receivables:
Investment securities sold 2,560,211
Interest 1,306,425
Fund shares sold 85,080
Other assets 10,220
------------
Total assets 122,640,987
------------
LIABILITIES:
Securities lending collateral 19,937,707
Payables:
Investment securities purchased 1,238,893
Fund shares redeemed 684,742
Manager 33,866
Transfer agent 7,198
Custodian 4,032
NYLIFE Distributors 1,088
Accrued expenses 49,004
Dividend payable 90,640
------------
Total liabilities 22,047,170
------------
Net assets $100,593,817
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
500 million shares authorized:
Class A $ 562
Class I 10,301
Additional paid-in capital 102,938,153
Accumulated distribution in excess of net
investment income (90,640)
Accumulated net realized loss on investments (2,102,021)
Net unrealized depreciation on investments (162,538)
------------
Net assets $100,593,817
============
CLASS A
Net assets applicable to outstanding shares $ 5,192,157
============
Shares of capital stock outstanding 561,873
============
Net asset value per share outstanding $ 9.24
Maximum sales charge (3.00% of offering price) 0.29
------------
Maximum offering price per share outstanding $ 9.53
============
CLASS I
Net assets applicable to outstanding shares $ 95,401,660
============
Shares of capital stock outstanding 10,301,072
============
Net asset value and offering price per share
outstanding $ 9.26
============
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
159
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2004
<Table>
INVESTMENT INCOME:
INCOME:
Interest $2,416,125
Income from securities loaned -- net 39,011
----------
Total income 2,455,136
----------
EXPENSES:
Manager 605,154
Professional 47,957
Registration 25,823
Custodian 19,362
Service -- Class A 14,684
Service -- Service Class 294
Directors 13,960
Shareholder communication 13,460
Transfer agent -- Class A 10,904
Transfer agent -- Class I 29,223
Portfolio pricing 10,042
Miscellaneous 19,786
----------
Total expenses before reimbursement 810,649
Expense reimbursement from Manager (181,458)
----------
Net expenses 629,191
----------
Net investment income 1,825,945
----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments (308,327)
Net change in unrealized appreciation on
investments (301,216)
----------
Net realized and unrealized loss on investments (609,543)
----------
Net increase in net assets resulting from
operations $1,216,402
==========
</Table>
160 MainStay Short Term Bond Fund The notes to the financial statements are
an integral part of, and should be read in conjunction with, the financial
statements.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003
<Table>
<Caption>
2004 2003
INCREASE (DECREASE)
IN NET ASSETS:
Operations:
Net investment income $ 1,825,945 $ 749,725
Net realized gain (loss) on
investments (308,327) 502,623
Net change in unrealized
appreciation (depreciation) on
investments (301,216) (521,961)
---------------------------
Net increase in net assets resulting
from operations 1,216,402 730,387
---------------------------
Dividends and distributions to shareholders:
From net investment income:
Class A (99,114) --
Class I (1,827,034) (759,656)
Service Class (1,630) (11,669)
Taxable distributions in excess of net investment
income:
Class I -- (62,926)
Service Class -- (967)
Return of capital:
Class A (4,736) --
Class I (87,299) --
Service Class (78) --
---------------------------
Total dividends and distributions to
shareholders (2,019,891) (835,218)
---------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 20,321,429 --
Class I 18,601,113 16,685,453
Service Class 17,020 244,951
Net asset value of shares issued in connection
with acquisition of Eclipse Ultra Short Duration
Fund:
Class I 74,520,760 --
Service Class 218,328 --
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions:
Class A 90,912 --
Class I 929,769 821,284
Service Class 1,608 12,636
---------------------------
114,700,939 17,764,324
Cost of shares redeemed:
Class A (15,105,952) --
Class I (33,490,788) (19,072,157)
Service Class (780,868) (447,045)
---------------------------
(49,377,608) (19,519,202)
---------------------------
Increase (decrease) in net assets
derived from capital share
transactions 65,323,331 (1,754,878)
---------------------------
Net increase (decrease) in net
assets 64,519,842 (1,859,709)
NET ASSETS:
Beginning of year 36,073,975 37,933,684
---------------------------
End of year $100,593,817 $ 36,073,975
===========================
Accumulated distribution in excess of
net investment income at end of year $ (90,640) $ (89)
===========================
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
161
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A CLASS I
----------- -------------------------------------------------------
JANUARY 2,
2004*
THROUGH
OCTOBER 31, YEAR ENDED OCTOBER 31,
2004 2004 2003 2002 2001 2000
Net asset value at beginning of period $ 9.32 $ 9.31 $ 9.34 $ 9.57 $ 9.36 $ 9.63
------ ------- ------- ------- ------- -------
Net investment income 0.06 0.17 0.19 0.29(a) 0.47(f) 0.57(a)
Net realized and unrealized gain (loss) on investments (0.01) (0.03) (0.01) 0.00(e) 0.48(f) (0.03)
------ ------- ------- ------- ------- -------
Total from investment operations 0.05 0.14 0.18 0.29 0.95 0.54
------ ------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income (0.12) (0.18) (0.21) (0.52) (0.74) (0.81)
Return of capital (0.01) (0.01) -- -- -- --
------ ------- ------- ------- ------- -------
Total dividends and distributions (0.13) (0.19) (0.21) (0.52) (0.74) (0.81)
------ ------- ------- ------- ------- -------
Net asset value at end of period $ 9.24 $ 9.26 $ 9.31 $ 9.34 $ 9.57 $ 9.36
====== ======= ======= ======= ======= =======
Total investment return (b) 0.57%(c) 1.50% 1.94% 3.21% 10.68% 6.05%
Ratios (to average net assets)/Supplemental Data:
Net investment income 1.43%+ 1.83% 2.02% 3.13% 4.93%(f) 6.20%
Net expenses 1.00%+ 0.60% 0.60% 0.60% 0.60% 0.61%(d)
Expenses (before reimbursement) 1.18%+ 0.78% 0.98% 0.96% 1.03% 0.99%
Portfolio turnover rate 151% 151% 173% 228% 149% 165%
Net assets at end of period (in 000's) $5,192 $95,402 $35,532 $37,201 $30,065 $31,146
</Table>
<Table>
* Commencement of Operations.
** The Fund changed its fiscal year end from December 31 to
October 31.
+ Annualized.
++ Service Class shares ceased operations on January 9, 2004.
(a) Per share data based on average shares outstanding during
the period.
(b) Total return is calculated exclusive of sales charges. Class
I and Service Class are not subject to sales charges.
(c) Total return is not annualized.
(d) The effect of non-reimbursable interest expense on the
expense ratio was 0.01%.
(e) Less than one cent per share.
(f) As required, effective November 1, 2000, the Fund has
adopted the provisions of the AICPA Audit and Accounting
Guide for Investment Companies and began amortizing premium
on debt securities. The effect of this change for the year
ended October 31, 2001 is shown below. Per share ratios and
supplemental data for periods prior to November 1, 2000 have
not been restated to reflect this change in presentation.
</Table>
<Table>
<Caption>
SERVICE
CLASS I CLASS
------- -------
Decrease net investment income ($0.12) ($0.11)
Increase net realized and unrealized gains and losses 0.12 0.11
Decrease ratio of net investment income (1.26%) (1.20%)
</Table>
162 MainStay Short Term Bond Fund The notes to the financial statements are
an integral part of, and should be read in conjunction with, the financial
statements.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
SERVICE CLASS++
- -----------------------------------------------------------------------------------------------------------------------------------
NOVEMBER 1,
2003 JANUARY 1,
THROUGH THROUGH YEAR ENDED
JANUARY 9, YEAR ENDED OCTOBER 31, OCTOBER 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999** 1998
$ 9.29 $ 9.32 $ 9.54 $ 9.32 $ 9.59 $ 9.41 $ 9.38
------ ------ ------ ------ ------ ------ ------
0.03 0.16 0.27(a) 0.45(f) 0.54(a) 0.45 0.53
0.06 (0.00)(e) 0.00(e) 0.48(f) (0.03) (0.27) 0.03
------ ------ ------ ------ ------ ------ ------
0.09 0.16 0.27 0.93 0.51 0.18 0.56
------ ------ ------ ------ ------ ------ ------
(0.03) (0.19) (0.49) (0.71) (0.78) -- (0.53)
(0.00)(e) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
(0.03) (0.19) (0.49) (0.71) (0.78) -- (0.53)
------ ------ ------ ------ ------ ------ ------
$ 9.35 $ 9.29 $ 9.32 $ 9.54 $ 9.32 $ 9.59 $ 9.41
====== ====== ====== ====== ====== ====== ======
0.93%(c) 1.69% 2.93% 10.46% 5.78% 1.91%(c) 5.98%
1.29%+ 1.77% 2.88% 4.68%(f) 5.95% 5.17%+ 5.70%
0.85%+ 0.85% 0.85% 0.85% 0.86%(d) 0.85%+ 0.85%
1.06%+ 1.23% 1.21% 1.28% 1.24% 1.10%+ 1.14%
90% 173% 228% 149% 165% 105% 125%
$ 0 $ 542 $ 733 $1,032 $1,061 $1,036 $1,273
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
163
MAINSTAY ASSET MANAGER FUND
INVESTMENT AND PERFORMANCE COMPARISON
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY, CURRENT PERFORMANCE MAY
BE LESS OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. FOR CURRENT TO THE MOST RECENT MONTH-END PERFORMANCE
INFORMATION, PLEASE CONTACT 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM.
CLASS A SHARES -- MAXIMUM INITIAL SALES CHARGE 5.5%
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
With sales charges 2.28% 0.46% 9.18%
Excluding sales charges 8.24 1.60 9.80
</Table>
<Table>
<Caption>
MAINSTAY ASSET ASSET MANAGER CITIGROUP BIG BOND
MANAGER FUND S&P 500 INDEX COMPOSITE INDEX INDEX
-------------- ------------- --------------- ------------------
10/31/94 9450 10000 10000 10000
11239 12096 12644 11569
13189 14090 15691 12250
16599 17213 20729 13333
19856 20130 25288 14585
22234 23273 31779 14657
24669 24824 33715 15723
21634 21996 25319 18020
19689 20447 21494 19057
22238 23334 25965 20008
10/31/04 24070 25086 28411 21149
</Table>
<Table>
-- MainStay Asset Manager Fund -- S&P 500 Index
- - Asset Manager Composite Index -- Citigroup BIG Bond Index
</Table>
CLASS B SHARES -- MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
With sales charges 2.49% 0.55% 9.05%
Excluding sales charges 7.49 0.89 9.05
</Table>
<Table>
<Caption>
MAINSTAY ASSET ASSET MANAGER CITIGROUP BIG BOND
MANAGER FUND S&P 500 INDEX COMPOSITE INDEX INDEX
-------------- ------------- --------------- ------------------
10/31/94 10000 10000 10000 10000
11821 12096 12644 11569
13769 14090 15691 12250
17199 17213 20729 13333
20452 20130 25288 14585
22763 23273 31779 14657
25081 24824 33715 15723
21864 21996 25319 18020
19746 20447 21494 19057
22131 23334 25965 20008
10/31/04 23788 25086 28411 21149
</Table>
<Table>
-- MainStay Asset Manager Fund -- S&P 500 Index
- - Asset Manager Composite Index -- Citigroup BIG Bond Index
</Table>
CLASS C SHARES -- MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
With sales charges 6.39% 0.86% 9.01%
Excluding sales charges 7.39 0.86 9.01
</Table>
<Table>
<Caption>
MAINSTAY ASSET ASSET MANAGER CITIGROUP BIG BOND
MANAGER FUND S&P 500 INDEX COMPOSITE INDEX INDEX
-------------- ------------- --------------- ------------------
10/31/94 10000 10000 10000 10000
11812 12096 12644 11569
13772 14090 15691 12250
17195 17213 20729 13333
20431 20130 25288 14585
22715 23273 31779 14657
25017 24824 33715 15723
21789 21996 25319 18020
19687 20447 21494 19057
22072 23334 25965 20008
10/31/04 23702 25086 28411 21149
</Table>
<Table>
-- MainStay Asset Manager Fund -- S&P 500 Index
- - Asset Manager Composite Index -- Citigroup BIG Bond Index
</Table>
Performance tables and graphs do not reflect the deduction of taxes that a
shareholder would pay on distributions or Fund-share redemptions. Total returns
reflect change in share price, reinvestment of dividend and capital-gain
distributions, and maximum applicable sales charges explained in this paragraph.
The graphs assume an initial investment of $10,000 and reflect the deduction of
all sales charges that would have applied for the period of investment. Class A
shares are sold with a maximum initial sales charge of 5.5% and an annual 12b-1
fee of .25%. Class B shares are sold with no initial sales charge, are subject
to a contingent deferred sales charge (CDSC) of up to 5% if redeemed within the
first six years of purchase, and have an annual 12b-1 fee of 1.00%. Class C
shares are sold with no initial sales charge, are subject to a CDSC of 1% if
redeemed within one year of purchase, and have an annual 12b-1 fee of 1.00%.
Class I shares are sold with no initial sales charge or CDSC, have no annual
12b-1 fee, and are generally available to corporate and institutional investors
with a minimum initial investment of $5 million. Performance figures reflect
certain fee waivers and/or expense limitations, without which total returns may
have been lower. The fee waivers and/or expense limitations are voluntary and
may be discontinued at
THE DISCLOSURE AND FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THESE
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
164 MainStay Asset Manager Fund
CLASS I SHARES -- NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
8.43% 1.81% 10.02%
</Table>
<Table>
<Caption>
MAINSTAY ASSET ASSET MANAGER CITIGROUP BIG BOND
MANAGER FUND S&P 500 INDEX COMPOSITE INDEX INDEX
-------------- ------------- --------------- ------------------
10/31/94 10000 10000 10000 10000
11924 12096 12644 11569
14016 14090 15691 12250
17672 17213 20729 13333
21189 20130 25288 14585
23758 23273 31779 14657
26414 24824 33715 15723
23213 21996 25319 18020
21176 20447 21494 19057
23964 23334 25965 20008
10/31/04 25985 25086 28411 21149
</Table>
<Table>
-- MainStay Asset Manager Fund -- S&P 500 Index
- - Asset Manager Composite Index -- Citigroup BIG Bond Index
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
Asset Manager Composite Index(1) 7.51% 1.51% 9.63%
S&P 500(R) Index(2) 9.42 -2.22 11.01
Citigroup Broad Investment Grade (BIG) Bond
Index(3) 5.70 7.61 7.78
Average Lipper flexible portfolio fund(4) 7.67 1.80 8.64
</Table>
any time. Performance for Class A and B shares, first offered 1/2/04, includes
the historical performance of Class I shares from inception (1/2/91) through
12/31/03 adjusted to reflect the applicable sales charge (or CDSC) and fees and
expenses for Class A and B shares. Prior to 1/2/04, the Fund offered Class L
shares, which were subject to a 1% sales charge and a 1% CDSC on redemptions
within one year of purchase. Performance for Class L shares, first offered
12/30/02, includes the historical performance of Class I shares from inception
through 12/29/02 adjusted to reflect the applicable sales charge, CDSC, and fees
and expenses for Class L shares. Effective 1/2/04, all outstanding Class L
shares of the Fund were converted to and/or redesignated Class C shares.
1. The Asset Manager Composite Index is comprised of the S&P 500(R) Index, the
Citigroup Broad Investment Grade (BIG) Bond Index, and the Citigroup 1-Month
T-Bill Index weighted 60%/30%/10%, respectively. The S&P 500(R) Index is an
unmanaged index and is widely regarded as the standard for measuring
large-cap U.S. stock market performance. The Citigroup Broad Investment Grade
(BIG) Bond Index--The Citigroup BIG Bond Index--is an unmanaged,
capitalization-weighted index that contains approximately 5,500 individually
priced fixed-income securities and is generally considered representative of
the U.S. bond market. The Citigroup 1-Month T-Bill Index includes the monthly
return equivalents of yield averages that are not marked to market. The Index
is an average of the last one-month Treasury bill issue. Results for all
indices assume reinvestment of all dividends and capital gains. The Asset
Manager Composite Index is considered to be the Fund's broad-based
securities-market index for comparison purposes. An investment cannot be made
directly into an index.
2. "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use. Standard & Poor's does not sponsor, endorse, sell, or
promote the Fund or represent the advisability of investing in the Fund. The
S&P 500(R) is an unmanaged index and is widely regarded as the standard for
measuring large-cap U.S. stock-market performance. Results assume
reinvestment of all income and capital gains. An investment cannot be made
directly into an index.
3. The Citigroup Broad Investment Grade (BIG) Bond Index--the Citigroup BIG Bond
Index--is an unmanaged index that is considered representative of the U.S.
investment-grade bond market. Results assume reinvestment of all income and
capital gains. An investment cannot be made directly into an index.
4. Lipper Inc. is an independent fund performance monitor. Results are based on
total returns with all dividend and capital-gain distributions reinvested.
THE DISCLOSURE AND FOOTNOTES ON THE PRECEDING PAGE ARE AN INTEGRAL PART OF THESE
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
www.mainstayfunds.com 165
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY ASSET MANAGER FUND
Expenses shown in the table are meant to highlight your ongoing costs only and
do not reflect any transactional costs, such as sales charges (loads),
redemption fees, or exchange fees. Therefore, the third data column of the table
is 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 had been included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT ENDING ACCOUNT
VALUE (BASED VALUE (BASED
BEGINNING ON ACTUAL EXPENSES ON HYPOTHETICAL EXPENSES
ACCOUNT RETURNS AND PAID 5% ANNUALIZED PAID
VALUE EXPENSES) DURING RETURN AND DURING
SHARE CLASS(1) 5/1/04 10/31/04 PERIOD ACTUAL EXPENSES) PERIOD
CLASS A SHARES $1,000.00 $1,035.40 $5.22 $1,019.90 $5.18
- -------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $1,031.65 $9.04 $1,016.15 $8.97
- -------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $1,032.45 $9.04 $1,016.15 $8.97
- -------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,035.95 $4.25 $1,020.85 $4.22
- -------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio multiplied by the
average account value over the period, divided by 366, multiplied by 184 (to
reflect the one-half year period).
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2004
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
Common Stocks 60.9
U.S. Government & Federal Agencies 22.2
Short-Term Investments (collateral from securities lending 15.7
is 6.7%)
Corporate Bonds 6.5
Real Estate Investment Trusts 1.2
Foreign Bonds 1.1
Asset-Backed Security 0.3
Yankee Bonds 0.1
Liabilities in Excess of Cash and Other Assets -8.0
</Table>
See Portfolio of Investments on page 169 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2004 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. General Electric Co.
2. United States Treasury Note 4.00%, due 2/15/14
3. ExxonMobil Corp.
4. Pfizer, Inc.
5. United States Treasury Note 1.875%, due
11/30/05
6. Microsoft Corp.
7. International Business Machines Corp.
8. United States Treasury Note 4.625%, due 5/15/06
9. American International Group, Inc.
10. Federal Home Loan Bank 2.875%, due 9/15/06
</Table>
166 MainStay Asset Manager Fund
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio managers Jefferson C. Boyce and Devon McCormick
of New York Life Investment Management LLC
CAN YOU BRIEFLY DESCRIBE THE FUND'S INVESTMENT APPROACH?
The Fund normally invests in three asset classes, subject to the following
constraints: 30% to 80% of its net assets in common stocks (with specific
allocation ranges for stocks that seek to track the performance of the S&P
500(R) Index, the S&P MidCap 400(R) Index, the S&P SmallCap 600(R) Index, and
the Morgan Stanley REIT(R) Index),(1) 10% to 60% of its net assets in
fixed-income securities selected to parallel the performance of the Citigroup
BIG Bond Index,(2) and 10% to 60% of its net assets in selected money-market
instruments. In implementing this strategy, we use a disciplined methodology to
determine the best allocation within the Fund's percentage constraints. We use a
proprietary model to estimate expected returns, volatilities, and correlations
on domestic and foreign stock markets and on domestic fixed-income securities.
The Fund's allocations among stocks, bonds, and money-market securities are
structured to take advantage of perceived imbalances in relative pricing.
HOW DID YOU POSITION THE FUND'S PORTFOLIO DURING THE ONE-YEAR REPORTING PERIOD
ENDED OCTOBER 31, 2004?
During the reporting period, the Fund had an average allocation of 56% to
equities, 32% to bonds, and 12% to cash. Within the equity allocation, U.S.
equities were underweighted relative to the Fund's custom benchmark(3) at 46% of
net assets, and international equities and real estate investment trusts (REITs)
were overweighted, at 8% and 1%, respectively.
WHAT OVERALL FACTORS AFFECTED THE FUND'S RETURNS DURING THE 12-MONTH REPORTING
PERIOD?
There were two primary factors contributing to the Fund's relative
outperformance--our asset-allocation positioning and security selection. The
Fund's large-cap and mid-cap equity components and the Fund's bond component are
actively managed.
HOW DID THE FUND'S EQUITY INVESTMENTS PERFORM?
The Fund's decision to underweight U.S. large-cap stocks (as measured by the S&P
500(R) Index), and overweight small- and mid-cap stocks (as measured by the S&P
600(R) and S&P 400(R) Indices, respectively) boosted the Fund's return, as
smaller companies outperformed their larger-cap counterparts.
Over the same period, the worst-performing international market in which the
Fund could invest was Japan, followed by Hong Kong and Germany. By avoiding
Japan entirely, the Fund was spared the negative impact of Japan's modest
returns. Slightly overweighted positions in the Hang Seng Index (Hong Kong) and
DAX Index (Germany) detracted from the Fund's results when these markets
underperformed other stock markets both in the United States and overseas.
DID THE FUND'S BOND ALLOCATION HELP RESULTS?
The Fund's overweighted position in bonds hurt returns, as the Citigroup BIG
Bond Index returned a relatively low 5.70%, underperforming the stock market.
Similarly, the portfolio's slightly overweighted average position in cash also
detracted from the Fund's return, as the segment returned 1.05%.
HOW DID THE FUND'S REIT HOLDINGS PERFORM DURING THE PERIOD?
The asset class with the highest return during the fiscal year was the REIT
segment, which returned 29.5% (as measured by the Morgan Stanley REIT(R) Index).
The Fund's exposure to REITs helped to
Foreign securities may be subject to greater risks than U.S. investments,
including currency fluctuations, less-liquid trading markets, greater price
volatility, political and economic instability, less publicly available
information, and changes in tax or currency laws or monetary policy. These risks
are likely to be greater in emerging markets than in developed markets. Stocks
of small companies may be subject to greater price volatility, significantly
lower trading volumes, and greater spreads between bid and ask prices than
stocks of larger companies. Small companies may be more vulnerable to adverse
business or market developments than mid- or large- capitalization companies.
The Fund may invest in derivatives, which may increase the volatility of the
Fund's net asset value and may result in a loss to the Fund.
1. "S&P 500(R) Index," "S&P MidCap 400(R) Index," and "S&P SmallCap 600(R)
Index" are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by the Fund. Each index is unmanaged and is considered to be
generally representative of a different capitalization segment of the U.S.
stock market. The Morgan Stanley REIT(R) Index is an unmanaged,
capitalization- weighted index of the most actively traded real estate
investment trusts (REITs), and is designed to measure real estate equity
performance. Results for all indices assume reinvestment of all income and
capital gains. An investment cannot be made directly into an index.
2. See footnote on page 165 for more information on the Citigroup Broad
Investment Grade (BIG) Bond Index.
3. See footnote on page 165 for more information on the Asset Manager Composite
Index.
www.mainstayfunds.com 167
generate incremental returns relative to the custom benchmark, which does not
have a REIT equity component.
HOW DID THE ACTIVELY MANAGED SEGMENTS OF THE FUND IMPACT RESULTS?
While asset-allocation decisions made an overall positive contribution to
performance, the actively managed segments of the Fund had mixed results. For
example, during the reporting period, the Fund's allocation to actively managed
large-cap equity investments made a positive contribution to returns, as those
stocks outperformed the S&P 500(R) Index. The Fund's allocation to the actively
managed mid-cap investments also boosted returns, as those stocks outperformed
the S&P MidCap 400(R) Index for the period. On the other hand, the allocation
made to the actively managed fixed-income investments hurt the Fund slightly, as
this portion of the portfolio underperformed the Citigroup BIG Bond Index.
WHAT FACTORS MAY AFFECT THE MARKETS GOING FORWARD?
Although the recent Bush presidential victory served as a short-term catalyst
for equity-market gains, it remains to be seen whether the direction of oil
prices, the pace of inflation, the relative weakness of the dollar, and the
effects of these dynamics on corporate earnings will quell some of the market's
anxieties or exacerbate them.
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.
INFORMATION ABOUT MAINSTAY ASSET MANAGER FUND ON THIS PAGE AND THE PRECEDING
PAGES HAS NOT BEEN AUDITED.
168 MainStay Asset Manager Fund
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
LONG-TERM BONDS (30.2%)+
ASSET-BACKED SECURITY (0.3%)
- -----------------------------------------------------------------------------
CONSUMER FINANCE (0.3%)
Citibank Credit Card Issuance Trust
Series 2003-A2 Class A2
2.70%, due 1/15/06 $1,000,000 $ 1,000,535
------------
Total Asset-Backed Security (Cost $1,006,547) 1,000,535
------------
CORPORATE BONDS (6.5%)
- -----------------------------------------------------------------------------
AEROSPACE & DEFENSE (0.2%)
Honeywell International, Inc.
7.50%, due 3/1/10 100,000 116,930
Lockheed Martin Corp.
8.20%, due 12/1/09 100,000 119,189
Northrop Grumman Corp.
7.125%, due 2/15/11 100,000 115,302
Raytheon Co.
6.75%, due 8/15/07 100,000 109,228
United Technologies Corp.
6.35%, due 3/1/11 100,000 112,281
------------
572,930
------------
AUTOMOBILES (0.2%)
DaimlerChrysler North America Holdings, Inc.
7.30%, due 1/15/12 250,000 286,363
General Motors Corp.
8.375%, due 7/15/33 250,000 260,147
------------
546,510
------------
BEVERAGES (0.1%)
Anheuser-Busch Cos., Inc.
5.75%, due 4/1/10 100,000 108,841
Coca-Cola Enterprises, Inc.
7.00%, due 5/15/98 100,000 117,571
Pepsi Bottling Holdings, Inc.
5.625%, due 2/17/09 (c) 100,000 107,975
------------
334,387
------------
BUILDING PRODUCTS (0.0%) (B)
Masco Corp.
6.75%, due 3/15/06 100,000 105,477
------------
CAPITAL MARKETS (0.6%)
Bear Stearns Cos., Inc. (The)
5.70%, due 1/15/07 250,000 263,954
Credit Suisse First Boston USA, Inc.
4.625%, due 1/15/08 250,000 258,825
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CAPITAL MARKETS (CONTINUED)
Goldman Sachs Group, Inc. (The)
5.70%, due 9/1/12 $ 150,000 $ 159,770
6.125%, due 2/15/33 100,000 101,970
J.P. Morgan Chase & Co.
5.75%, due 1/2/13 250,000 267,424
Lehman Brothers Holdings, Inc.
7.00%, due 2/1/08 250,000 276,090
Merrill Lynch & Co., Inc.
Series B
4.00%, due 11/15/07 250,000 254,843
Morgan Stanley
6.60%, due 4/1/12 250,000 281,763
------------
1,864,639
------------
CHEMICALS (0.1%)
Dow Chemical Co. (The)
5.75%, due 11/15/09 100,000 107,440
E.I. du Pont de Nemours & Co.
6.875%, due 10/15/09 100,000 113,851
------------
221,291
------------
COMMERCIAL BANKS (0.6%)
Bank of America Corp.
3.875%, due 1/15/08 500,000 508,299
Bank One Corp., Series A
6.00%, due 2/17/09 250,000 270,508
FleetBoston Financial Corp.
3.85%, due 2/15/08 250,000 253,592
U.S. Bancorp, Series N
3.95%, due 8/23/07 250,000 254,451
Wachovia Bank National Association
4.85%, due 7/30/07 250,000 260,902
Wells Fargo Bank NA, San Francisco
6.45%, due 2/1/11 250,000 281,620
------------
1,829,372
------------
COMMERCIAL SERVICES & SUPPLIES (0.1%)
Cendant Corp.
6.25%, due 1/15/08 100,000 107,917
Waste Management, Inc.
7.375%, due 8/1/10 100,000 115,862
------------
223,779
------------
</Table>
+ Percentages indicated are based on Fund net assets.
v Among the Fund's 10 largest holdings, 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. www.mainstayfunds.com
169
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- -----------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT (0.0%) (B)
Motorola, Inc.
5.80%, due 10/15/08 $ 100,000 $ 107,156
------------
COMPUTERS & PERIPHERALS (0.1%)
International Business Machines Corp.
4.25%, due 9/15/09 250,000 256,511
------------
CONSUMER FINANCE (0.8%)
American General Finance Corp. Series H
4.50%, due 11/15/07 250,000 257,619
Capital One Bank
5.125%, due 2/15/14 100,000 100,447
Ford Motor Credit Co.
6.50%, due 1/25/07 500,000 525,327
7.375%, due 2/1/11 250,000 271,199
General Motors Acceptance Corp.
6.125%, due 8/28/07 350,000 365,070
Household Finance Corp.
5.75%, due 1/30/07 500,000 528,494
John Deere Capital Corp.
3.90%, due 1/15/08 250,000 254,370
MBNA Corp.
6.125%, due 3/1/13 100,000 108,215
SLM Corp.
5.625%, due 8/1/33 100,000 98,448
------------
2,509,189
------------
DIVERSIFIED FINANCIAL SERVICES (0.6%)
Boeing Capital Corp.
5.75%, due 2/15/07 250,000 264,674
CIT Group, Inc.
5.50%, due 11/30/07 250,000 264,701
Citigroup, Inc.
3.50%, due 2/1/08 500,000 502,210
5.875%, due 2/22/33 250,000 253,265
National Rural Utilities Cooperative Finance Corp.
5.75%, due 8/28/09 250,000 269,912
UFJ Finance Aruba AEC
6.75%, due 7/15/13 100,000 111,467
Verizon Global Funding Corp.
7.75%, due 12/1/30 100,000 122,687
------------
1,788,916
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
DIVERSIFIED TELECOMMUNICATION SERVICES (0.4%)
Ameritech Capital Funding
6.55%, due 1/15/28 $ 100,000 $ 104,516
BellSouth Corp.
6.00%, due 10/15/11 250,000 274,051
GTE South, Inc., Series C
6.00%, due 2/15/08 300,000 320,459
SBC Communications, Inc.
5.75%, due 5/2/06 150,000 156,548
Sprint Capital Corp.
6.125%, due 11/15/08 150,000 162,517
8.75%, due 3/15/32 100,000 131,031
------------
1,149,122
------------
ELECTRIC UTILITIES (0.3%)
American Electric Power Co., Inc.
5.375%, due 3/15/10 100,000 105,903
Consumers Energy Co., Series B
5.375%, due 4/15/13 100,000 103,538
Dominion Resources, Inc.
Series B
6.25%, due 6/30/12 100,000 109,670
DTE Energy Co., Series A
6.65%, due 4/15/09 100,000 110,531
FirstEnergy Corp., Series A
5.50%, due 11/15/06 100,000 104,053
Northern States Power Co.
6.875%, due 8/1/09 100,000 112,700
Oncor Electric Delivery Co.
7.00%, due 9/1/22 100,000 113,634
Peco Energy Co.
3.50%, due 5/1/08 100,000 100,228
Progress Energy, Inc.
7.10%, due 3/1/11 100,000 113,412
------------
973,669
------------
FOOD & STAPLES RETAILING (0.2%)
Albertson's, Inc.
7.50%, due 2/15/11 100,000 116,707
Kroger Co. (The)
8.05%, due 2/1/10 100,000 117,844
Safeway, Inc.
6.50%, due 3/1/11 100,000 110,471
Wal-Mart Stores, Inc.
4.55%, due 5/1/13 150,000 152,162
7.55%, due 2/15/30 100,000 128,790
------------
625,974
------------
FOOD PRODUCTS (0.2%)
Archer-Daniels-Midland Co.
8.125%, due 6/1/12 100,000 124,157
ConAgra Foods, Inc.
6.75%, due 9/15/11 100,000 113,613
</Table>
170 MainStay Asset Manager Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- -----------------------------------------------------------------------------
FOOD PRODUCTS (CONTINUED)
General Mills, Inc.
3.875%, due 11/30/07 $ 100,000 $ 101,401
Kellogg Co., Series B
6.00%, due 4/1/06 100,000 104,408
Kraft Foods, Inc.
5.25%, due 6/1/07 100,000 104,748
Unilever Capital Corp.
7.125%, due 11/1/10 100,000 116,423
------------
664,750
------------
GAS UTILITIES (0.0%) (B)
Kinder Morgan Energy Partners, L.P.
7.125%, due 3/15/12 100,000 115,019
------------
HEALTH CARE PROVIDERS & SERVICES (0.0%) (B)
HCA, Inc.
8.75%, due 9/1/10 100,000 115,308
------------
HOUSEHOLD PRODUCTS (0.0%) (B)
Procter & Gamble Co. (The)
4.75%, due 6/15/07 100,000 104,325
------------
INSURANCE (0.1%)
Allstate Corp. (The)
7.20%, due 12/1/09 100,000 115,356
Berkshire Hathaway, Inc.
4.625%, due 10/15/13 100,000 100,401
------------
215,757
------------
MACHINERY (0.0%) (B)
Caterpillar, Inc.
7.25%, due 9/15/09 100,000 115,095
------------
MEDIA (0.5%)
Clear Channel Communications, Inc.
4.25%, due 5/15/09 100,000 99,510
Comcast Cable Communications, Inc.
6.75%, due 1/30/11 250,000 280,451
Cox Enterprises, Inc.
7.875%, due 9/15/10 (c) 100,000 112,364
Liberty Media Corp.
7.875%, due 7/15/09 100,000 112,925
News America Holdings
9.25%, due 2/1/13 100,000 129,410
Time Warner, Inc.
7.625%, due 4/15/31 250,000 296,203
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
MEDIA (CONTINUED)
Viacom, Inc.
7.70%, due 7/30/10 $ 100,000 $ 117,475
Walt Disney Co., (The), Series B
6.75%, due 3/30/06 100,000 105,345
------------
1,253,683
------------
METALS & MINING (0.1%)
Alcoa, Inc.
4.25%, due 8/15/07 250,000 257,055
------------
MULTILINE RETAIL (0.1%)
Federated Department Stores, Inc.
7.00%, due 2/15/28 100,000 112,310
Target Corp.
7.00%, due 7/15/31 100,000 120,742
------------
233,052
------------
MULTILINE-UTILITIES & UNREGULATED POWER (0.1%)
Constellation Energy Group, Inc.
6.35%, due 4/1/07 100,000 107,010
Duke Energy Corp.
6.25%, due 1/15/12 100,000 109,693
Pacific Electric & Gas Co.
4.80%, due 3/1/14 100,000 100,150
PSE&G Power LLC
7.75%, due 4/15/11 100,000 116,744
------------
433,597
------------
OIL & GAS (0.2%)
Amerada Hess Corp.
7.30%, due 8/15/31 100,000 112,563
Anadarko Petroleum Corp.
7.20%, due 3/15/29 100,000 117,696
Devon Financing Corp. ULC
6.875%, due 9/30/11 100,000 114,503
Marathon Oil Corp.
6.85%, due 3/1/08 100,000 110,327
Occidental Petroleum Corp.
5.875%, due 1/15/07 100,000 105,797
Pemex Project Funding Master Trust
7.375%, due 12/15/14 100,000 110,800
Valero Energy Corp.
6.125%, due 4/15/07 100,000 106,803
------------
778,489
------------
PAPER & FOREST PRODUCTS (0.1%)
International Paper Co.
6.75%, due 9/1/11 100,000 112,399
Weyerhaeuser Co.
6.75%, due 3/15/12 100,000 113,176
------------
225,575
------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
171
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- -----------------------------------------------------------------------------
PHARMACEUTICALS (0.2%)
Bristol-Myers Squibb Co.
5.75%, due 10/1/11 $ 250,000 $ 269,824
Pharmacia Corp.
6.60%, due 12/1/28 100,000 116,205
Wyeth
5.50%, due 3/15/13 100,000 102,896
------------
488,925
------------
REAL ESTATE (0.1%)
EOP Operating L.P.
7.00%, due 7/15/11 100,000 113,342
Simon Property Group, L.P.
6.375%, due 11/15/07 100,000 108,008
------------
221,350
------------
ROAD & RAIL (0.1%)
Burlington Northern Santa Fe Corp.
7.125%, due 12/15/10 100,000 115,029
CSX Corp.
7.45%, due 5/1/07 100,000 109,431
Norfolk Southern Corp.
6.75%, due 2/15/11 100,000 113,084
Union Pacific Corp.
6.65%, due 1/15/11 100,000 112,219
------------
449,763
------------
THRIFTS & MORTGAGE FINANCE (0.4%)
Countrywide Home Loans, Inc.
5.625%, due 5/15/07 100,000 105,382
General Electric Capital Corp.
6.00%, due 6/15/12 500,000 548,977
6.75%, due 3/15/32 250,000 291,555
Washington Mutual, Inc.
7.50%, due 8/15/06 250,000 269,420
------------
1,215,334
------------
TOBACCO (0.0%) (B)
Altria Group, Inc.
7.20%, due 2/1/07 100,000 106,192
------------
WIRELESS TELECOMMUNICATION SERVICES (0.0%) (B)
AT&T Wireless Services, Inc.
7.875%, due 3/1/11 100,000 119,131
------------
Total Corporate Bonds (Cost $19,749,017) 20,221,322
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FOREIGN BONDS (1.1%)
- -----------------------------------------------------------------------------
BEVERAGES (0.0%) (B)
Diageo Capital PLC
3.375%, due 3/20/08 $ 100,000 $ 99,946
------------
CAPITAL MARKETS (0.1%)
Kreditanstalt fuer Wiederaufbau
3.375%, due 1/23/08 250,000 252,539
------------
DIVERSIFIED TELECOMMUNICATION SERVICES (0.3%)
British Telecommunications PLC
8.875%, due 12/15/30 100,000 133,650
Deutsche Telekom
International Finance BV
8.50%, due 6/15/10 250,000 301,190
France Telecom S.A.
7.95%, due 3/1/06 150,000 159,577
9.25%, due 3/1/31 100,000 134,994
Koninklijke (Royal) KPN N.V.
8.00%, due 10/1/10 100,000 119,674
Telecom Italia Capital
6.375%, due 11/15/33 100,000 103,787
------------
952,872
------------
FOREIGN GOVERNMENTS (0.6%)
Malaysian Government
8.75%, due 6/1/09 100,000 120,110
Province of Ontario
5.50%, due 10/1/08 250,000 268,688
Province of Quebec
7.50%, due 9/15/29 150,000 195,670
Republic of Italy, Series DTC
5.625%, due 6/15/12 500,000 546,725
Republic of South Africa
6.50%, due 6/2/14 100,000 108,625
United Mexican States
6.375%, due 1/16/13 500,000 531,250
------------
1,771,068
------------
INSURANCE (0.0%) (B)
Axa
8.60%, due 12/15/30 100,000 130,445
------------
OIL & GAS (0.1%)
Conoco Funding Co.
6.35%, due 10/15/11 250,000 280,777
------------
</Table>
172 MainStay Asset Manager Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FOREIGN BONDS (CONTINUED)
- -----------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.0%) (B)
Vodafone Group PLC
7.75%, due 2/15/10 $ 100,000 $ 117,660
------------
Total Foreign Bonds (Cost $3,500,021) 3,605,307
------------
U.S. GOVERNMENT & FEDERAL AGENCIES (22.2%)
- -----------------------------------------------------------------------------
FEDERAL HOME LOAN BANK (1.9%)
2.75%, due 3/14/08 1,000,000 986,592
V 2.875%, due 9/15/06 (j) 3,000,000 3,008,586
3.375%, due 9/14/07 1,500,000 1,514,705
5.25%, due 6/18/14 500,000 532,787
------------
6,042,670
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (1.8%)
2.75%, due 8/15/06 1,500,000 1,500,602
3.625%, due 9/15/08 1,000,000 1,010,829
4.875%, due 11/15/13 1,000,000 1,033,923
5.50%, due 9/15/11 1,000,000 1,085,284
6.25%, due 7/15/32 1,000,000 1,146,199
------------
5,776,837
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(MORTGAGE PASS-THROUGH SECURITIES) (3.7%)
4.00%, due 12/15/19 TBA (e) 1,000,000 980,000
4.50%, due 7/1/18-8/1/33 1,376,238 1,367,210
5.00%, due 12/1/18-8/1/34 2,352,344 2,359,997
5.50%, due 12/1/17-10/1/33 1,033,440 1,065,959
5.50%, due 11/15/33 TBA (e) 2,000,000 2,036,876
6.00%, due 5/1/16-1/1/28 693,825 727,688
6.00%, due 12/15/34 TBA (e) 500,000 516,250
6.50%, due 11/1/16-6/1/32 1,471,417 1,550,974
7.00%, due 3/1/26-7/1/32 371,297 394,823
7.50%, due 7/1/11-5/1/32 389,863 417,666
7.75%, due 10/1/07 40,353 42,132
8.00%, due 10/1/11-11/1/11 66,624 70,910
------------
11,530,485
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (5.8%)
4.50%, due 5/1/18-11/1/18 2,258,607 2,270,589
5.00%, due 10/1/17-5/1/34 5,331,942 5,367,333
5.00%, due 11/15/19 TBA (e) 500,000 510,156
5.50%, due 6/1/33-10/1/34 5,286,518 5,392,497
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FEDERAL NATIONAL MORTGAGE CORPORATION
(MORTGAGE PASS-THROUGH SECURITIES) (CONTINUED)
6.00%, due 4/1/19-12/15/33 $1,956,629 $ 2,032,903
6.00%, due 12/15/33 TBA (e) 1,000,000 1,033,750
6.50%, due 7/1/29-8/1/32 644,101 678,740
7.00%, due 5/1/26-7/1/30 240,191 255,438
7.50%, due 7/1/11-10/1/15 242,026 257,245
8.00%, due 7/1/09-11/1/11 121,394 129,454
8.50%, due 8/1/26-10/1/26 16,375 18,037
9.00%, due 6/1/26-9/1/26 25,876 28,850
------------
17,974,992
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (1.3%)
5.00%, due 8/15/33 431,982 434,483
5.50%, due 8/15/33 822,222 842,972
5.50%, due 11/15/34 TBA (e) 500,000 511,406
6.00%, due 1/15/33-11/15/33 886,320 923,407
6.50%, due 4/15/29-7/15/32 499,013 528,610
7.00%, due 7/15/11-6/15/28 563,202 602,135
7.50%, due 3/15/26-10/15/30 181,595 195,734
8.00%, due 8/15/26-10/15/26 52,573 57,557
8.50%, due 11/15/26 27,872 30,575
9.00%, due 11/15/26 6,271 7,028
------------
4,133,907
------------
UNITED STATES TREASURY BONDS (1.6%)
5.25%, due 2/15/29 (j) 2,650,000 2,796,267
6.25%, due 8/15/23 (j) 1,800,000 2,126,250
------------
4,922,517
------------
UNITED STATES TREASURY NOTES (6.1%)
1.625%, due 2/28/06 (j) 2,000,000 1,981,484
V 1.875%, due 11/30/05 (j) 4,000,000 3,983,752
3.125%, due 5/15/07 (j) 1,000,000 1,010,156
3.875%, due 5/15/09 (j) 1,000,000 1,028,125
V 4.00%, due 6/15/09-2/15/14 (j) 6,750,000 6,815,419
4.25%, due 8/15/14 500,000 508,828
V 4.625%, due 5/15/06 3,000,000 3,100,899
4.75%, due 5/15/14 650,000 687,274
------------
19,115,937
------------
Total U.S. Government &
Federal Agencies
(Cost $68,119,817) 69,497,345(g)
------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
173
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
YANKEE BONDS (0.1%) (D)
- -----------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES (0.0%) (B)
Tyco International Group S.A.
6.125%, due 1/15/09 $ 100,000 $ 109,103
------------
OIL & GAS (0.1%)
Burlington Resources, Inc.
6.50%, due 12/1/11 100,000 113,346
Norsk Hydro ASA
7.25%, due 9/23/27 100,000 120,180
------------
233,526
------------
Total Yankee Bonds
(Cost $319,432) 342,629
------------
Total Long-Term Bonds
(Cost $92,694,834) 94,667,138
------------
<Caption>
SHARES
COMMON STOCKS (60.9%)
- -----------------------------------------------------------------------------
AEROSPACE & DEFENSE (1.2%)
AAR Corp. 582 6,838
Applied Signal Technology, Inc. 195 5,907
Armor Holdings, Inc. (a) 549 20,324
Boeing Co. (The) 33,732 1,683,227
Cubic Corp. 488 10,736
Curtiss-Wright Corp. 353 19,701
DRS Technologies, Inc. (a) 439 15,901
EDO Corp. 360 10,073
Engineered Support Systems, Inc. 441 21,186
Esterline Technologies Corp. (a) 383 12,103
GenCorp, Inc. 799 11,106
General Dynamics Corp. 1,587 162,064
Honeywell International, Inc. 7,789 262,333
InVision Technologies, Inc. (a) 289 13,346
Kaman Corp. Class A 413 4,543
L-3 Communications Holdings, Inc. 3,732 246,051
Mercury Computer Systems, Inc. (a) 386 9,748
Moog, Inc. Class A (a) 441 16,551
Northrop Grumman Corp. 7,839 405,668
Precision Castparts Corp. 3,093 185,580
Raytheon Co. 21,278 776,221
Teledyne Technologies, Inc. (a) 540 13,808
Triumph Group, Inc. (a) 290 9,964
------------
3,922,979
------------
AIR FREIGHT & LOGISTICS (0.7%)
C.H. Robinson Worldwide, Inc. 675 36,409
CNF, Inc. 4,576 200,337
</Table>
<Table>
<Caption>
SHARES VALUE
AIR FREIGHT & LOGISTICS (CONTINUED)
EGL, Inc. (a) 744 $ 23,793
Expeditors International of Washington, Inc. 1,626 92,845
FedEx Corp. 6,799 619,525
Forward Air Corp. (a) 358 14,739
J.B. Hunt Transport Services, Inc. 9,015 368,353
Ryder System, Inc. 3,072 153,907
United Parcel Service, Inc. Class B 6,928 548,559
------------
2,058,467
------------
AIRLINES (0.0%) (B)
AirTran Holdings, Inc. 2,098 24,379
Alaska Air Group, Inc. (a) 2,220 58,475
Delta Air Lines, Inc. 1,051 5,728
FLYi, Inc. 828 1,159
Frontier Airlines, Inc. (a) 607 5,074
Mesa Air Group, Inc. (a) 576 3,306
SkyWest, Inc. 970 16,568
------------
114,689
------------
AUTO COMPONENTS (0.3%)
Bandag, Inc. 961 44,206
BorgWarner, Inc. 3,689 171,096
Cooper Tire & Rubber Co. 2,939 57,252
Dana Corp. 7,082 105,593
Delphi Corp. 12,322 103,628
Gentex Corp. 3,364 111,046
Goodyear Tire & Rubber Co. (The) 1,359 13,699
Johnson Controls, Inc. 3,976 228,023
Lear Corp. (a) 1,855 100,021
Midas, Inc. 270 5,111
Modine Manufacturing Co. 725 22,265
Standard Motor Products, Inc. 303 4,618
Tower Automotive, Inc. (a) 829 1,235
Visteon Corp. 6,183 43,961
------------
1,011,754
------------
AUTOMOBILES (0.4%)
Coachmen Industries, Inc. 271 3,921
Ford Motor Co. 87,017 1,133,832
General Motors Corp. 4,483 172,820
Monaco Coach Corp. (a) 531 9,425
Winnebago Industries, Inc. 576 18,086
------------
1,338,084
------------
BEVERAGES (0.7%)
Adolph Coors Co. Class B 1,744 116,325
Brown-Forman Corp. Class B 969 43,508
Coca-Cola Co. (The) 13,951 567,248
Coca-Cola Enterprises, Inc. 21,084 440,866
Constellation Brands, Inc. Class A 831 32,600
Pepsi Bottling Group, Inc. (The) 12,174 341,359
</Table>
174 MainStay Asset Manager Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------
BEVERAGES (CONTINUED)
PepsiAmericas, Inc. 11,243 $ 227,671
PepsiCo, Inc. 5,750 285,085
------------
2,054,662
------------
BIOTECHNOLOGY (0.6%)
Amgen, Inc. (a) 2,401 136,377
ArQule, Inc. (a) 563 2,534
Biogen Idec, Inc. (a) 16,015 931,432
Cephalon, Inc. 3,497 166,702
Charles River Laboratories International, Inc. 4,443 207,888
Enzo Biochem, Inc. (a) 573 10,142
Gilead Sciences, Inc. (a) 5,126 177,513
IDEXX Laboratories, Inc. (a) 570 28,409
Millennium Pharmaceuticals, Inc. (a) 5,578 72,403
Protein Design Labs, Inc. (a) 2,755 52,758
Regeneron Pharmaceuticals, Inc. (a) 952 6,921
Savient Pharmaceuticals, Inc. (a) 1,087 2,141
Techne Corp. (a) 699 25,178
------------
1,820,398
------------
BUILDING PRODUCTS (0.2%)
Apogee Enterprises, Inc. 502 6,431
ElkCorp 357 10,049
Griffon Corp. (a) 488 10,858
Lennox International, Inc. 987 14,272
Masco Corp. 17,965 615,481
Simpson Manufacturing Co., Inc. (a) 397 25,519
Universal Forest Products, Inc. 324 11,883
------------
694,493
------------
CAPITAL MARKETS (1.2%)
A.G. Edwards, Inc. 3,416 123,864
Bank of New York Co., Inc. (The) 36,910 1,198,099
E*TRADE Financial Corp. (a) 14,712 189,785
Federated Investors, Inc. Class B 850 24,641
Investment Technology Group, Inc. (a) 697 10,734
Janus Capital Group, Inc. 5,757 87,794
LaBranche & Co., Inc. 3,947 27,984
Legg Mason, Inc. 798 50,841
Merrill Lynch & Co., Inc. 14,612 788,171
Raymond James Financial, Inc. 3,357 87,618
S&P 500 Index-SPDR Trust, Series 1 (h) 8,609 974,539
</Table>
<Table>
<Caption>
SHARES VALUE
CAPITAL MARKETS (CONTINUED)
S&P MidCap 400 Index-MidCap SPDR Trust, Series 1
(h) 341 $ 37,578
SWS Group, Inc. 310 5,952
------------
3,607,600
------------
CHEMICALS (1.0%)
Arch Chemicals, Inc. 410 11,624
Cabot Corp. 5,949 202,742
Cambrex Corp. 470 10,514
Crompton Corp. 3,260 30,318
Cytec Industries, Inc. 2,288 106,415
Dow Chemical Co. (The) 20,430 918,124
E.I. Du Pont de Nemours & Co. 4,944 211,949
Eastman Chemical Co. 3,687 175,022
Engelhard Corp. 2,131 60,307
Ferro Corp. 888 18,710
FMC Corp. (a) 4,014 176,014
Georgia Gulf Corp. 556 25,170
H.B. Fuller Co. 476 12,804
Headwaters, Inc. (a) 561 17,672
Lyondell Chemical Co. 1,417 32,563
MacDermid, Inc. 516 16,285
Material Sciences Corp. (a) 253 3,292
Monsanto Co. 12,640 540,360
Mosaic Co. (The) 5,027 75,606
OM Group, Inc. 477 15,736
Omnova Solutions, Inc. 714 3,741
Penford Corp. 153 2,390
PolyOne Corp. 1,525 11,544
PPG Industries, Inc. 2,351 149,876
Praxair, Inc. 2,581 108,918
Quaker Chemical Corp. 169 3,816
Rohm & Haas Co. 296 12,547
Schulman (A.), Inc. 539 10,699
Scotts Co. (The) Class A 698 44,826
Wellman, Inc. 570 4,207
------------
3,013,791
------------
COMMERCIAL BANKS (3.6%)
Associated Banc-Corp. 4,459 154,683
Bank of America Corp. 61,356 2,748,135
Bank of Hawaii Corp. 1,157 55,247
Banknorth Group, Inc. 781 27,546
BB&T Corp. 10,162 417,760
Boston Private Financial Holdings, Inc. 455 11,166
Chittenden Corp. 777 22,005
Colonial BancGroup, Inc. (The) 5,620 121,673
Commerce Bancorp, Inc. 1,282 75,946
Community Bank System, Inc. 514 14,191
Community First Bankshares, Inc. 639 20,589
East West Bancorp, Inc. 837 33,513
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
175
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------
COMMERCIAL BANKS (CONTINUED)
Fifth Third Bancorp 4,044 $ 198,924
First BanCorp 682 37,189
First Horizon National Corp. 3,598 155,721
First Midwest Bancorp, Inc. 793 27,684
First National Bankshares of Florida 21,059 519,947
First Republic Bank 266 12,821
Gold Banc Corp., Inc. 672 9,778
Greater Bay Bancorp 1,138 35,557
Hiberia Corp. Class A 9,224 267,496
Hudson United Bancorp 763 30,367
Huntington Bancshares, Inc. 1,780 42,631
Irwin Financial Corp. 471 11,742
M&T Bank Corp. 85 8,755
Nara Bancorp, Inc. 390 7,453
National City Corp. 39,610 1,543,602
North Fork Bancorp., Inc. 5,496 242,374
PrivateBancorp, Inc. 354 11,452
Provident Bankshares Corp. 549 19,067
Regions Financial Corp. 6,628 232,510
Republic Bancorp, Inc. 1,066 17,813
Riggs National Corp. 522 11,019
Silicon Valley Bancshares (a) 742 29,687
South Financial Group, Inc. (The) 1,198 35,964
Southwest Bancorp. of Texas, Inc. 1,164 27,284
Sterling Bancshares, Inc. 807 11,435
Sun Trust Banks, Inc. 7,292 513,211
Susquehanna Bancshares, Inc. 776 19,299
TCF Financial Corp. 9,633 303,632
TrustCo Bank Corp. of NY 1,270 17,005
U.S. Bancorp 24,167 691,418
UCBH Holdings, Inc. 767 33,050
Umpqua Holdings Corp. 745 18,536
United Bankshares, Inc. 733 26,879
Unizan Financial Corp. 1,650 43,857
Wells Fargo & Co. 35,244 2,104,772
Whitney Holding Corp. 688 30,004
Wilmington Trust Corp. 1,988 68,705
Wintrust Financial Corp. 341 19,437
------------
11,140,531
------------
COMMERCIAL SERVICES & SUPPLIES (1.0%)
ABM Industries, Inc. 828 17,181
Administaff, Inc. (a) 487 5,576
Allied Waste Industries, Inc. (a) 15,149 123,616
Angelica Corp. 158 3,792
Apollo Group, Inc. Class A 73 4,818
Arbitron, Inc. (a) 509 18,411
Bowne & Co., Inc. 616 7,657
Brady Corp. Class A 396 21,475
</Table>
<Table>
<Caption>
SHARES VALUE
COMMERCIAL SERVICES & SUPPLIES (CONTINUED)
Brink's Co. (The) 6,231 $ 200,015
Career Education Corp. (a) 3,640 114,187
CDI Corp. 355 5,857
Cendant Corp. (a) 48,935 1,007,572
Central Parking Corp. 660 8,943
Chemed Corp. 204 12,332
Coinstar, Inc. (a) 393 10,151
Consolidated Graphics, Inc. (a) 245 10,461
Copart, Inc. (a) 5,256 97,656
CPI Corp. 145 1,783
G&K Services, Inc. Class A 347 13,634
H&R Block, Inc. 2,753 130,905
Heidrick & Struggles International, Inc. (a) 334 9,564
Imagistics International, Inc. (a) 276 9,500
Insurance Auto Auctions, Inc. (a) 206 3,957
Ionics, Inc. (a) 385 10,973
ITT Educational Services, Inc. (a) 1,946 73,967
John H. Harland Co. 473 15,245
Korn/Ferry International (a) 3,055 53,157
Labor Ready, Inc. (a) 735 10,547
Laureate Education, Inc. 951 37,298
MemberWorks, Inc. (a) 176 5,245
Mobile Mini, Inc. (a) 261 7,402
NCO Group, Inc. (a) 530 14,178
On Assignment, Inc. (a) 450 2,259
Pitney Bowes, Inc. 7,268 317,975
Pre-Paid Legal Services, Inc. (a) 275 7,670
PRG-Schultz International, Inc. 1,125 5,828
Republic Services, Inc. 3,847 118,488
School Specialty, Inc. (a) 377 15,427
Sotheby's Holdings, Inc. Class A (a) 4,294 80,255
SOURCECORP, Inc. (a) 295 4,950
Spherion Corp. (a) 1,089 7,830
Standard Register Co. (The) 517 5,491
Tetra Tech, Inc. (a) 912 11,984
United Rentals, Inc. (a) 8,530 131,788
United Stationers, Inc. 567 25,231
Viad Corp. 377 8,117
Volt Information Sciences, Inc. (a) 278 8,076
Waste Connections, Inc. (a) 822 25,909
Waste Management, Inc. 9,251 263,468
Watson Wyatt & Co. Holdings (a) 542 14,390
------------
3,122,191
------------
COMMUNICATIONS EQUIPMENT (2.4%)
3Com Corp. (a) 7,766 32,151
Adaptec, Inc. (a) 1,826 14,243
Advanced Fibre Communications, Inc. 2,577 40,253
</Table>
176 MainStay Asset Manager Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT (CONTINUED)
Audiovox Corp. Class A (a) 419 $ 6,034
Bel Fuse, Inc. Class B 201 6,744
Belden CDT, Inc. 780 17,339
Black Box Corp. 301 11,823
Brooktrout, Inc. 220 2,031
C-COR Corp. 665 5,001
Cisco Systems, Inc. 124,173 2,385,363
CommScope, Inc. (a) 5,502 99,091
Corning, Inc. 11,892 136,163
Digi International, Inc. 361 4,942
Harmonic, Inc. 1,242 10,333
Harris Corp. 7,265 447,016
Inter-Tel, Inc. 457 12,339
Lucent Technologies, Inc. 44,802 159,047
Motorola, Inc. 95,685 1,651,523
Network Equipment Technology, Inc. 411 3,506
PC-Tel, Inc. (a) 363 2,799
Plantronics, Inc. 2,652 115,362
QUALCOMM, Inc. 53,056 2,218,271
SCM Microsystems, Inc. (a) 271 1,000
Symmertricom, Inc. (a) 770 6,537
Tollgrade Communications, Inc. (a) 243 2,311
ViaSat, Inc. (a) 479 9,048
------------
7,400,270
------------
COMPUTERS & PERIPHERALS (2.0%)
Apple Computer, Inc. 8,878 466,361
Avid Technology, Inc. (a) 559 29,616
Dell, Inc. (a) 9,285 325,532
Hewlett-Packard Co. 75,283 1,404,781
Hutchinson Technology, Inc. (a) 434 14,587
VInternational Business Machines Corp. 37,689 3,382,588
Lexmark International, Inc. (a) 128 10,638
NCR Corp. (a) 3,032 170,853
Pinnacle Systems, Inc. (a) 1,154 5,378
SBS Technologies, Inc. (a) 261 3,479
Storage Technology Corp. (a) 12,460 336,669
Sun Microsystems, Inc. (a) 36,038 163,252
Synaptics, Inc. 400 12,656
------------
6,326,390
------------
CONSTRUCTION & ENGINEERING (0.0%) (B)
EMCOR Group, Inc. (a) 274 10,842
Insituform Technologies, Inc. Class A (a) 483 9,573
Quanta Services, Inc. (a) 7,686 51,650
</Table>
<Table>
<Caption>
SHARES VALUE
CONSTRUCTION & ENGINEERING (CONTINUED)
Shaw Group, Inc. (The) (a) 1,010 $ 12,312
URS Corp. (a) 684 18,878
------------
103,255
------------
CONSTRUCTION MATERIALS (0.1%)
AMCOL International Corp. 502 8,830
Florida Rock Industries, Inc. 733 37,859
Martin Marietta Materials, Inc. 1,450 66,019
Texas Industries, Inc. 356 18,131
Vulcan Materials Co. 2,433 121,115
------------
251,954
------------
CONSUMER FINANCE (0.4%)
AmeriCredit Corp. (a) 17,308 335,775
Capital One Financial Corp. 11,345 836,807
Cash America International, Inc. 472 11,942
Providian Financial Corp. 13,812 214,777
Rewards Network, Inc. (a) 415 2,295
World Acceptance Corp. 300 7,020
------------
1,408,616
------------
CONTAINERS & PACKAGING (0.3%)
Aptargroup, Inc. 618 28,997
Ball Corp. 5,343 212,919
Bemis Co., Inc. 1,485 39,308
Caraustar Industries, Inc. 510 7,584
Chesapeake Corp. 328 7,613
Longview Fibre Co. 5,307 81,728
Myers Industries, Inc. 605 6,431
Pactiv Corp. (a) 3,654 86,563
Rock-Tenn Co. 637 9,905
Sealed Air Corp. (a) 2,688 133,163
Sonoco Products Co. 3,586 95,567
Temple-Inland, Inc. 2,619 154,835
------------
864,613
------------
DISTRIBUTORS (0.0%) (B)
ADESA Corp. 1,873 37,741
Advanced Marketing Services, Inc. 341 3,581
Genuine Parts Co. 1,987 79,261
------------
120,583
------------
DIVERSIFIED FINANCIAL SERVICES (1.3%)
CIT Group, Inc. 1,704 68,842
Citigroup, Inc. (f) 56,339 2,499,761
Financial Federal Corp. 291 10,857
GATX Corp. 5,490 149,767
JPMorgan Chase & Co. 21,327 823,222
Piper Jaffray Cos., Inc. (a) 324 14,169
Principal Financial Group, Inc. 10,003 377,713
------------
3,944,331
------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
177
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES (2.6%)
ALLTEL Corp. 5,624 $ 308,926
AT&T Corp. 30,731 525,807
BellSouth Corp. 35,836 955,746
CenturyTel, Inc. 4,347 139,495
Cincinnati Bell, Inc. 21,596 73,642
Citizens Communications Co. 7,774 104,172
Commonwealth Telephone Enterprises, Inc. 371 16,929
General Communication, Inc. Class A (a) 1,023 9,371
Qwest Communications International, Inc. 73,862 252,608
SBC Communications, Inc. 67,868 1,714,346
Sprint Corp. (FON Group) 68,134 1,427,407
Verizon Communications, Inc. 69,790 2,728,789
------------
8,257,238
------------
ELECTRIC UTILITIES (1.6%)
Allegheny Energy, Inc. 6,114 111,947
Alliant Energy Corp. 6,495 171,338
American Electric Power Co., Inc. 15,561 512,424
CenterPoint Energy, Inc. 14,531 152,721
Central Vermont Public Service Corp. 213 4,682
CH Energy Group, Inc. 262 11,693
Cleco Corp. 784 14,284
DPL, Inc. 6,389 138,002
Duquesne Light Holdings, Inc. 7,911 135,753
Edison International 15,511 473,085
El Paso Electric Co. (a) 801 13,337
Entergy Corp. 788 51,504
Exelon Corp. 10,579 419,140
FirstEnergy Corp. 5,794 239,466
FPL Group, Inc. 2,905 200,154
Great Plains Energy, Inc. 2,089 59,516
Green Mountain Power Corp. 119 3,082
IDACORP, Inc. 3,950 122,371
Northeast Utilities 14,324 276,883
OGE Energy Corp. 1,679 42,596
Pinnacle West Capital Corp. 3,135 133,614
PNM Resources, Inc. 5,736 133,534
PPL Corp. 7,131 370,812
Progress Energy, Inc. 1,930 79,709
Puget Energy, Inc. 2,189 50,916
TXU Corp. 14,621 895,098
UIL Holdings Corp. 242 12,265
UniSource Energy Corp. 570 14,016
Xcel Energy, Inc. 9,309 159,184
------------
5,003,126
------------
</Table>
<Table>
<Caption>
SHARES VALUE
ELECTRICAL EQUIPMENT (0.4%)
A.O. Smith Corp. 495 $ 13,137
Acuity Brands, Inc. 709 18,810
AMETEK, Inc. 2,565 84,440
Baldor Electric Co. 548 12,840
C&D Technologies, Inc. 467 8,359
Emerson Electric Co. 6,782 434,387
Hubbell, Inc. Class A 70 2,967
Hubbell, Inc. Class B 5,157 235,778
Intermagnetics General Corp. (a) 454 11,572
MagneTek, Inc. (a) 421 2,589
Regal-Beloit Corp. 407 9,524
Rockwell Automation, Inc. 2,965 123,611
Roper Industries, Inc. 616 37,983
Thomas & Betts Corp. (a) 5,257 148,983
Vicor Corp. (a) 764 7,098
Woodward Governor Co. 203 12,292
------------
1,164,370
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.3%)
Aeroflex, Inc. 1,205 13,375
Agilysys, Inc. 587 10,032
Anixter International, Inc. (a) 608 23,493
Arrow Electronics, Inc. (a) 1,799 43,104
Artesyn Technologies, Inc. (a) 707 6,858
Avnet, Inc. (a) 391 6,631
BEI Technologies, Inc. 260 7,771
Bell Microproducts, Inc. (a) 474 4,162
Benchmark Electronics, Inc. (a) 681 23,134
Checkpoint Systems, Inc. (a) 599 10,243
Cognex Corp. 735 18,816
Coherent, Inc. (a) 505 12,186
CTS Corp. 632 8,349
Daktronics, Inc. (a) 300 7,404
Electro Scientific Industries, Inc. (a) 509 8,633
FLIR Systems, Inc. (a) 562 29,904
Global Imaging Systems, Inc. (a) 392 13,798
Itron, Inc. (a) 374 7,832
Jabil Circuit, Inc. 1,560 37,924
Keithley Instruments, Inc. 271 4,740
KEMET Corp. (a) 1,864 14,465
Littelfuse, Inc. (a) 371 12,102
Methode Electronics, Inc. 651 8,743
Park Electrochemical Corp. 361 7,585
Paxar Corp. (a) 660 14,553
PerkinElmer, Inc. 4,832 99,249
Photon Dynamics, Inc. (a) 295 5,398
Planar Systems, Inc. (a) 261 2,537
RadiSys Corp. (a) 326 4,329
Rogers Corp. (a) 295 12,661
Sanmina-SCI Corp. (a) 4,886 39,088
</Table>
178 MainStay Asset Manager Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS (CONTINUED)
ScanSource, Inc. 222 $ 13,748
Tech Data Corp. (a) 454 18,337
Technitrol, Inc. (a) 679 11,081
Tektronix, Inc. 189 5,732
Thermo Electron Corp. (a) 3,457 100,253
Trimble Navigation Ltd. (a) 832 23,870
Varian, Inc. (a) 1,049 38,267
Veeco Instruments, Inc. (a) 535 10,454
Vishay Intertechnology, Inc. (a) 6,248 80,787
Waters Corp. 3,757 155,127
X-Rite, Inc. 367 4,837
------------
981,592
------------
ENERGY EQUIPMENT & SERVICES (0.3%)
Atwood Oceanics, Inc. (a) 253 12,131
BJ Services Co. 1,248 63,648
Cal Dive International, Inc. (a) 643 22,769
CARBO Ceramics, Inc. 266 19,219
Dril-Quip, Inc. (a) 316 7,078
FMC Technologies, Inc. (a) 2,051 62,002
Grant Prideco, Inc. 3,298 67,807
Hanover Compressor Co. (a) 5,486 71,428
Hydril (a) 383 16,848
Input/Output, Inc. (a) 1,231 8,605
Lone Star Technologies, Inc. (a) 482 12,725
Maverick Tube Corp. (a) 716 18,881
National-Oilwell, Inc. 1,833 61,790
Oceaneering International, Inc. (a) 442 15,713
Offshore Logistics, Inc. (a) 380 13,741
SEACOR Holdings, Inc. (a) 312 14,854
Smith International, Inc. 4,323 251,080
TETRA Technologies, Inc. (a) 395 11,826
Transocean, Inc. 5,108 180,057
Unit Corp. (a) 770 28,559
Varco International, Inc. 2,259 62,529
Veritas DGC, Inc. (a) 556 11,732
Weatherford International Ltd. 1,865 97,465
W-H Energy Services, Inc. (a) 498 10,134
------------
1,142,621
------------
FOOD & STAPLES RETAILING (1.7%)
Albertson's, Inc. 14,553 331,954
BJ's Wholesale Club, Inc. (a) 2,639 76,610
Casey's General Stores, Inc. 842 14,988
Costco Wholesale Corp. (a) 16,105 772,074
Great Atlantic & Pacific Tea Co., Inc. (The) (a) 704 4,576
Kroger Co. (The) (a) 35,241 532,491
Longs Drug Stores Corp. 600 14,820
Nash Finch Co. 214 6,604
</Table>
<Table>
<Caption>
SHARES VALUE
FOOD & STAPLES RETAILING (CONTINUED)
Performance Food Group Co. (a) 781 $ 18,166
Ruddick Corp. 3,435 69,147
Safeway, Inc. (a) 21,212 386,907
SUPERVALU, Inc. 6,408 188,972
United Natural Foods, Inc. (a) 656 17,837
Wal-Mart Stores, Inc. (a)(f) 46,282 2,495,525
Whole Foods Market, Inc. (a) 3,310 269,533
Winn-Dixie Stores, Inc. 3,351 11,527
------------
5,211,731
------------
FOOD PRODUCTS (0.8%)
American Italian Pasta Co. Class A (a) 327 6,638
Archer-Daniels-Midland Co. 5,029 97,412
ConAgra Foods, Inc. 8,385 221,364
Corn Products International, Inc. 615 30,258
Delta and Pine Land Co. 650 17,108
Flowers Foods, Inc. 738 18,716
H.J. Heinz Co. 2,743 99,708
Hain Celestial Group, Inc. (a) 622 10,064
Hershey Foods Corp. 2,015 102,140
Hormel Foods Corp. 4,548 127,844
J&J Snack Foods Corp. (a) 159 7,033
Kellogg Co. 6,231 267,933
Lance, Inc. 532 8,980
Ralcorp Holdings, Inc. (a) 492 18,081
Sanderson Farms, Inc. 334 10,852
Sara Lee Corp. 37,554 874,257
Sensient Technologies Corp. 366 7,950
Smithfield Foods, Inc. (a) 5,523 133,822
Tyson Foods, Inc. Class A 30,955 448,847
------------
2,509,007
------------
GAS UTILITIES (0.3%)
AGL Resources, Inc. 1,364 42,557
Atmos Energy Corp. 1,039 26,817
Cascade Natural Gas Corp. 199 4,032
Keyspan Corp. 3,836 153,248
Kinder Morgan, Inc. 2,884 185,643
Laclede Group, Inc. (The) 349 10,522
New Jersey Resources Corp. 459 18,869
Nicor, Inc. 1,974 74,064
NiSource, Inc. 6,303 135,199
Northwest Natural Gas Co. 470 14,899
NUI Corp. 293 3,944
Piedmont Natural Gas Co., Inc. 634 28,866
Sempra Energy 7,144 239,610
Southern Union Co. (a) 1,363 29,945
Southwest Gas Corp. 618 15,098
Southwestern Energy Co. (a) 607 27,886
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
179
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------
GAS UTILITIES (CONTINUED)
UGI Corp. 860 $ 33,222
WGL Holdings, Inc. 387 11,010
------------
1,055,431
------------
HEALTH CARE EQUIPMENT & SUPPLIES (0.8%)
Advanced Medical Optics, Inc. (a) 610 23,851
American Medical Systems Holdings, Inc. (a) 561 20,813
Analogic Corp. 245 10,424
Applera Corp.- Applied Biosystems Group (a) 5,602 106,886
ArthroCare Corp. (a) 377 11,615
Bausch & Lomb, Inc. 2,080 126,797
Baxter International, Inc. 1,395 42,910
Beckman Coulter, Inc. 1,159 68,960
Becton, Dickinson & Co. 11,979 628,897
BioLase Technology, Inc. (a) 406 2,769
Biomet, Inc. 970 45,280
Biosite, Inc. (a) 283 13,813
C.R. Bard, Inc. 2,825 160,460
CONMED Corp. (a) 530 14,877
Cooper Cos., Inc. 544 38,270
Cyberonics, Inc. (a) 400 7,508
Cytyc Corp. (a) 7,274 189,779
Datascope Corp. 270 8,764
DENTSPLY International, Inc. 3,376 175,586
Diagnostic Products Corp. 491 21,678
DJ Orthopedics, Inc. 400 6,820
Fisher Scientific International, Inc. 1,538 88,220
Haemonetics Corp. (a) 440 14,454
Hologic, Inc. (a) 362 7,269
ICU Medical, Inc. (a) 247 5,545
Immucor, Inc. (a) 496 15,302
Integra LifeSciences Holdings (a) 488 15,655
Invacare Corp. 529 24,429
Kensey Nash Corp. 191 5,463
Mentor Corp. (a) 711 24,743
Merit Medical Systems, Inc. (a) 439 4,544
Millipore Corp. 385 17,706
Osteotech, Inc. (a) 306 1,386
PolyMedica Corp. 454 15,890
Possis Medical, Inc. (a) 325 3,601
Resmed, Inc. (a) 570 26,790
Respironics, Inc. (a) 590 30,143
Sola International, Inc. (a) 545 10,453
STERIS Corp. 548 11,360
Stryker Corp. 2,274 97,987
SurModics, Inc. (a) 319 8,565
Sybron Dental Specialties, Inc. (a) 642 20,910
Theragenics Corp. (a) 535 1,969
</Table>
<Table>
<Caption>
SHARES VALUE
HEALTH CARE EQUIPMENT & SUPPLIES (CONTINUED)
Varian Medical Systems, Inc. (a) 2,024 $ 81,264
Viasys Healthcare, Inc. (a) 549 9,382
VISX, Inc. (a) 1,034 17,247
Vital Signs, Inc. 236 8,171
Wilson Greatbatch Technologies, Inc. (a) 387 6,560
Zimmer Holdings, Inc. (a) 3,089 239,675
------------
2,541,440
------------
HEALTH CARE PROVIDERS & SERVICES (2.2%)
Accredo Health, Inc. (a) 816 18,792
Aetna, Inc. 7,268 690,460
Amedisys, Inc. 100 3,023
American Healthways, Inc. (a) 560 16,901
AMERIGROUP Corp. (a) 422 25,320
AmerisourceBergen Corp. 5,331 293,418
AmSurg Corp. (a) 546 12,771
Anthem, Inc. (a) 315 25,326
Apria Healthcare Group, Inc. (a) 4,356 119,180
Cardinal Health, Inc. 10,238 478,626
Caremark Rx, Inc. (a) 13,510 404,895
Centene Corp. (a) 350 16,601
Cerner Corp. (a) 603 27,225
CIGNA Corp. 6,641 421,438
Community Health Systems, Inc. (a) 2,847 76,357
Covance, Inc. (a) 7,027 279,112
Coventry Health Care, Inc. (a) 6,588 269,449
Cross Country Healthcare, Inc. 588 8,720
Cryolife, Inc. (a) 472 3,252
Curative Health Services, Inc. (a) 227 1,258
Dendrite International, Inc. (a) 739 10,826
First Health Group Corp. (a) 8,228 130,990
Gentiva Health Services, Inc. 412 6,990
HCA, Inc. 3,834 140,823
Hooper Holmes, Inc. 1,184 6,216
LabOne, Inc. 300 9,000
LifePoint Hospitals, Inc. (a) 1,913 62,019
Lincare Holdings, Inc. (a) 8,313 305,586
Manor Care, Inc. 2,081 68,132
McKesson Corp. 4,742 126,422
Medco Health Solutions, Inc. (a) 2,164 73,381
NDC Health Corp. 638 10,712
OCA, Inc. 918 3,791
Odyssey Healthcare, Inc. (a) 656 5,068
Owens & Minor, Inc. 668 17,495
PacifiCare Health Systems, Inc. (a) 9,388 334,401
PAREXEL International Corp. (a) 469 9,028
Pediatrix Medical Group, Inc. (a) 412 23,175
Pharmaceutical Product Development, Inc. (a) 953 40,245
</Table>
180 MainStay Asset Manager Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES (CONTINUED)
Priority Healthcare Corp. (a) 726 $ 13,112
Province Healthcare Co. (a) 827 17,731
Quest Diagnostics, Inc. 1,633 142,953
RehabCare Group, Inc. (a) 294 6,750
Renal Care Group, Inc. (a) 2,385 75,271
Sierra Health Services, Inc. (a) 446 21,283
Sunrise Senior Living, Inc. (a) 345 13,148
Tenet Healthcare Corp. (a) 15,027 161,089
Triad Hospitals, Inc. (a) 5,146 169,972
United Surgical Partners International, Inc. (a) 467 16,350
UnitedHealth Group, Inc. 20,114 1,456,254
Universal Health Services, Inc. Class B (a) 2,573 106,934
WellPoint Health Networks, Inc. (a) 1,059 103,422
------------
6,880,693
------------
HOTELS, RESTAURANTS & LEISURE (1.5%)
Argosy Gaming Co. (a) 500 19,795
Aztar Corp. (a) 585 18,106
Bally Total Fitness Holding Corp. (a) 621 2,484
Boyd Gaming Corp. 4,897 164,001
Brinker International, Inc. (a) 7,550 243,865
Caesars Entertainment, Inc. (a) 29,734 532,239
Carnival Corp. 9,990 505,094
CBRL Group, Inc. 1,802 65,340
CEC Entertainment, Inc. (a) 610 23,192
Darden Restaurants, Inc. 2,579 63,185
GTECH Holdings Corp. 8,701 205,953
Harrah's Entertainment, Inc. 1,757 102,820
Hilton Hotels Corp. 2,243 44,636
IHOP Corp. 360 13,788
International Game Technology 2,639 87,193
Jack In The Box, Inc. (a) 614 20,489
Krispy Kreme Doughnuts, Inc. 472 5,003
Landry's Restaurants, Inc. 459 12,430
LoneStar Steakhouse & Saloon, Inc. 379 9,138
Mandalay Resort Group 4,930 339,184
Marcus Corp. (The) 539 11,459
Marriott International, Inc. Class A 1,818 99,063
McDonald's Corp. 32,000 932,800
Multimedia Games, Inc. (a) 500 6,600
O'Charley's, Inc. (a) 380 5,898
P.F. Chang's China Bistro, Inc. (a) 434 22,065
Panera Bread Co. Class A (a) 503 17,570
Papa John's International, Inc. (a) 280 9,038
Pinnacle Entertainment, Inc. (a) 603 8,864
</Table>
<Table>
<Caption>
SHARES VALUE
HOTELS, RESTAURANTS & LEISURE (CONTINUED)
RARE Hospitality International, Inc. (a) 564 $ 15,628
Ruby Tuesday, Inc. 1,420 35,074
Ryan's Restaurant Group, Inc. (a) 693 9,695
Shuffle Master, Inc. (a) 391 16,457
Six Flags, Inc. (a) 10,370 52,265
Sonic Corp. (a) 988 26,903
Starbucks Corp. 3,083 163,029
Starwood Hotels & Resorts Worldwide, Inc. 8,231 392,866
Steak n Shake Co. (The) (a) 494 8,141
Triarc Cos., Inc. Class B (a) 1,050 12,001
WMS Industries, Inc. (a) 493 14,420
Yum! Brands, Inc. (a) 5,490 238,815
------------
4,576,586
------------
HOUSEHOLD DURABLES (0.9%)
American Greetings Corp. Class A (a) 7,601 201,046
Applica, Inc. (a) 423 1,717
Bassett Furniture Industries, Inc. 207 3,830
Black & Decker Corp. (The) 3,765 302,254
Blyth, Inc. 858 25,800
Centex Corp. 970 50,382
Champion Enterprises, Inc. (a) 1,188 12,937
D.R. Horton, Inc. 405 12,150
Department 56, Inc. (a) 234 3,531
Enesco Group, Inc. (a) 251 1,629
Ethan Allen Interiors, Inc. 634 24,149
Fedders Corp. 530 1,903
Fleetwood Enterprises, Inc. (a) 950 11,961
Furniture Brands International, Inc. 5,022 109,530
Harman International Industries, Inc. 5,468 657,144
Interface, Inc. Class A (a) 937 8,143
La-Z-Boy, Inc. 910 12,003
Lennar Corp. 5,452 245,231
Libbey, Inc. 248 4,501
M.D.C. Holdings, Inc. 551 42,289
Maytag Corp. 3,672 63,893
Meritage Corp. 216 19,159
National Presto Industries, Inc. 122 4,906
Newell Rubbermaid, Inc. 13,030 280,927
NVR, Inc. (a) 106 66,462
Pulte Homes, Inc. 962 52,795
Russ Berrie & Co., Inc. 377 7,860
Skyline Corp. 153 6,132
Snap-on, Inc. 535 15,718
Standard Pacific Corp. 559 31,388
Stanley Works (The) 3,226 143,622
Toll Brothers, Inc. (a) 367 17,010
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
181
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------
HOUSEHOLD DURABLES (CONTINUED)
Toro Co. (The) 380 $ 25,935
Tupperware Corp. 2,187 36,501
Whirlpool Corp. 3,239 190,291
------------
2,694,729
------------
HOUSEHOLD PRODUCTS (0.8%)
Colgate-Palmolive Co. 212 9,460
Energizer Holdings, Inc. 5,910 274,401
Kimberly-Clark Corp. 18,178 1,084,681
Procter & Gamble Co. (The) 20,212 1,034,450
Rayovac Corp. 600 14,946
WD-40 Co. 304 8,593
------------
2,426,531
------------
INDUSTRIAL CONGLOMERATES (2.3%)
3M Co. 769 59,651
ALLETE, Inc. 1,121 38,092
VGeneral Electric Co. (f) 155,217 5,296,004
Standex International Corp. 219 5,736
Textron, Inc. 6,537 445,496
Tredegar Corp. 639 10,703
Tyco International Ltd. 42,037 1,309,453
------------
7,165,135
------------
INSURANCE (4.8%)
ACE, Ltd. 13,427 511,032
AFLAC, Inc. 24,194 868,081
Allmerica Financial Corp. (a) 1,984 59,718
Allstate Corp. (The) 5,314 255,550
Ambac Financial Group, Inc. 2,136 166,736
American Financial Group, Inc. 4,840 143,264
VAmerican International Group, Inc. 49,975 3,033,982
AmerUs Group Co. 2,882 120,410
Aon Corp. 12,370 252,471
Brown & Brown, Inc. 3,472 144,991
Chubb Corp. (The) 7,549 544,509
Cincinnati Financial Corp. 3,690 154,057
Delphi Financial Group, Inc. Class A 519 21,211
Everest Re Group Ltd. 4,209 334,068
Fidelity National Financial, Inc. 8,897 335,773
First American Corp. 6,587 205,449
Gallagher (Arthur J.) & Co. 4,685 131,648
Hartford Financial Services Group, Inc. (The) 11,477 671,175
HCC Insurance Holdings, Inc. 7,220 214,434
Hilb, Rogal and Hamilton Co. 622 19,717
Horace Mann Educators Corp. 3,175 53,975
LandAmerica Financial Group, Inc. 302 14,783
Lincoln National Corp. 3,812 166,966
Loews Corp. 8,820 528,318
</Table>
<Table>
<Caption>
SHARES VALUE
INSURANCE (CONTINUED)
Marsh & McLennan Cos., Inc. 4,133 $ 114,319
MetLife, Inc. 35,850 1,374,847
Ohio Casualty Corp. (a) 6,835 142,715
Old Republic International Corp. 6,979 162,960
Philadelphia Consolidated Holding Corp. 369 21,395
Presidential Life Corp. 536 8,565
ProAssurance Corp. 500 17,845
Progressive Corp. (The) 8,494 794,614
Protective Life Corp. 5,212 204,832
Prudential Financial, Inc. (a) 14,534 675,395
RLI Corp. 424 16,125
SAFECO Corp. 6,413 296,537
SCPIE Holdings, Inc. 237 2,050
Selective Insurance Group, Inc. 463 18,094
St. Paul Travelers Cos., Inc. (The) 30,433 1,033,505
StanCorp Financial Group, Inc. 1,689 127,317
Stewart Information Services Corp. (a) 301 12,768
Torchmark Corp. 894 48,294
UICI (a) 779 23,043
Unitrin, Inc. 4,492 193,965
UnumProvident Corp. 14,061 192,073
W.R. Berkley Corp. 7,540 322,260
XL Capital Ltd. Class A 2,179 157,978
Zenith National Insurance Corp. 343 14,087
------------
14,927,901
------------
INTERNET & CATALOG RETAIL (0.1%)
eBay, Inc. 2,097 204,688
FindWhat.com 500 10,025
Insight Enterprises, Inc. (a) 844 15,661
J. Jill Group, Inc. (a) 350 6,153
------------
236,527
------------
INTERNET SOFTWARE & SERVICES (0.0%) (B)
Digital Insight 600 9,396
Internet Security Systems, Inc. (a) 786 17,103
j2 Global Communications, Inc. (a) 418 12,603
Netegrity, Inc. (a) 631 6,720
WebEx Communications, Inc. (a) 764 16,808
Websense, Inc. (a) 401 16,269
Yahoo!, Inc. (a) 1,043 37,746
Zix Corp. (a) 497 2,684
------------
119,329
------------
IT SERVICES (0.6%)
Acxiom Corp. (a) 9,603 240,075
Alliance Data System Corp. 1,608 67,986
CACI International, Inc. Class A (a) 493 30,058
Carreker Corp. (a) 421 3,802
Certegy, Inc. 1,396 49,348
</Table>
182 MainStay Asset Manager Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------
IT SERVICES (CONTINUED)
CheckFree Corp. (a) 5,716 $ 177,196
CIBER, Inc. (a) 1,015 9,175
Cognizant Technology Solutions Corp. (a) 5,260 178,840
Computer Sciences Corp. 5,995 297,772
CSG Systems International, Inc. (a) 5,457 91,732
DST Systems, Inc. (a) 2,991 134,146
eFunds Corp. (a) 855 16,835
Electronic Data Systems Corp. 13,125 279,169
First Data Corp. 1,686 69,598
Gartner, Inc. Class A (a) 2,733 32,523
Global Payments, Inc. 636 34,827
Intrado, Inc. (a) 270 3,656
ManTech International Corp. Class A (a) 572 12,367
MAXIMUS, Inc. (a) 382 10,383
Pegasus Solutions, Inc. (a) 370 3,852
Sabre Holdings Corp. 3,280 70,553
StarTek, Inc. 260 7,189
Titan Corp. (The) (a) 587 8,711
Unisys Corp. (a) 15,820 168,008
------------
1,997,801
------------
LEISURE EQUIPMENT & PRODUCTS (0.2%)
Action Performance Cos., Inc. 327 3,025
Arctic Cat, Inc. 351 8,814
Brunswick Corp. 2,209 103,646
Eastman Kodak Co. 9,137 276,668
Hasbro, Inc. 6,626 117,214
JAKKS Pacific, Inc. (a) 449 7,076
K2, Inc. (a) 776 12,587
Meade Instruments Corp. (a) 477 1,684
Nautilus Group, Inc. (The) 545 10,709
Polaris Industries, Inc. 710 42,139
SCP Pool Corp. (a) 891 26,008
Sturm, Ruger & Co., Inc. 492 4,339
------------
613,909
------------
MACHINERY (0.9%)
Albany International Corp. Class A 557 16,721
Astec Industries, Inc. (a) 352 5,100
Barnes Group, Inc. 412 10,712
Briggs & Stratton Corp. 426 30,591
CLARCOR, Inc. 432 21,298
Cummins, Inc. 2,059 144,295
CUNO, Inc. (a) 282 16,215
Deere & Co. 3,887 232,365
Dionex Corp. (a) 354 19,824
Eaton Corp. 3,557 227,470
Flowserve Corp. (a) 2,859 61,697
</Table>
<Table>
<Caption>
SHARES VALUE
MACHINERY (CONTINUED)
Gardner Denver, Inc. (a) 294 $ 8,814
Graco, Inc. 5,183 178,295
Harsco Corp. 2,239 108,480
IDEX Corp. 840 30,996
JLG Industries, Inc. 786 13,110
Kaydon Corp. 470 13,912
Kennametal, Inc. 802 37,317
Lindsay Manufacturing Co. 205 4,834
Lydall, Inc. (a) 290 2,729
Manitowoc Co., Inc. (The) 445 15,709
Milacron, Inc. 814 2,238
Mueller Industries, Inc. (a) 575 15,330
Nordson Corp. 2,322 81,316
Oshkosh Truck Corp. 596 35,104
PACCAR, Inc. 6,383 442,406
Parker-Hannifin Corp. 949 67,028
Pentair, Inc. 9,326 348,606
Reliance Steel & Aluminum Co. 547 18,773
Robbins & Myers, Inc. 263 5,484
SPX Corp. (a) 8,140 312,169
Stewart & Stevenson Services, Inc. 522 8,874
Tecumseh Products Co. Class A 1,664 72,018
Thomas Industries, Inc. 315 10,647
Timken Co. (The) 1,505 36,120
Trinity Industries, Inc. 994 30,973
Valmont Industries, Inc. 434 9,440
Wabash National Corp. (a) 543 13,347
Watts Water Technologies, Inc. Class A 543 14,085
Wolverine Tube, Inc. (a) 296 2,945
------------
2,727,387
------------
MARINE (0.0%) (B)
Kirby Corp. (a) 409 17,178
------------
MEDIA (1.1%)
4Kids Entertainment, Inc. 236 4,316
Advo, Inc. 511 16,342
Catalina Marketing Corp. 1,987 50,887
Clear Channel Communications, Inc. 794 26,520
Comcast Corp. Class A (a) 6,409 189,066
Information Holdings, Inc. (a) 381 10,436
McGraw-Hill Cos., Inc. (The) 1,370 118,163
Media General, Inc. Class A 188 10,960
Reader's Digest Association, Inc. (The) 6,606 93,012
Scholastic Corp. 1,463 44,358
Thomas Nelson, Inc. 257 5,690
Time Warner, Inc. 68,586 1,141,271
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
183
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------
MEDIA (CONTINUED)
Viacom, Inc. Class B 11,202 $ 408,761
Walt Disney Co. (The) 50,730 1,279,411
Washington Post Co. (The) Class B 115 105,225
------------
3,504,418
------------
METALS & MINING (0.5%)
Allegheny Technologies, Inc. 2,263 38,041
Arch Coal, Inc. 4,754 154,600
Brush Engineered Materials, Inc. (a) 296 4,618
Carpenter Technology Corp. 375 17,798
Castle (A.M.) & Co. (a) 266 2,995
Century Aluminum Co. (a) 502 11,616
Cleveland-Cliffs, Inc. (a) 189 13,778
Commercial Metals Co. 511 18,473
Commonwealth Industries, Inc. 270 2,522
IMCO Recycling, Inc. (a) 260 3,047
Massey Energy Co. 1,283 34,551
Nucor Corp. 6,275 264,993
Peabody Energy Corp. 6,262 399,390
Phelps Dodge Corp. (a) 3,652 319,696
Quanex Corp. 294 14,906
RTI International Metals, Inc. (a) 372 7,451
Ryerson Tull, Inc. 444 7,246
Steel Dynamics, Inc. (a) 826 27,423
Steel Technologies, Inc. 175 4,193
United States Steel Corp. 5,368 197,113
------------
1,544,450
------------
MULTILINE RETAIL (0.9%)
Dillard's, Inc. Class A 3,932 80,567
Dollar Tree Stores, Inc. (a) 3,255 94,069
Federated Department Stores, Inc. 8,540 430,843
Fred's, Inc. 656 11,500
J.C. Penney Co., Inc. Holding Co. 13,430 464,544
May Department Stores Co. (The) 9,194 239,595
Nordstrom, Inc. 3,251 140,378
Saks, Inc. (a) 6,172 75,422
Sears, Roebuck and Co. 3,494 122,290
Shopko Stores, Inc. 532 9,172
Target Corp. 24,386 1,219,788
------------
2,888,168
------------
MULTI-UTILITIES & UNREGULATED POWER (0.7%)
AES Corp. (The) (a) 30,192 329,093
Avista Corp. 815 14,491
Duke Energy Corp. 29,739 729,498
Dynegy, Inc. Class A (a) 13,394 66,032
El Paso Corp. 5,113 45,710
Energen Corp. 616 33,128
</Table>
<Table>
<Caption>
SHARES VALUE
MULTI-UTILITIES & UNREGULATED POWER (CONTINUED)
Energy East Corp. 2,818 $ 71,014
Equitable Resources, Inc. 1,251 69,180
MDU Resources Group, Inc. 6,851 175,728
National Fuel Gas Co. 5,944 166,551
ONEOK, Inc. 3,889 104,303
Questar Corp. 5,156 247,488
Sierra Pacific Resources (a) 13,108 125,837
Westar Energy, Inc. 3,399 71,209
------------
2,249,262
------------
OFFICE ELECTRONICS (0.2%)
Gerber Scientific, Inc. (a) 396 3,097
Xerox Corp. (a) 38,659 570,993
Zebra Technologies Corp. Class A 1,294 68,569
------------
642,659
------------
OIL & GAS (5.3%)
Amerada Hess Corp. 3,574 288,458
Anadarko Petroleum Corp. 6,454 435,322
Apache Corp. 415 21,041
Ashland, Inc. 2,767 159,435
Burlington Resources, Inc. 18,807 780,491
Cabot Oil & Gas Corp. 554 23,440
ChevronTexaco Corp. 53,953 2,862,746
Cimarex Energy Co. (a) 699 25,080
ConocoPhillips 23,723 2,000,086
Devon Energy Corp. 9,554 706,709
EOG Resources, Inc. 4,636 308,572
VExxonMobil Corp. (f) 88,199 4,341,155
Forest Oil Corp. (a) 2,921 89,091
Frontier Oil Corp. 478 11,749
Kerr-McGee Corp. 1,605 95,048
Marathon Oil Corp. 10,076 383,996
Murphy Oil Corp. 2,345 187,647
Newfield Exploration Co. (a) 6,287 365,903
Noble Energy, Inc. 4,927 285,766
Occidental Petroleum Corp. 11,955 667,448
Overseas Shipholding Group, Inc. 4,399 250,523
Patina Oil & Gas Corp. 1,175 33,605
Petroleum Development Corp. 274 9,650
Pioneer Natural Resources Co. (a) 8,198 265,615
Plains Resources, Inc. (a) 5,159 128,975
Pogo Producing Co. 5,100 233,835
Remington Oil & Gas Corp. (a) 489 12,440
Spinnaker Exploration Co. (a) 558 17,811
St. Mary Land & Exploration Co. 481 18,966
Stone Energy Corp. (a) 443 18,238
Sunoco, Inc. 3,604 267,994
Swift Energy Co. (a) 501 12,149
Unocal Corp. 272 11,356
Valero Energy Corp. 12,146 521,914
Vintage Petroleum, Inc. 1,089 22,869
</Table>
184 MainStay Asset Manager Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------
OIL & GAS (CONTINUED)
Western Gas Resources, Inc. 4,298 $ 125,888
XTO Energy, Inc. 21,994 734,160
------------
16,725,171
------------
PAPER & FOREST PRODUCTS (0.4%)
Buckeye Technologies, Inc. (a) 676 7,132
Deltic Timber Corp. 217 8,634
Georgia-Pacific Corp. 12,167 420,857
Louisiana-Pacific Corp. (a) 5,113 125,320
MeadWestvaco Corp. 1,605 50,606
Pope & Talbot, Inc. 280 4,222
Potlatch Corp. 3,092 145,602
Rayonier, Inc. 3,133 148,504
Schweitzer-Mauduit International, Inc. 270 8,521
Wausau-Mosinee Paper Corp. 866 13,544
Weyerhaeuser Co. 5,424 339,759
------------
1,272,701
------------
PERSONAL PRODUCTS (0.8%)
Avon Products, Inc. 18,745 741,365
Gillette Co. (The) 38,497 1,596,856
Nature's Sunshine Products, Inc. 238 3,601
NBTY, Inc. (a) 1,132 31,175
------------
2,372,997
------------
PHARMACEUTICALS (2.9%)
Alpharma, Inc. 871 14,763
Bradley Pharmaceuticals, Inc. 276 4,571
Johnson & Johnson 35,970 2,099,929
King Pharmaceuticals, Inc. (a) 3,758 41,000
Lilly (Eli) & Co. 1,525 83,738
Medicis Pharmaceutical Corp. Class A 955 38,840
Merck & Co., Inc. 57,418 1,797,758
MGI Pharma, Inc. (a) 1,196 31,897
Noven Pharmaceuticals, Inc. (a) 411 9,268
Perrigo Co. 2,972 54,031
VPfizer, Inc. (f) 143,890 4,165,615
Sepracor, Inc. (a) 8,722 400,601
Valeant Pharmaceuticals International (a) 1,786 42,864
Wyeth 5,545 219,859
------------
9,004,734
------------
ROAD & RAIL (0.5%)
Arkansas Best Corp. 415 16,222
Burlington Northern Santa Fe Corp. 10,475 437,960
CSX Corp. 1,681 61,356
Heartland Express, Inc. 1,278 26,148
</Table>
<Table>
<Caption>
SHARES VALUE
ROAD & RAIL (CONTINUED)
Kansas City Southern 1,043 $ 17,679
Knight Transportation, Inc. (a) 948 22,269
Landstar System, Inc. (a) 508 34,513
Norfolk Southern Corp. 18,641 632,862
Swift Transportation Co., Inc. (a) 3,609 68,210
Union Pacific Corp. 3,239 203,960
USF Corp. 462 16,558
Werner Enterprises, Inc. 4,163 88,256
Yellow Roadway Corp. (a) 801 38,440
------------
1,664,433
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (1.0%)
Actel Corp. (a) 456 6,918
Advanced Energy Industries, Inc. (a) 590 5,817
Advanced Micro Devices, Inc. (a) 14,518 244,193
Alliance Semiconductor Corp. (a) 612 2,111
Altera Corp. (a) 2,932 66,644
Analog Devices 2,106 84,788
Atmel Corp. (a) 49,966 158,892
ATMI, Inc. (a) 564 13,169
Axcelis Technologies, Inc. (a) 1,660 14,276
Broadcom Corp. Class A (a) 3,860 104,413
Brooks Automation, Inc. (a) 758 11,279
Cabot Microelectronics Corp. 393 14,160
Cohu, Inc. 388 6,084
Cree, Inc. (a) 4,339 149,739
Cymer, Inc. (a) 605 17,255
Cypress Semiconductor Corp. (a) 8,803 92,696
DSP Group, Inc. (a) 518 10,272
DuPont Photomasks, Inc. (a) 330 8,653
ESS Technology, Inc. (a) 707 4,624
Exar Corp. (a) 740 11,115
Fairchild Semiconductor International, Inc. (a) 2,828 40,638
FEI Co. (a) 601 11,635
Helix Technology Corp. 477 6,697
Integrated Device Technology, Inc. (a) 4,423 52,280
Intel Corp. 69,337 1,543,442
Kopin Corp. (a) 1,270 4,648
Kulicke & Soffa Industries, Inc. (a) 914 6,526
Lam Research Corp. (a) 5,962 155,191
Linear Technology Corp. 1,716 65,002
LSI Logic Corp. (a) 517 2,352
Microchip Technology, Inc. 181 5,475
Micron Technology, Inc. (a) 1,559 18,989
Microsemi Corp. (a) 1,060 16,472
National Semiconductor Corp. (a) 2,935 49,014
Pericom Semiconductor Corp. (a) 469 4,219
Phototronics, Inc. (a) 586 10,284
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
185
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (CONTINUED)
Power Integrations, Inc. (a) 541 $ 11,577
Rudolph Technologies, Inc. (a) 299 4,509
Silicon Laboratories, Inc. (a) 16 480
Skyworks Solutions, Inc. (a) 2,531 22,501
Standard Microsystems Corp. (a) 307 6,760
Supertex, Inc. (a) 227 4,870
Three-Five Systems, Inc. (a) 381 857
Ultratech, Inc. (a) 418 7,114
Varian Semiconductor Equipment Associates, Inc.
(a) 629 21,770
------------
3,100,400
------------
SOFTWARE (2.1%)
Activision, Inc. (a) 7,967 115,362
Advent Sortware, Inc. 704 14,685
ANSYS, Inc. (a) 550 15,180
Autodesk, Inc. 5,372 283,373
BMC Software, Inc. (a) 10,629 201,101
Cadence Design Systems, Inc. (a) 5,443 67,711
Captaris, Inc. (a) 546 2,512
Catapult Communications Corp. (a) 230 5,649
Citrix Systems, Inc. (a) 5,153 124,342
Computer Associates International, Inc. (a) 9,117 252,632
Compuware Corp. (a) 12,101 70,065
Concord Communications, Inc. (a) 311 2,556
EPIQ Systems, Inc. (a) 324 4,853
FactSet Research Systems, Inc. 521 25,967
Fair Isaac Corp. 1,548 46,750
FileNET Corp. (a) 667 18,563
Hyperion Solutions Corp. (a) 651 26,125
JDA Software Group, Inc. (a) 522 5,862
Kronos, Inc. (a) 516 25,310
Macormedia, Inc. 546 14,818
Macrovision Corp. 1,886 50,997
Manhattan Associates, Inc. (a) 501 10,306
MapInfo Corp. (a) 275 2,720
McAfee, Inc. 3,352 81,118
MICROS Systems, Inc. (a) 317 18,741
VMicrosoft Corp. (f) 134,732 3,771,149
MRO Software, Inc. (a) 448 4,883
NYFIX, Inc. (a) 559 2,672
Parametric Technology Corp. 2,769 14,371
PeopleSoft, Inc. 941 19,545
Phoenix Technologies Ltd. (a) 434 2,646
Progress Software Corp. (a) 632 12,551
QRS Corp. (a) 283 1,972
Radiant Systems, Inc. (a) 495 2,534
Reynolds & Reynolds Co. (The) Class A 6,842 168,382
</Table>
<Table>
<Caption>
SHARES VALUE
SOFTWARE (CONTINUED)
Roxio, Inc. (a) 563 $ 3,429
RSA Security, Inc. (a) 5,410 110,689
SERENA Software, Inc. (a) 794 14,086
Sonic Solutions 394 7,821
SPSS, Inc. (a) 316 4,269
Symantec Corp. (a) 11,599 660,447
Synopsys, Inc. 7,165 116,360
Take-Two Interactive Software, Inc. (a) 762 25,115
TALX Corp. 247 7,002
THQ, Inc. (a) 653 12,342
Transaction Systems Architects, Inc. Class A (a) 2,143 35,134
Verity, Inc. (a) 683 8,824
Wind River Systems, Inc. 3,451 46,209
------------
6,539,730
------------
SPECIALTY RETAIL (1.3%)
Aaron Rents, Inc. 835 18,115
Abercrombie & Fitch Co. Class A (a) 10,316 404,181
Aeropostale, Inc. 1,167 36,819
American Eagle Outfitters, Inc. (a) 7,420 303,330
AnnTaylor Stores Corp. (a) 1,554 34,903
AutoNation, Inc. (a) 2,139 36,855
AutoZone, Inc. (a) 2,642 216,142
Barnes & Noble, Inc. (a) 5,602 186,378
Best Buy Co., Inc. 1,118 66,208
Boise Cascade Corp. 78 2,303
Borders Group, Inc. (a) 1,843 42,002
Building Materials Holding Corp. 238 6,878
Burlington Coat Factory Warehouse Corp. 751 16,575
Cato Corp. (The) Class A 371 8,518
Children's Place Retail Stores, Inc. (The) (a) 486 15,003
Christopher & Banks Corp. 607 9,864
Circuit City Stores, Inc. 7,871 127,904
Claire's Stores, Inc. 3,634 94,557
Cost Plus, Inc. (a) 391 12,629
Dress Barn, Inc. (The) (a) 533 8,544
Electronics Boutique Holdings Corp. (a) 400 13,656
Gap, Inc. (The) 35,517 709,630
Genesco, Inc. (a) 397 10,163
Goody's Family Clothing, Inc. 595 5,230
Group 1 Automotive, Inc. (a) 413 11,684
Guitar Center, Inc. (a) 415 18,521
Gymboree Corp. (The) (a) 538 6,510
Hancock Fabrics, Inc. 337 3,461
Haverty Furniture Cos., Inc. 401 6,769
</Table>
186 MainStay Asset Manager Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------
SPECIALTY RETAIL (CONTINUED)
Hibbett Sporting Goods, Inc. (a) 410 $ 9,168
Home Depot, Inc. (The) 5,642 231,773
Hot Topic, Inc. (a) 803 16,510
Jo-Ann Stores, Inc. Class A (a) 387 9,543
Limited Brands 11,637 288,365
Linens 'n Things, Inc. (a) 751 18,084
Men's Wearhouse, Inc. (The) (a) 623 19,363
Michaels Stores, Inc. 8,214 239,027
Movie Gallery, Inc. (a) 594 9,611
Office Depot, Inc. 2,483 40,200
Pacific Sunwear of California, Inc. (a) 1,803 42,262
Payless ShoeSource, Inc. (a) 7,640 72,656
Pep Boys-Manny, Moe & Jack (The) 1,010 14,362
PETsMART, Inc. 1,156 36,969
RadioShack Corp. 3,829 114,601
Rent-A-Center, Inc. (a) 3,591 86,148
Ross Stores, Inc. 2,844 74,712
Select Comfort Corp. (a) 600 10,272
Sherwin-Williams Co. (The) 3,391 144,864
Stein Mart, Inc. (a) 728 12,099
TBC Corp. (a) 397 8,825
Too, Inc. (a) 627 13,806
Toys "R" Us, Inc. (a) 10,081 181,559
Tractor Supply Co. (a) 635 23,038
Zale Corp. (a) 886 25,269
------------
4,176,418
------------
TEXTILES, APPAREL & LUXURY GOODS (0.1%)
Ashworth, Inc. (a) 312 2,621
Brown Shoe Co., Inc. 326 8,900
Coach, Inc. (a) 4,104 191,370
Fossil, Inc. (a) 1,189 35,385
Haggar Corp. 155 2,517
Jones Apparel Group, Inc. 1,004 35,441
Kellwood Co. 448 14,094
K-Swiss, Inc. Class A 580 14,500
Oshkosh B' Gosh, Inc. Class A 217 3,941
Oxford Industries, Inc. 270 10,014
Phillips-Van Heusen Corp. 554 12,626
Quiksilver, Inc. (a) 950 25,887
Reebok International Ltd. 456 16,872
Russell Corp. 593 10,253
Stride Rite Corp. (The) 721 7,462
Timberland Co. (The) Class A (a) 1,021 62,689
Wolverine World Wide, Inc. 672 20,456
------------
475,028
------------
</Table>
<Table>
<Caption>
SHARES VALUE
THRIFTS & MORTGAGE FINANCE (1.9%)
Anchor BanCorp Wisconsin, Inc. 384 $ 9,961
BankAtlantic Bancorp, Inc. Class A 1,011 17,682
BankUnited Financial Corp. (a) 499 14,845
Brookline Bancorp, Inc. 984 15,242
Commercial Federal Corp. 661 18,382
Countrywide Financial Corp. 26,558 847,997
Dime Community Bancshares 628 10,086
Downey Financial Corp. 476 26,304
Fannie Mae 27,668 1,940,910
FirstFed Financial Corp. (a) 273 14,032
Flagstar Bancorp, Inc. 1,030 21,517
Freddie Mac 23,756 1,582,150
Fremont General Corp. 1,293 27,800
Golden West Financial Corp. 477 55,771
Independence Community Bank Corp. 1,772 66,680
IndyMac Bancorp, Inc. 1,197 38,615
MAF Bancorp, Inc. 562 24,093
MGIC Investment Corp. 2,323 149,392
New Century Financial Corp. 800 44,120
Sterling Financial Corp. (a) 377 14,164
Washington Mutual, Inc. 25,791 998,370
Waypoint Financial Corp. 574 15,762
Webster Financial Corp. 2,021 96,604
------------
6,050,479
------------
TOBACCO (0.4%)
Altria Group, Inc. 14,270 691,524
DIMON, Inc. 818 4,761
Reynolds American, Inc. 5,370 369,778
UST, Inc. 1,308 53,837
------------
1,119,900
------------
TRADING COMPANIES & DISTRIBUTORS (0.0%) (B)
Applied Industrial Technologies, Inc. 347 12,909
Grainger (W.W.), Inc. 707 41,423
Hughes Supply, Inc. 1,101 31,279
Lawson Products, Inc. 173 7,491
Watsco, Inc. 476 13,547
------------
106,649
------------
WATER UTILITIES (0.0%) (B)
American States Water Co. 278 6,839
------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
187
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.3%)
Boston Communications Group, Inc. (a) 325 $ 2,957
Nextel Communications, Inc. Class A (a) 15,678 415,310
Telephone & Data Systems, Inc. 5,184 388,282
------------
806,549
------------
Total Common Stocks
(Cost $150,313,913) 190,820,898(i)
------------
CONVERTIBLE PREFERRED STOCK (0.0%) (B)
- -----------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST (0.0%)(B)
Simon Property Group, Inc.
6.00% 174 9,460
------------
Total Convertible Preferred Stock (Cost $9,350) 9,460
------------
REAL ESTATE INVESTMENT TRUSTS (1.2%)
- -----------------------------------------------------------------------------
Acadia Realty Trust 406 6,252
Affordable Residential Communities 513 6,679
Alexandria Real Estate Equities, Inc. 256 16,909
AMB Property Corp. 1,090 40,875
American Financial Realty Trust 1,446 21,256
America First Apartment Investors, Inc. 129 1,574
American Land Lease, Inc. 111 2,204
Amli Residential Properties Trust 332 10,448
Apartment Investment & Management Co. Class A 1,242 45,569
Archstone-Smith Trust 2,523 84,647
Arden Realty, Inc. 864 29,445
Ashford Hospitality Trust 326 3,159
Associated Estates Realty Corp. 305 2,901
Avalonbay Communities, Inc. 923 60,429
Bedford Property Investors, Inc. 216 6,210
Boston Properties, Inc. 1,392 83,130
Boykin Lodging Co. 273 2,293
Brandywine Realty Trust 702 20,653
BRE Properties, Inc. Class A 661 26,374
Camden Property Trust 525 23,835
Capital Automotive REIT 1,127 36,357
CarrAmerica Realty Corp. 717 23,109
Catellus Development Corp. 1,359 39,194
CBL & Associates Properties, Inc. 405 26,548
Cedar Shopping Centers, Inc. 257 3,477
</Table>
<Table>
<Caption>
SHARES VALUE
Centerpoint Properties Corp. 616 $ 28,521
Colonial Properties Trust 830 32,353
Commercial Net Lease Realty 1,516 29,153
Cornerstone Realty Income Trust, Inc. 729 7,159
Corporate Office Properties Trust 460 12,613
Correctional Properties Trust 173 4,668
Cousins Properties, Inc. 646 24,044
Crescent Real Estate Equity Co. 1,311 20,989
CRT Properties, Inc. 338 7,490
Developers Diversified Realty Corp. 1,342 56,096
Duke Realty Corp. 1,823 62,164
EastGroup Properties, Inc. 283 10,027
Entertainment Properties Trust 700 27,930
Equity Inns, Inc. 638 6,061
Equity Office Properties Trust 11,493 323,183
Equity One, Inc. 932 19,563
Equity Residential 3,609 120,360
Essex Property Trust, Inc. 687 53,902
Federal Realty Investment Trust 680 32,266
FelCor Lodging Trust, Inc. 784 9,110
First Industrial Realty Trust, Inc. 541 20,883
First Potomac Realty Trust 187 3,781
Gables Residential Trust 889 32,449
General Growth Properties, Inc. 2,803 92,471
Getty Realty Corp. 326 9,167
Glenborough Realty Trust, Inc. 943 19,803
Glimcher Realty Trust 468 12,084
Government Properties Trust 265 2,658
Health Care Property Investors, Inc. 1,702 47,367
Health Care REIT, Inc. 677 24,372
Healthcare Realty Trust, Inc. 618 24,936
Heritage Property Investment Trust 619 18,935
Hersha Hospitality Trust 200 1,860
Highland Hospitality Corp. 527 6,008
Highwoods Properties, Inc. 1,887 46,816
Home Properties, Inc. 440 18,106
Hospitality Properties Trust 861 36,894
Host Marriot Corp. 4,469 65,024
HRPT Properties Trust 2,339 26,173
Innkeepers USA Trust 492 6,814
Investors Real Estate Trust 562 5,704
Kilroy Realty Corp. 848 33,708
Kimco Realty Corp. 1,436 78,334
Kramont Realty Trust 319 6,016
LaSalle Hotel Properties 330 9,478
Lexington Corporate Properties Trust 1,463 32,830
Liberty Property Trust 1,117 45,294
Macerich Co. (The) 773 46,187
</Table>
188 MainStay Asset Manager Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
SHARES VALUE
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
- -----------------------------------------------------------------------------
Mack-Cali Realty Corp. 957 $ 42,271
Maguire Properties, Inc. 562 14,696
Manufactured Home Communities 302 10,416
Mid-America Apartment Communities, Inc. 282 11,091
Mills Corp. (The) 708 39,259
Mission West Properties, Inc. 282 2,792
Monmouth Real Estate Investment Corp. Class A 229 1,935
National Health Realty, Inc. 127 2,555
Nationwide Health Properties, Inc. 852 19,230
New Plan Excel Realty Trust 1,321 34,557
OMEGA Healthcare Investors, Inc. 543 6,120
One Liberty Properties, Inc. 139 2,531
Pan Pacific Retail Properties, Inc. 531 30,081
Parkway Properties, Inc. 362 18,382
Pennsylvania Real Estate Investment Trust 472 19,140
Post Properties, Inc. 525 16,847
Prentiss Properties Trust 587 21,120
Price Legacy Corp. 483 9,085
ProLogis 2,335 91,018
PS Business Parks, Inc. 288 12,649
Public Storage, Inc. 1,648 86,108
Ramco-Gershenson Properties Trust 228 6,156
Realty Income Corp. 522 25,051
Reckson Associates Realty Corp. 942 28,590
Regency Centers Corp. 801 39,137
Rouse Co. (The) 1,319 87,977
Saul Centers, Inc. 212 6,890
Senior Housing Properties Trust 837 15,702
Shurgard Storage Centers, Inc. Class A 1,392 55,262
Simon Property Group, Inc. 2,856 166,562
Sizeler Property Investors, Inc. 207 2,008
SL Green Realty Corp. 509 27,903
Sovran Self Storage, Inc. 457 17,855
Summit Properties, Inc. 415 12,587
Sun Communities, Inc. 252 9,795
Tanger Factory Outlet Centers, Inc. 167 7,891
Taubman Centers, Inc. 656 18,827
Town & Country Trust 258 7,126
Trizec Properties, Inc. 2,001 31,916
U.S. Restaurant Properties, Inc. 312 5,529
United Dominion Realty Trust, Inc. 1,687 35,562
United Mobile Homes, Inc. 127 1,814
</Table>
<Table>
<Caption>
SHARES VALUE
Universal Health Realty Income Trust 150 $ 4,713
Urstadt Biddle Properties Class A 292 4,701
Ventas, Inc. 1,107 29,778
Vornado Realty Trust 1,641 110,275
Washington Real Estate Investment Trust 551 17,329
Weingarten Realty Investors 1,129 40,825
Windrose Medical Properties Trust 131 1,716
Winston Hotels, Inc. 410 4,530
------------
Total Real Estate Investment Trusts
(Cost $2,456,400) 3,601,221
------------
<Caption>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS (15.7%)
- -----------------------------------------------------------------------------
COMMERCIAL PAPER (1.9%)
Dealers Capital Access Trust
1.82%, due 11/12/04 $1,500,000 1,499,161
1.90%, due 12/10/04 300,000 299,382
General Electric Capital Corp.
1.77%, due 11/18/04 400,000 399,665
1.84%, due 12/2/04 186,000 185,705
Great-West Life & Annuity
1.83%, due 12/6/04 800,000 798,575
Hitachi Credit America Corp.
1.80%, due 11/29/04 700,000 699,018
JMG Funding L.P.
1.82%, due 11/1/04 283,000 283,000
UBS Finance Delaware LLC
1.79%, due 11/24/04 400,000 399,542
USAA Capital Corp.
1.73%, due 11/1/04 1,100,000 1,100,000
Wells Fargo & Co.
1.73%, due 11/1/04 400,000 400,000
------------
Total Commercial Paper
(Cost $6,064,048) 6,064,048
------------
<Caption>
SHARES
INVESTMENT COMPANY (0.0%) (B)
AIM Institutional Funds Group (k) 47,025 47,025
------------
Total Investment Company
(Cost $47,025) 47,025
------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
189
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONTINUED)
- -----------------------------------------------------------------------------
MASTER NOTE (0.3%)
Bank of America LLC
1.96%, due 11/1/04 (k) $1,000,000 $ 1,000,000
------------
Total Master Note
(Cost $1,000,000) 1,000,000
------------
REPURCHASE AGREEMENTS (6.3%)
Credit Suisse First Boston LLC
1.925%, dated 10/29/04 due 11/1/04
Proceeds at Maturity $9,301,492 (k)
(Collateralized by Various Bonds with a
Principal Amount of $9,326,010 and a Market
Value of $9,486,334) 9,300,000 9,300,000
Dresdner Kleinwort Wasserstein
1.95%, dated 10/29/04
due 11/1/04
Proceeds at Maturity
$5,000,810 (k)
(Collateralized by Various Bonds with a
Principal Amount of $5,190,328 and a Market
Value of $5,250,262) 5,000,000 5,000,000
Merrill Lynch Pierce Fenner & Smith, Inc.
1.955%, dated 10/29/04 due 11/1/04
Proceeds at Maturity
$1,500,244 (k)
(Collateralized by Various Bonds with a
Principal Amount of $1,483,358 and a Market
Value of $1,575,053) 1,500,000 1,500,000
Morgan Stanley & Co., Inc.
1.93%, dated 10/29/04 due 11/1/04
Proceeds at Maturity $4,000,642 (k)
(Collateralized by Various Bonds with a
Principal Amount of $6,103,123 and a Market
Value of $4,207,462) 4,000,000 4,000,000
------------
Total Repurchase Agreements
(Cost $19,800,000) 19,800,000
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
U.S. GOVERNMENT & FEDERAL AGENCIES (7.2%)
Federal Home Loan Bank
1.74%, due 11/3/04 $1,500,000 $ 1,499,856
Federal National Mortgage Association
1.74%, due 11/1/04 1,600,000 1,600,000
Freddie Mac Discount Note
1.73%, due 11/2/04 1,000,000 999,952
United States Treasury Bills
1.51%, due 11/4/04 3,095,000 3,094,585
1.75%, due 1/20/05 8,800,000 8,763,726
1.75%, due 1/27/05 6,500,000 6,470,626
------------
Total U.S. Government & Federal Agencies (Cost
$22,432,616) 22,428,745
------------
Total Short-Term Investments
(Cost $49,343,689) 49,339,818
------------
Total Investments
(Cost $294,818,186) (l) 108.0% 338,438,535(m)
Liabilities in Excess of
Cash and Other Assets (8.0) (25,081,926)
---------- ------------
Net Assets 100.0% $313,356,609
========== ============
UNREALIZED
CONTRACTS APPRECIATION/
LONG (DEPRECIATION) (N)
FUTURES CONTRACTS (0.1%)
- -------------------------------------------------------------------------------------
CANADA (0.2%)
Standard & Poor's Toronto Stock Exchange 60 Index
December 2004 120 $ 567,461
-----------------
ITALY (0.0%) (B)
Milan MIB 30 Index December 2004 46 42,316
-----------------
SPAIN (0.1%)
IBEX 35 Index
November 2004 151 341,095
-----------------
Total Futures Contracts Long
(Settlement Value $34,317,123) 950,872
-----------------
</Table>
190 MainStay Asset Manager Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
UNREALIZED
CONTRACTS APPRECIATION/
SHORT (DEPRECIATION) (N)
FUTURES CONTRACTS (CONTINUED)
- -------------------------------------------------------------------------------------
UNITED STATES (-0.2%)
Standard & Poor's 500 Index December 2004 181 $ (155,511)
Standard & Poor's
MidCap 400 Index
December 2004 34 (259,761)
United States Treasury Note
December 2004 (10 Year) 132 (149,509)
-----------------
Total Futures Contracts Short (Settlement Value
$76,383,925) (564,781)
-----------------
Total Futures Contracts
(Settlement Value $42,066,802) (g)(i) $ 386,091
=================
</Table>
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) May be sold to institutional investors only.
(d) Yankee bond -- dollar-denominated bond issued in the
United States by foreign banks and corporations.
(e) 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, 2004 is $5,588,438.
(f) Segregated, partially segregated or designated as
collateral for futures contracts and TBAs.
(g) The combined market value of U.S. Government & Federal
Agencies investments and settlement value of U.S.
Treasury Note futures contracts represents 17.4% of net
assets.
(h) Exchange Traded Fund -- represents a basket of
securities that are traded on an exchange.
(i) The combined market value of common stocks and settle-
ment value of Index futures contracts represents 41.3%
of net assets.
(j) Represents securities out on loan or a portion which is
out on loan.
(k) Represents a security or a portion thereof, purchased
with cash collateral received for securities on loan.
(l) The cost for federal income tax purposes is
$299,024,905.
(m) At October 31, 2004 net unrealized appreciation was
$39,413,630, based on cost for federal income tax pur-
poses. This consisted of aggregate gross unrealized
appreciation for all investments on which there was an
excess of market value over cost of $46,413,678 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $7,000,048.
(n) Represents the difference between the value of the
contracts at the time they were opened and the value at
October 31, 2004.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
191
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2004
<Table>
ASSETS:
Investment in securities, at value
(identified cost $294,818,186) including
$20,684,830 market value of securities
loaned $338,438,535
Cash 92,807
Receivable due from broker for futures
contracts 245,605
Receivables:
Investment securities sold 3,164,582
Dividends and interest 1,090,713
Fund shares sold 732,582
Other assets 24,896
------------
Total assets 343,789,720
------------
LIABILITIES:
Securities lending collateral 20,847,025
Payables:
Investment securities purchased 8,499,931
Variation margin on futures contracts 380,079
Fund shares redeemed 302,352
Manager 158,795
Transfer agent 99,737
Custodian 36,286
NYLIFE Distributors 29,976
Directors 3,025
Accrued expenses 75,905
------------
Total liabilities 30,433,111
------------
Net assets $313,356,609
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1
billion shares authorized:
Class A $ 4,403
Class B 1,602
Class C 257
Class I 18,390
Additional paid-in capital 323,069,111
Accumulated undistributed net investment
income 4,700,715
Accumulated net realized loss on investments,
futures contracts and foreign currency
transactions (58,421,665)
Net unrealized appreciation on investments
and futures contracts 44,006,440
Net unrealized depreciation on foreign
currency transactions (22,644)
------------
Net assets $313,356,609
============
CLASS A
Net assets applicable to outstanding shares $ 55,795,740
============
Shares of capital stock outstanding 4,403,301
============
Net asset value per share outstanding $ 12.67
Maximum sales charge (5.50% of offering price) 0.74
------------
Maximum offering price per share outstanding $ 13.41
============
CLASS B
Net assets applicable to outstanding shares $ 20,087,288
============
Shares of capital stock outstanding 1,602,061
============
Net asset value and offering price per share
outstanding $ 12.54
============
CLASS C
Net assets applicable to outstanding shares $ 3,218,047
============
Shares of capital stock outstanding 256,579
============
Net asset value and offering price per share
outstanding $ 12.54
============
CLASS I
Net assets applicable to outstanding shares $234,255,534
============
Shares of capital stock outstanding 18,389,706
============
Net asset value and offering price per share
outstanding $ 12.74
============
</Table>
192 MainStay Asset Manager Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2004
<Table>
INVESTMENT INCOME:
INCOME:
Interest $ 4,053,044
Dividends 3,310,136
Income from securities loaned -- net 16,053
-----------
Total income 7,379,233
-----------
EXPENSES:
Manager 1,980,383
Custodian 161,964
Professional 99,224
Service -- Class A 95,860
Service -- Class B 20,821
Service -- Class C 3,407
Service -- Service Class 16,552
Transfer agent -- Classes A, B and C 81,591
Transfer agent -- Class I 533,073
Distribution -- Class B 62,463
Distribution -- Class C 10,222
Registration 45,219
Interest 39,808
Shareholder communication 35,336
Directors 33,133
Miscellaneous 133,354
-----------
Total expenses before reimbursement 3,352,410
Expense reimbursement from Manager (648,477)
-----------
Net expenses 2,703,933
-----------
Net investment income 4,675,300
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Security transactions 27,774,247
Futures transactions (2,342,533)
Foreign currency transactions 24,998
-----------
Net realized gain on investments and foreign
currency transactions 25,456,712
-----------
Net change in unrealized appreciation
(depreciation) on investments:
Security transactions (7,768,242)
Futures transactions 1,944,776
Foreign currency transactions (23,088)
-----------
Net unrealized loss on investments and foreign
currency transactions (5,846,554)
-----------
Net realized and unrealized gain on investments
and foreign currency transactions 19,610,158
-----------
Net increase in net assets resulting from
operations $24,285,458
===========
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
193
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003
<Table>
<Caption>
2004 2003
INCREASE (DECREASE)
IN NET ASSETS:
Operations:
Net investment income $ 4,675,300 $ 5,894,252
Net realized gain (loss) on
investments, futures contracts and
foreign currency transactions 25,456,712 (40,206,427)
Net change in unrealized
appreciation (depreciation) on
investments and foreign currency
transactions (5,846,554) 76,291,934
-----------------------------
Net increase in net assets
resulting from operations 24,285,458 41,979,759
-----------------------------
Dividends to shareholders:
From net investment income:
Class C (757) --
Class I (5,321,664) (7,843,185)
Service Class (680,408) (396,933)
-----------------------------
Total dividends to shareholders (6,002,829) (8,240,118)
-----------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 62,346,988 --
Class B 20,384,771 --
Class C 3,296,544 41,320
Class I 35,028,829 41,070,189
Service Class 869,829 14,487,283
Net asset value of shares issued to shareholders
in reinvestment of dividends:
Class C 757 --
Class I 5,295,326 5,250,193
Service Class 634,600 396,273
-----------------------------
127,857,644 61,245,258
Cost of shares redeemed:
Class A (8,381,903) --
Class B (655,422) --
Class C (189,336) (90)
Class I (83,823,084) (214,366,458)
Service Class (38,107,319) (4,423,693)
-----------------------------
(131,157,064) (218,790,241)
-----------------------------
Decrease in net assets derived
from capital share transactions (3,299,420) (157,544,983)
-----------------------------
Net increase (decrease) in net
assets 14,983,209 (123,805,342)
</Table>
<Table>
<Caption>
2004 2003
NET ASSETS:
Beginning of year $ 298,373,400 $ 422,178,742
-----------------------------
End of year $ 313,356,609 $ 298,373,400
=============================
Accumulated undistributed net
investment income at end of year $ 4,700,715 $ 5,852,466
=============================
</Table>
194 MainStay Asset Manager Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
This page intentionally left blank
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A CLASS B CLASS C
----------- ----------- --------------------------
JANUARY 2, JANUARY 2, DECEMBER 30,
2004* 2004* YEAR 2002*
THROUGH THROUGH ENDED THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2004 2004 2004 2003
Net asset value at beginning of period $ 12.17 $ 12.12 $11.86 $10.64
------- ------- ------ ------
Net investment income 0.12 0.04 0.11 0.06(e)
Net realized and unrealized gain (loss) on
investments 0.38 0.38 0.76 1.16
Net realized and unrealized gain (loss) on
foreign currency transactions 0.00(a) 0.00(a) 0.00(a) (0.00)(a)
------- ------- ------ ------
Total from investment operations 0.50 0.42 0.87 1.22
------- ------- ------ ------
Less dividends and distributions:
From net investment income -- -- (0.19) --
From net realized gain on investments -- -- -- --
------- ------- ------ ------
Total dividends and distributions -- -- (0.19) --
------- ------- ------ ------
Net asset value at end of period $ 12.67 $ 12.54 $12.54 $11.86
======= ======= ====== ======
Total investment return (b) 4.11%(c) 3.47%(c) 7.39% 11.47%(c)
Ratios (to average net
assets)/Supplemental Data:
Net investment income 1.40%+ 0.65%+ 0.65% 0.65%+
Net expenses 1.02%+ 1.77%+ 1.77% 1.83%+
Expenses (before reimbursement) 1.23%+ 1.98%+ 1.98% 2.06%+
Portfolio turnover rate 89% 89% 89% 113%
Net assets at end of period (in 000's) $55,796 $20,087 $3,218 $ 46
</Table>
<Table>
* Commencement of Operations.
+ Annualized.
(a) Less than one cent per share.
(b) Total return is calculated exclusive of sales charges. Class
I is not subject to sales charges.
(c) Total return is not annualized.
(d) As required, effective November 1, 2000, the Fund has
adopted the provisions of the AICPA Audit and Accounting
Guide for Investment Companies and began amortizing premium
on debt securities. The effect of this change for the year
ended October 31, 2001 is shown below. Per share ratios and
supplemental data for periods prior to November 1, 2000,
have not been restated to reflect this change in
presentation.
</Table>
<Table>
<Caption>
CLASS I
--------
Decrease net investment income ($0.01)
Increase net realized and unrealized gains and losses 0.01
Decrease ratio of net investment income (0.06%)
</Table>
<Table>
(e) Per share data based on average shares outstanding during
the period.
</Table>
196 MainStay Asset Manager Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS I
- -----------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2004 2003 2002 2001 2000
$ 11.99 $ 10.81 $ 12.11 $ 15.21 $ 14.57
-------- -------- -------- -------- --------
0.22 0.18(e) 0.22 0.37(d) 0.51
0.78 1.22 (1.25) (2.09)(d) 1.08
0.00(a) (0.00)(a) (0.00)(a) (0.00)(a) (0.01)
-------- -------- -------- -------- --------
1.00 1.40 (1.03) (1.72) 1.58
-------- -------- -------- -------- --------
(0.25) (0.22) (0.27) (0.50) (0.50)
-- -- -- (0.88) (0.44)
-------- -------- -------- -------- --------
(0.25) (0.22) (0.27) (1.38) (0.94)
-------- -------- -------- -------- --------
$ 12.74 $ 11.99 $ 10.81 $ 12.11 $ 15.21
======== ======== ======== ======== ========
8.43% 13.17% (8.78%) (12.12%) 11.18%
1.59% 1.65% 1.84% 2.66%(d) 3.45%
0.83% 0.83% 0.83% 0.83% 0.83%
1.04% 1.06% 0.94% 0.87% 0.83%
89% 113% 4% 15% 49%
$234,256 $262,438 $399,199 $452,246 $561,329
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
197
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
SERVICE CLASS++
---------------------------------------------------------------------------------
NOVEMBER 1,
2003
THROUGH
JANUARY 9, YEAR ENDED OCTOBER 31,
2004 2003 2002 2001 2000
Net asset value at beginning of period $ 11.94 $ 10.76 $ 12.05 $ 15.14 $ 14.50
------- ------- ------- ------- -------
Net investment income (1.08) 0.15(e) 0.18 0.33(d) 0.50
Net realized and unrealized gain (loss) on
investments 1.68 1.22 (1.23) (2.08)(d) 1.05
Net realized and unrealized gain (loss) on
foreign currency transactions (0.00)(a) (0.00)(a) 0.00(a) 0.00(a) (0.01)
------- ------- ------- ------- -------
Total from investment operations 0.60 1.37 (1.05) (1.75) 1.54
------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income (0.23) (0.19) (0.24) (0.46) (0.46)
From net realized gain on investments -- -- -- (0.88) (0.44)
------- ------- ------- ------- -------
Total dividends and distributions (0.23) (0.19) (0.24) (1.34) (0.90)
------- ------- ------- ------- -------
Net asset value at end of period $ 12.31 $ 11.94 $ 10.76 $ 12.05 $ 15.14
======= ======= ======= ======= =======
Total investment return (b) 5.06%(c) 12.92% (8.96%) (12.36%) 10.96%
Ratios (to average net
assets)/Supplemental Data:
Net investment income 1.47%+ 1.40% 1.59% 2.41%(d) 3.20%
Net expenses 1.08%+ 1.08% 1.08% 1.08% 1.08%
Expenses (before reimbursement) 1.31%+ 1.31% 1.19% 1.12% 1.08%
Portfolio turnover rate 113% 113% 4% 15% 49%
Net assets at end of period (in 000's) $ 0 $35,889 $22,980 $23,675 $27,978
<Caption>
SERVICE CLASS++
--------------------------------
JANUARY 1
THROUGH YEAR ENDED
OCTOBER 31, DECEMBER 31,
1999* 1998
Net asset value at beginning of period $ 15.33 $ 14.81
------- -------
Net investment income 0.39 0.39
Net realized and unrealized gain (loss) on
investments 0.38 2.69
Net realized and unrealized gain (loss) on
foreign currency transactions (0.03) 0.02
------- -------
Total from investment operations 0.74 3.10
------- -------
Less dividends and distributions:
From net investment income (0.00)(a) (0.39)
From net realized gain on investments (1.57) (2.19)
------- -------
Total dividends and distributions (1.57) (2.58)
------- -------
Net asset value at end of period $ 14.50 $ 15.33
======= =======
Total investment return (b) 5.31%(c) 21.00%
Ratios (to average net
assets)/Supplemental Data:
Net investment income 3.15%+ 2.39%
Net expenses 1.03%+ 1.05%
Expenses (before reimbursement) 1.03%+ 1.05%
Portfolio turnover rate 18% 55%
Net assets at end of period (in 000's) $29,087 $16,853
</Table>
<Table>
* The Fund changed its fiscal year end from December 31 to
October 31.
+ Annualized.
++ Service Class shares ceased operations on January 9, 2004.
(a) Less than one cent per share.
(b) Total return is calculated exclusive of sales charges.
Service Class is not subject to sales charges.
(c) Total return is not annualized.
(d) As required, effective November 1, 2000, the Fund has
adopted the provisions of the AICPA Audit and Accounting
Guide for Investment Companies and began amortizing premium
on debt securities. The effect of this change for the year
ended October 31, 2001 is shown below. Per share ratios and
supplemental data for periods prior to November 1, 2000,
have not been restated to reflect this change in
presentation.
</Table>
<Table>
<Caption>
SERVICE
CLASS
--------
Decrease net investment income ($0.01)
Increase net realized and unrealized gains and losses 0.01
Decrease ratio of net investment income (0.06%)
</Table>
<Table>
(e) Per share data based on average shares outstanding during
the period.
</Table>
198 MainStay Asset Manager Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
MAINSTAY BALANCED FUND
INVESTMENT AND PERFORMANCE COMPARISON
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY, CURRENT PERFORMANCE MAY
BE LESS OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. FOR CURRENT TO THE MOST RECENT MONTH-END PERFORMANCE
INFORMATION, PLEASE CONTACT 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM.
CLASS A SHARES -- MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
With sales charges 2.10% 7.38% 9.38%
Excluding sales charges 8.04 8.61 10.00
</Table>
(LINE GRAPH FOR CLASS A SHARES)
<Table>
<Caption>
MERRILL LYNCH
CORP &
GOVERNMENT BALANCED
MAINSTAY 1-10 YEAR COMPOSITE RUSSELL
BALANCED FUND BOND INDEX S&P 500 INDEX INDEX MIDCAP INDEX
------------- ------------- ------------- --------- ------------
10/31/94 9450 10000 10000 10000 10000
10896 11258 12644 11847 12331
12065 11904 15691 13606 14754
15065 12810 20729 16616 18999
16212 13987 25288 17898 19846
16220 14114 31779 18608 23244
17644 15034 33715 20469 28759
18573 17175 25319 21477 23577
18931 18196 21494 21704 21685
22684 19139 25965 26425 29466
10/31/04 24509 19946 28411 29958 33911
<Caption>
LIPPER
BALANCED FUND
INDEX
-------------
10/31/94 10000
11759
13463
16190
17932
20184
21775
19870
18356
21332
10/31/04 23081
</Table>
<Table>
-- MainStay Balanced Fund -- Merrill Lynch Corporate & - - S&P 500 Index
Government 1-10 Year Bond Index
-- Balanced Composite -- Russell Midcap Index -- Lipper Balanced
Index Fund Index
</Table>
CLASS B SHARES -- MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
With sales charges 2.33% 7.52% 9.20%
Excluding sales charges 7.33 7.81 9.20
</Table>
(LINE GRAPH FOR CLASS B SHARES)
<Table>
<Caption>
MERRILL LYNCH
CORP &
GOVERNMENT BALANCED
MAINSTAY 1-10 YEAR COMPOSITE RUSSELL
BALANCED FUND BOND INDEX S&P 500 INDEX INDEX MIDCAP INDEX
------------- ------------- ------------- --------- ------------
10/31/94 10000 10000 10000 10000 10000
11448 11258 12644 11847 12331
12579 11904 15691 13606 14754
15592 12810 20729 16616 18999
16662 13987 25288 17898 19846
16547 14114 31779 18608 23244
17869 15034 33715 20469 28759
18664 17175 25319 21477 23577
18880 18196 21494 21704 21685
22458 19139 25965 26425 29466
10/31/04 24103 19946 28411 29958 33911
<Caption>
LIPPER
BALANCED FUND
INDEX
-------------
10/31/94 10000
11759
13463
16190
17932
20184
21775
19870
18356
21332
10/31/04 23081
</Table>
<Table>
-- MainStay Balanced Fund -- Merrill Lynch Corporate & - - S&P 500 Index
Government 1-10 Year Bond Index
-- Balanced Composite -- Russell Midcap Index -- Lipper Balanced
Index Fund Index
</Table>
CLASS C SHARES -- MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
With sales charges 6.30% 7.82% 9.20%
Excluding sales charges 7.30 7.82 9.20
</Table>
(LINE GRAPH FOR CLASS C SHARES)
<Table>
<Caption>
MERRILL LYNCH
CORP &
GOVERNMENT BALANCED
MAINSTAY 1-10 YEAR COMPOSITE RUSSELL
BALANCED FUND BOND INDEX S&P 500 INDEX INDEX MIDCAP INDEX
------------- ------------- ------------- --------- ------------
10/31/94 10000 10000 10000 10000 10000
11444 11258 12644 11847 12331
12576 11904 15691 13606 14754
15592 12810 20729 16616 18999
16664 13987 25288 17898 19846
16548 14114 31779 18608 23244
17872 15034 33715 20469 28759
18669 17175 25319 21477 23577
18882 18196 21494 21704 21685
22475 19139 25965 26425 29466
10/31/04 24115 19946 28411 29958 33911
<Caption>
LIPPER
BALANCED FUND
INDEX
-------------
10/31/94 10000
11759
13463
16190
17932
20184
21775
19870
18356
21332
10/31/04 23081
</Table>
<Table>
-- MainStay Balanced Fund -- Merrill Lynch Corporate & - - S&P 500 Index
Government 1-10 Year Bond Index
-- Balanced Composite -- Russell Midcap Index -- Lipper Balanced
Index Fund Index
</Table>
Performance tables and graphs do not reflect the deduction of taxes that a
shareholder would pay on distributions or Fund-share redemptions. Total returns
reflect change in share price, reinvestment of dividend and capital-gain
distributions, and maximum applicable sales charges explained in this paragraph.
The graphs assume an initial investment of $10,000 and reflect the deduction of
all sales charges that would have applied for the period of investment. Class A
shares are sold with a maximum initial sales charge of 5.5% and an annual 12b-1
fee of .25%. Class B shares are sold with no initial sales charge, are subject
to a contingent deferred sales charge (CDSC) of up to 5% if redeemed within the
first six years of purchase, and have an annual 12b-1 fee of 1.00%. Class C
shares are sold with no initial sales charge, are subject to a CDSC of 1% if
redeemed within one year of purchase, and have an annual 12b-1 fee of 1.00%.
Class I shares are sold with no initial sales charge or CDSC, have no annual
12b-1 fee, and are generally available to corporate and institutional investors
with a minimum
THE DISCLOSURE AND FOOTNOTES ON THE NEXT TWO PAGES ARE AN INTEGRAL PART OF THESE
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
www.mainstayfunds.com 199
CLASS I SHARES -- NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
8.45% 8.91% 10.28%
</Table>
(LINE GRAPH FOR CLASS I SHARES)
<Table>
<Caption>
ML CORP & BALANCED
MAINSTAY GOV'T 1-10 YR COMPOSITE RUSSELL
BALANCED FUND BOND INDEX S&P 500 INDEX INDEX MIDCAP INDEX
------------- ------------- ------------- --------- ------------
10/31/94 10000 10000 10000 10000 10000
11558 11258 12644 11847 12331
12829 11904 15691 13606 14754
16057 12810 20729 16616 18999
17324 13987 25288 17898 19846
17371 14114 31779 18608 23244
18945 15034 33715 20469 28759
19991 17175 25319 21477 23577
20427 18196 21494 21704 21685
24538 19139 25965 26425 29466
10/31/04 26612 19946 28411 29958 33911
<Caption>
LIPPER
BALANCED FUND
INDEX
-------------
10/31/94 10000
11759
13463
16190
17932
20184
21775
19870
18356
21332
10/31/04 23081
</Table>
<Table>
-- MainStay Balanced Fund -- Merrill Lynch Corporate & - - S&P 500 Index
Government 1-10 Year Bond Index
-- Balanced Composite -- Russell Midcap Index -- Lipper Balanced
Index Fund Index
</Table>
CLASS R1 SHARES -- NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
8.35% 8.80% 10.17%
</Table>
(LINE GRAPH FOR CLASS R1 SHARES)
<Table>
<Caption>
ML CORP & BALANCED
MAINSTAY GOV'T 1-10 YR COMPOSITE RUSSELL
BALANCED FUND BOND INDEX S&P 500 INDEX INDEX MIDCAP INDEX
------------- ------------- ------------- --------- ------------
10/31/94 10000 10000 10000 10000 10000
11546 11258 12644 11847 12331
12803 11904 15691 13606 14754
16008 12810 20729 16616 18999
17253 13987 25288 17898 19846
17282 14114 31779 18608 23244
18828 15034 33715 20469 28759
19848 17175 25319 21477 23577
20260 18196 21494 21704 21685
24312 19139 25965 26425 29466
10/31/04 26341 19946 28411 29958 33911
<Caption>
LIPPER
BALANCED FUND
INDEX
-------------
10/31/94 10000
11759
13463
16190
17932
20184
21775
19870
18356
21332
10/31/04 23081
</Table>
<Table>
-- MainStay Balanced Fund -- Merrill Lynch Corporate & - - S&P 500 Index
Government 1-10 Year Bond Index
-- Balanced Composite -- Russell Midcap Index -- Lipper Balanced
Index Fund Index
</Table>
CLASS R2 SHARES -- NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
8.02% 8.53% 9.90%
</Table>
(LINE GRAPH FOR CLASS R2 SHARES)
<Table>
<Caption>
ML CORP & BALANCED
MAINSTAY GOV'T 1-10 YR COMPOSITE RUSSELL
BALANCED FUND BOND INDEX S&P 500 INDEX INDEX MIDCAP INDEX
------------- ------------- ------------- --------- ------------
10/31/94 10000 10000 10000 10000 10000
11519 11258 12644 11847 12331
12743 11904 15691 13606 14754
15896 12810 20729 16616 18999
17090 13987 25288 17898 19846
17072 14114 31779 18608 23244
18561 15034 33715 20469 28759
19519 17175 25319 21477 23577
19875 18196 21494 21704 21685
23792 19139 25965 26425 29466
10/31/04 25701 19946 28411 29958 33911
<Caption>
LIPPER
BALANCED FUND
INDEX
-------------
10/31/94 10000
11759
13463
16190
17932
20184
21775
19870
18356
21332
10/31/04 23081
</Table>
<Table>
-- MainStay Balanced Fund -- Merrill Lynch Corporate & - - S&P 500 Index
Government 1-10 Year Bond Index
-- Balanced Composite -- Russell Midcap Index -- Lipper Balanced
Index Fund Index
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
Balanced Composite Index(1) 13.37% 9.99% 11.60%
Merrill Lynch Corporate and Government 1-10 Years Bond
Index(2) 4.22 7.16 7.15
Russell Midcap Index(3) 15.09 7.85 12.99
S&P 500(R) Index(4) 9.42 -2.22 11.01
Lipper Balanced Funds Index(5) 8.20 2.72 8.72
Average Lipper balanced fund(6) 7.03 2.01 8.36
</Table>
initial investment of $5 million. Class R1 shares are sold with no initial sales
charge or CDSC and have no annual 12b-1 fee. Class R2 shares are sold with no
initial sales charge or CDSC and have an annual 12b-1 fee of .25%. Class R1 and
R2 shares are available only through corporate-sponsored retirement programs,
which include certain minimum program requirements. Performance figures reflect
certain fee waivers and/or expense limitations, without which total returns may
have been lower.
THE DISCLOSURE AND FOOTNOTES ON THE PRECEDING PAGE AND THE FOLLOWING PAGE ARE AN
INTEGRAL PART OF THESE GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH
THEM.
200 MainStay Balanced Fund
The fee waivers and/or expense limitations are voluntary and may be discontinued
at any time. Performance for Class A, B, R1, and R2 shares, first offered
1/2/04, includes the historical performance of Class I shares from inception
(5/1/89) through 12/31/03 adjusted to reflect the applicable sales charge (or
CDSC) and fees and expenses for Class A, B, R1, and R2 shares. Prior to 1/2/04,
the Fund offered Class L shares, which were subject to a 1% sales charge and a
1% CDSC on redemptions within one year of purchase. Performance for Class L
shares, first offered 12/30/02, includes the historical performance of Class I
shares from inception through 12/29/02 adjusted to reflect the applicable sales
charge, CDSC, and fees and expenses for Class L shares. Effective 1/2/04, all
outstanding Class L shares of the Fund were converted to and/or redesignated
Class C shares.
1. The Fund's Balanced Composite Index is comprised of the Russell Midcap(R)
Value Index and the Merrill Lynch Corporate and Government 1-10 Years Bond
Index weighted 60%/40%. Results assume reinvestment of all income and capital
gains. The Fund's Balanced Composite Index is considered to be the Fund's
broad-based securities-market index for comparison purposes. An investment
cannot be made directly into an index or a composite.
2. The Merrill Lynch Corporate & Government 1-10 Years Bond Index is a
market-capitalization-weighted index including U.S. government and
fixed-coupon domestic investment-grade corporate bonds. Results assume
reinvestment of all income and capital gains. An investment cannot be made
directly into an index.
3. The Russell Midcap(R) Index is an unmanaged index that measures the
performance of the 800 smallest companies in the Russell 1000(R) Index,
which, in turn, is an unmanaged index that measures the performance of the
1,000 largest U.S. companies based on total market capitalization. Results
assume reinvestment of all income and capital gains. An investment cannot be
made directly into an index.
4. "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500(R)
is an unmanaged index and is widely regarded as the standard for measuring
large-cap U.S. stock-market performance. Results assume reinvestment of all
income and capital gains. An investment cannot be made directly into an
index.
5. The Lipper Balanced Funds Index tracks the performance of the 30 largest
balanced funds, with adjustments for the reinvestment of capital-gain and
income distributions. An investment cannot be made directly into an index.
6. Lipper Inc. is an independent fund performance monitor. Results are based on
total returns with all dividend and capital-gain distributions reinvested.
THE DISCLOSURE AND FOOTNOTES ON THE PRECEDING TWO PAGES ARE AN INTEGRAL PART OF
THE GRAPHS ON THOSE PAGES AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THE
GRAPHS.
www.mainstayfunds.com 201
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY BALANCED FUND
Expenses shown in the table are meant to highlight your ongoing costs only and
do not reflect any transactional costs, such as sales charges (loads),
redemption fees, or exchange fees. Therefore, the third data column of the table
is 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 had been included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT ENDING ACCOUNT
VALUE (BASED VALUE (BASED
BEGINNING ON ACTUAL EXPENSES ON HYPOTHETICAL EXPENSES
ACCOUNT RETURNS AND PAID 5% ANNUALIZED PAID
VALUE EXPENSES) DURING RETURN AND DURING
SHARE CLASS(1) 5/1/04 10/31/04 PERIOD ACTUAL EXPENSES) PERIOD
CLASS A SHARES $1,000.00 $1,043.10 $ 6.88 $1,018.30 $ 6.80
- -------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $1,039.55 $10.71 $1,014.55 $10.58
- -------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $1,039.55 $10.71 $1,014.55 $10.58
- -------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,045.55 $ 4.68 $1,020.45 $ 4.62
- -------------------------------------------------------------------------------------------------------------------------
CLASS R1 SHARES $1,000.00 $1,045.35 $ 5.19 $1,019.95 $ 5.13
- -------------------------------------------------------------------------------------------------------------------------
CLASS R2 SHARES $1,000.00 $1,043.30 $ 6.47 $1,018.70 $ 6.39
- -------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio multiplied by the
average account value over the period, divided by 366, multiplied by 184 (to
reflect the one-half year period).
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2004
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
Common Stocks 54.6
Corporate Bonds 32.6
Federal Agencies 4.1
Short-Term Investment 2.2
Cash and Other Assets (less liabilities) 6.5
</Table>
See Portfolio of Investments on page 205 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2004 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. Edison International
2. Tesoro Petroleum Corp.
3. United States Steel Corp.
4. Valero Energy Corp.
5. Nucor Corp.
6. Sunoco, Inc.
7. Brink's Co. (The)
8. Laidlaw International, Inc.
9. Premcor, Inc.
10. Burlington Resources, Inc.
</Table>
202 MainStay Balanced Fund
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio manager Joan M. Sabella of New York Life
Investment Management LLC
CAN YOU BRIEFLY DESCRIBE THE FUND'S INVESTMENT APPROACH?
The Fund invests approximately 60% of its assets in stocks and 40% of its assets
in fixed-income securities (such as bonds) and cash equivalents. By holding both
stocks and bonds, the Fund seeks a balance between capital gains from stock
appreciation and current income from interest and dividends. In implementing
this strategy, the Fund generally invests in dividend-paying mid-capitalization
stocks that have been determined to have strong or improving operating
characteristics and to be relatively overlooked or undervalued by the market.
The Fund uses a quantitative and statistical model to analyze the relative
quality and value of stocks. The Fund selects fixed-income securities based on
their credit quality and duration.
WHAT MAJOR FACTORS INFLUENCED THE STOCK AND BOND MARKETS DURING THE YEAR ENDED
OCTOBER 31, 2004?
All of the broadly watched equity indices generated positive performance during
the 12-month reporting period. Overall, mid-capitalization stocks outperformed
their small- and large-capitalization counterparts. In terms of investment
style, the market favored value- over growth-oriented stocks across all
capitalization sectors. Equity market sentiment was positive throughout much of
the reporting period, as low interest rates and indications of rebounding
economic activity contributed to an optimistic outlook. During the summer,
however, consumer confidence dropped as the presidential election approached.
With the candidates and the public focusing on issues such as Iraq, terrorism,
and the economy, spending and investing also declined.
Although oil prices reached record highs and job growth concerns prevailed, the
Federal Open Market Committee raised the targeted federal funds rate by 25 basis
points in June and by the same amount in both August and September 2004. The
10-year Treasury note ended the reporting period at 4.02%, although it traded as
low as 3.68% in March and as high as 4.87% in June 2004.
HOW DID THE BOND PORTION OF THE FUND'S PORTFOLIO PERFORM?
The bond portion of the Fund's portfolio generally performed in line with the
market. The Fund invests in U.S. government securities and investment-grade
bonds issued by U.S. corporations. The Fund's fixed-income investments use a
laddered maturity schedule and emphasize credit quality and an intermediate-
term duration.
HOW DID THE EQUITY PORTION OF THE FUND'S PORTFOLIO PERFORM RELATIVE TO THE
RUSSELL MIDCAP(R) VALUE INDEX?(1)
Since the Russell Midcap(R) Value Index is capitalization weighted, it has
larger weightings in securities with larger market capitalizations. MainStay
Balanced Fund attempts to have equal weightings among the securities in the
portfolio. For the year ended October 31, 2004, the Russell Midcap(R) Value
Index was approximately 50% weighted in the top 25% of companies ranked by
market capitalization. This contributed significantly to the return of the
Index. MainStay Balanced Fund, which was invested in some but not all of the
stocks in the benchmark Index, was weighted only 25% in the top 25% of mid-cap
companies ranked by market capitalization. The Fund's underweighted position and
lower overall exposure to the top 25% of companies relative to the Index
detracted from the relative performance of the equity portion of MainStay
Balanced Fund.
WHAT WERE SOME OF THE STRONGEST CONTRIBUTORS TO THE FUND'S PERFORMANCE DURING
THE REPORTING PERIOD?
Strong contributors to the Fund's overall performance (on the basis of total
returns, weightings, and holding periods) included Autodesk (+165.3%),(2) a
worldwide supplier of PC software and multimedia tools; Overseas Shipholding
Group (+106.2%), an independent bulk shipping company; and mass merchandiser
Kmart Holding (+187.2%). Cigarette manufacturer Reynolds American (+52.2%) and
entertainment-software company Activision (+21.1%) were other strong
contributors.
Foreign securities may be subject to greater risks than U.S. investments,
including currency fluctuations, less-liquid trading markets, greater price
volatility, political and economic instability, less publicly available
information, and changes in tax or currency laws or monetary policy. The Fund
may invest in derivatives, which may increase the volatility of the Fund's net
asset value and may result in a loss to the Fund. Funds that invest in bonds are
subject to credit, inflation, and interest-rate risk and can lose principal
value when interest rates rise.
1. The Russell Midcap(R) Value Index is an unmanaged index that measures the
performance of those Russell Midcap(R) companies with lower price-to-book
ratios and lower forecasted growth values. See footnote on page 201 for
information on the Russell Midcap(R) Index. Results assume reinvestment of
all income and capital gains. An investment cannot be made directly into an
index.
2. Percentages reflect total returns of Fund holdings in the securities
mentioned, including purchases and sales, for the 12 months ended 10/31/04,
or for the portion of the reporting period such securities were held in the
Fund, if shorter.
www.mainstayfunds.com 203
WHICH STOCKS DETRACTED FROM THE FUND'S PERFORMANCE?
On the basis of impact--which includes weightings, total returns, and holding
periods--the worst contributor to performance was Maxtor (-50.8%). The company
provides hard disk drive products for desktop computer systems. Next was
Sanmina-SCI (-34.7%), a global electronics manufacturing services company;
followed by Quanta Services (-36.9%), which provides contracting services to
various industries; and New York Community Bancorp (-32.7%), a bank holding
company.
WERE THERE ANY SIGNIFICANT PURCHASES DURING THE REPORTING PERIOD?
Based on our proprietary model, the Fund selects stocks that have relatively
improving operating characteristics and are relatively undervalued. The Fund
purchased First BanCorp (+40.5%) in May 2004, after the commercial lender saw a
strong increase in loans and investments. The Fund purchased Circuit City Stores
(+33.4%) from February through September of 2004, as the electronics, computer,
and software retailer continued to see improvement in same-store sales growth.
The Fund also purchased Black & Decker (+32.6%) in July 2004 when improving
profitability helped the stock meet the Fund's purchase criteria.
WERE THERE ANY STOCKS THAT WERE ELIMINATED FROM THE FUND'S PORTFOLIO?
The Fund sells stocks that exhibit deteriorating operating results and/or are
relatively overvalued. In June 2004, the Fund sold Mandalay Resort Group
(+81.5%), which owns and operates several properties in Las Vegas, when our
quantitative model indicated that the stock was overvalued. In October 2004, the
Fund eliminated its position in GreenPoint Financial (+48.6%) when the bank
holding company was acquired by North Fork Bancorp. In July, the Fund sold
Coventry Health Care (+38.9%), a managed health care company, when our
quantitative model showed that the stock was relatively overvalued.
DID THE FUND CHANGE ITS INDUSTRY GROUP WEIGHTINGS?
Weighting changes in the Fund's portfolio result from a combination of security
performance, industry performance, and the Fund's proprietary security selection
process. The Fund increased its weighting in energy from 2.9% on October 31,
2003, to 8.7% on October 31, 2004. The shift in weighting was the result of new
purchases and improved performance of the industry group relative to other
industry groups. Over the same period, another significant change was a decrease
in the technology hardware & equipment industry group from 7.4% to 3.1%. The
decline in weighting resulted from the sale of several positions and weaker
relative performance.
HOW DO THE FUND'S INDUSTRY GROUP WEIGHTINGS COMPARE WITH THOSE OF THE RUSSELL
MIDCAP(R) VALUE INDEX?
As of October 31, 2004, the Fund was overweighted relative to the Russell
Midcap(R) Value Index in the energy, commercial services & supplies, and
consumer durables & apparel industry groups. The Fund's overweighted position in
energy enhanced results during the reporting period, whereas the other
overweighted positions underperformed relative to this Index.
At the end of the reporting period, the Fund was underweighted relative to the
Russell Midcap(R) Value Index in the utilities, real estate, and insurance
industry groups. Although holdings in these three industry groups had positive
returns, they underperformed related securities in this Index.
WHAT DO YOU ANTICIPATE GOING FORWARD?
As always, the Fund will continue to focus on securities that are appropriate
given the Fund's stated objective and its valuation, quality, duration, and
maturity parameters.
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.
INFORMATION ABOUT MAINSTAY BALANCED FUND ON THIS PAGE AND THE PRECEDING PAGES
HAS NOT BEEN AUDITED.
204 MainStay Balanced Fund
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
LONG-TERM BONDS (36.7%)+
CORPORATE BONDS (32.6%)
- -----------------------------------------------------------------------------
AEROSPACE & DEFENSE (1.4%)
General Dynamics Corp.
4.50%, due 8/15/10 $ 874,000 $ 899,013
Honeywell, Inc.
7.00%, due 3/15/07 1,111,000 1,207,101
7.125%, due 4/15/08 131,000 146,322
United Technologies Corp.
6.50%, due 6/1/09 2,228,000 2,484,441
7.125%, due 11/15/10 1,180,000 1,370,340
------------
6,107,217
------------
AUTO COMPONENTS (0.2%)
Johnson Controls, Inc.
6.30%, due 2/1/08 865,000 946,600
------------
BEVERAGES (1.4%)
Anheuser-Busch Cos., Inc.
5.375%, due 9/15/08 900,000 957,276
5.625%, due 10/1/10 1,500,000 1,627,541
5.65%, due 9/15/08 454,000 486,514
5.75%, due 4/1/10 655,000 712,909
Coca-Cola Co. (The)
4.00%, due 6/1/05 437,000 440,572
PepsiCo, Inc.
5.75%, due 1/15/08 1,747,000 1,881,386
------------
6,106,198
------------
CAPITAL MARKETS (5.0%)
Bear Stearns Cos., Inc. (The)
4.00%, due 1/31/08 1,092,000 1,109,732
7.625%, due 12/7/09 3,250,000 3,778,258
Donaldson, Lufkin & Jenrette, Inc.
6.50%, due 6/1/08 2,500,000 2,735,540
Goldman Sachs Group, Inc. (The)
5.70%, due 9/1/12 874,000 930,927
6.65%, due 5/15/09 2,430,000 2,710,468
J.P. Morgan & Co., Inc.
6.25%, due 2/15/11 262,000 290,657
JPMorgan Chase & Co.
5.35%, due 3/1/07 1,048,000 1,100,017
Lehman Brothers Holdings, Inc.
6.625%, due 2/5/06 501,000 525,056
6.625%, due 1/18/12 1,311,000 1,478,606
Lehman Brothers, Inc.
6.50%, due 4/15/08 1,000,000 1,094,775
7.625%, due 6/1/06 306,000 329,014
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CAPITAL MARKETS (CONTINUED)
Merrill Lynch & Co., Inc. Series CPI
4.15%, due 3/2/09 (b) $ 437,000 $ 441,038
6.00%, due 2/17/09 1,937,000 2,102,501
7.00%, due 1/15/07 612,000 661,936
Morgan Stanley
5.80%, due 4/1/07 874,000 927,975
6.75%, due 4/15/11 1,311,000 1,488,068
------------
21,704,568
------------
CHEMICALS (0.2%)
E.I. du Pont de Nemours & Co.
3.375%, due 11/15/07 805,000 811,681
------------
COMMERCIAL BANKS (4.4%)
Bank of America Corp.
7.125%, due 3/1/09 1,660,000 1,877,477
7.40%, due 1/15/11 1,000,000 1,171,586
Bank One Corp.
6.00%, due 8/1/08 1,747,000 1,893,650
Citicorp., Series F
6.375%, due 11/15/08 1,500,000 1,650,425
Deutsche Bank Financial
6.70%, due 12/13/06 1,311,000 1,408,371
Mellon Bank NA, Series BKNT
7.625%, due 9/15/07 1,311,000 1,473,502
U.S. Bancorp
3.125%, due 3/15/08 437,000 433,294
US Bank NA
5.70%, due 12/15/08 1,747,000 1,879,363
Wachovia Corp.
4.95%, due 11/1/06 437,000 454,220
6.15%, due 3/15/09 1,020,000 1,109,992
6.375%, due 1/15/09 1,311,000 1,439,374
Wells Fargo & Co.
3.50%, due 4/4/08 437,000 438,828
Wells Fargo Bank NA
6.45%, due 2/1/11 1,747,000 1,967,964
7.55%, due 6/21/10 1,500,000 1,765,991
------------
18,964,037
------------
COMMERCIAL SERVICES & SUPPLIES (0.3%)
Pitney Bowes, Inc.
5.875%, due 5/1/06 1,131,000 1,182,212
------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
205
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- -----------------------------------------------------------------------------
COMPUTERS & PERIPHERALS (1.1%)
Hewlett-Packard Co.
5.75%, due 12/15/06 $1,311,000 $ 1,382,548
International Business
Machines Corp.
4.875%, due 10/1/06 437,000 453,581
5.375%, due 2/1/09 958,000 1,023,544
5.50%, due 1/15/09 467,000 499,757
6.45%, due 8/1/07 1,164,000 1,264,625
------------
4,624,055
------------
CONSUMER FINANCE (3.2%)
American Express Credit Corp.
3.00%, due 5/16/08 874,000 861,447
Caterpillar Financial Services Corp.
4.875%, due 6/15/07 1,725,000 1,798,999
Household Finance Corp.
5.875%, due 2/1/09 437,000 472,590
6.375%, due 8/1/10 437,000 482,735
6.50%, due 11/15/08 1,500,000 1,655,659
6.75%, due 5/15/11 874,000 988,621
John Deere BV
5.875%, due 4/6/06 1,500,000 1,564,395
John Deere Capital Corp.
Series D
3.125%, due 12/15/05 437,000 438,588
3.90%, due 1/15/08 218,000 221,811
4.50%, due 8/22/07 437,000 451,875
SLM Corp.
3.625%, due 3/17/08 437,000 439,610
4.00%, due 1/15/09 437,000 439,416
Series A
4.19%, due 3/2/09 (b) 1,311,000 1,333,864
Series CPI
5.11%, due 1/31/14 (b) 874,000 887,564
Toyota Motor Credit Corp.
5.50%, due 12/15/08 1,477,000 1,584,388
------------
13,621,562
------------
DIVERSIFIED FINANCIAL SERVICES (1.9%)
Boeing Capital Corp.
5.75%, due 2/15/07 859,000 909,420
CIT Group, Inc.
4.75%, due 12/15/10 655,000 668,697
5.875%, due 10/15/08 1,800,000 1,936,442
Citigroup, Inc.
5.00%, due 3/6/07 655,000 683,424
6.50%, due 1/18/11 874,000 987,576
Heller Financial, Inc.
6.375%, due 3/15/06 218,000 228,392
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
DIVERSIFIED FINANCIAL SERVICES (CONTINUED)
Mellon Funding Corp.
6.70%, due 3/1/08 $1,700,000 $ 1,903,177
Pitney Bowes Credit Corp.
5.75%, due 8/15/08 874,000 946,998
Wells Fargo Financial, Inc.
6.85%, due 7/15/09 109,000 124,141
------------
8,388,267
------------
DIVERSIFIED TELECOMMUNICATION SERVICES (0.5%)
BellSouth Telecommunications, Inc.
5.875%, due 1/15/09 262,000 282,799
GTE North, Inc., Series F
6.375%, due 2/15/10 437,000 472,851
New York Telephone Co.
6.125%, due 1/15/10 874,000 936,785
Pacific Bell
6.875%, due 8/15/06 437,000 466,204
Southwestern Bell Telephone Co.
6.375%, due 11/15/07 87,000 94,422
------------
2,253,061
------------
ELECTRICAL EQUIPMENT (0.7%)
Emerson Electric Co.
5.00%, due 10/15/08 262,000 274,600
5.85%, due 3/15/09 1,386,000 1,502,743
7.125%, due 8/15/10 1,000,000 1,160,363
------------
2,937,706
------------
FOOD & STAPLES RETAILING (1.1%)
Sysco Corp.
6.50%, due 6/15/05 437,000 446,987
Wal-Mart Stores, Inc.
6.875%, due 8/10/09 3,288,000 3,743,181
7.25%, due 6/1/13 349,000 419,103
------------
4,609,271
------------
FOOD PRODUCTS (0.9%)
Campbell Soup Co.
5.50%, due 3/15/07 655,000 688,210
General Mills, Inc.
5.125%, due 2/15/07 437,000 454,974
Kellogg Co.
4.875%, due 10/15/05 564,000 574,561
Sara Lee Corp., Series C
6.00%, due 1/15/08 1,048,000 1,129,759
Unilever Capital Corp.
6.875%, due 11/1/05 961,000 1,001,188
------------
3,848,692
------------
HOTELS, RESTAURANTS & LEISURE (0.1%)
McDonald's Corp., Series G
4.15%, due 2/15/05 218,000 218,866
------------
</Table>
206 MainStay Balanced Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- -----------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (0.3%)
Colgate-Palmolive Co., Series E
3.98%, due 4/29/05 $ 437,000 $ 440,337
Procter & Gamble Co. (The)
4.00%, due 4/30/05 437,000 440,951
4.75%, due 6/15/07 218,000 227,427
------------
1,108,715
------------
INDUSTRIAL CONGLOMERATES (0.1%)
3M Co., Series C
4.15%, due 6/30/05 437,000 444,173
------------
INSURANCE (1.3%)
Allstate Corp. (The)
7.20%, due 12/1/09 1,900,000 2,191,772
John Hancock Financial Services, Inc.
5.625%, due 12/1/08 2,640,000 2,823,710
Loews Corp.
6.75%, due 12/15/06 437,000 469,085
------------
5,484,567
------------
IT SERVICES (0.9%)
Computer Sciences Corp.
6.25%, due 3/15/09 1,012,000 1,102,767
First Data Corp.
5.625%, due 11/1/11 661,000 710,912
Series D
5.80%, due 12/15/08 1,725,000 1,875,116
------------
3,688,795
------------
MACHINERY (1.0%)
Caterpillar, Inc.
6.55%, due 5/1/11 815,000 927,817
Illinois Tool Works, Inc.
5.75%, due 3/1/09 3,090,000 3,360,326
------------
4,288,143
------------
MEDIA (0.2%)
Gannett Co., Inc.
4.95%, due 4/1/05 437,000 441,314
5.50%, due 4/1/07 437,000 461,860
------------
903,174
------------
MULTILINE RETAIL (1.0%)
Kohl's Corp.
6.30%, due 3/1/11 612,000 678,766
Target Corp.
5.375%, due 6/15/09 1,806,000 1,931,510
5.50%, due 4/1/07 1,179,000 1,244,945
5.95%, due 5/15/06 306,000 321,564
------------
4,176,785
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
MULTI-UTILITIES & UNREGULATED POWER (0.3%)
IES Utilities, Inc., Series A
6.625%, due 8/1/09 $1,311,000 $ 1,449,924
------------
OIL & GAS (1.1%)
Atlantic Richfield Co.
5.90%, due 4/15/09 1,000,000 1,091,196
ChevronTexaco Capital Co.
3.50%, due 9/17/07 706,000 714,656
Texaco Capital, Inc.
5.50%, due 1/15/09 2,000,000 2,143,386
Tosco Corp.
7.25%, due 1/1/07 874,000 946,247
------------
4,895,485
------------
PERSONAL PRODUCTS (0.4%)
Gillette Co. (The)
2.875%, due 3/15/08 437,000 431,869
3.50%, due 10/15/07 1,311,000 1,318,377
------------
1,750,246
------------
PHARMACEUTICALS (1.5%)
Abbott Laboratories
5.625%, due 7/1/06 874,000 914,134
Bristol-Myers Squibb Co.
4.75%, due 10/1/06 437,000 451,499
Johnson & Johnson
6.625%, due 9/1/09 1,747,000 1,978,339
Lilly (Eli) & Co.
5.50%, due 7/15/06 655,000 684,316
Merck & Co., Inc., Series E
4.125%, due 1/18/05 655,000 657,506
Pfizer, Inc.
3.625%, due 11/1/04 874,000 874,000
Pharmacia Corp.
5.875%, due 12/1/08 437,000 475,416
Warner-Lambert Co.
6.00%, due 1/15/08 218,000 236,441
------------
6,271,651
------------
SPECIALTY RETAIL (0.8%)
Home Depot, Inc. (The)
5.375%, due 4/1/06 1,118,000 1,160,211
Sherwin-Williams Co. (The)
6.85%, due 2/1/07 2,219,000 2,392,468
------------
3,552,679
------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
207
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- -----------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE (0.5%)
General Electric Capital Corp.
Series A
4.25%, due 1/15/08 $ 437,000 $ 449,275
5.375%, due 3/15/07 874,000 919,466
6.875%, due 11/15/10 750,000 855,257
------------
2,223,998
------------
TRANSPORTATION INFRASTRUCTURE (0.8%)
International Lease Finance Corp.
4.50%, due 5/1/08 437,000 447,764
5.625%, due 6/1/07 655,000 689,930
6.375%, due 3/15/09 2,000,000 2,182,294
------------
3,319,988
------------
Total Corporate Bonds (Cost $138,419,632) 139,882,316
------------
FEDERAL AGENCIES (4.1%)
- -----------------------------------------------------------------------------
FEDERAL FARM CREDIT BANK (0.5%)
2.25%, due 9/1/06 437,000 433,171
3.47%, due 10/3/07 437,000 441,066
3.80%, due 9/4/07 437,000 445,186
3.875%, due 5/7/10 655,000 656,789
------------
1,976,212
------------
FEDERAL HOME LOAN BANK (1.0%)
2.50%, due 3/15/06 875,000 874,139
3.00%, due 10/30/08 (b) 875,000 875,000
3.375%, due 2/15/08 440,000 441,071
3.50%, due 2/11/08 875,000 873,943
3.75%, due 4/1/10 655,000 653,679
3.875%, due 2/12/10 220,000 221,197
6.21%, due 12/3/07 440,000 478,905
------------
4,417,934
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (0.1%)
3.25%, due 3/14/08 437,000 435,710
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(COLLATERALIZED MORTGAGE OBLIGATIONS) (1.0%)
Series 2734 Class JC
3.50%, due 11/15/23 1,311,000 1,312,828
Series 2579 Class PG
4.00%, due 3/15/27 437,000 438,788
Series 2719 Class WB
4.50%, due 8/15/21 1,030,211 1,003,585
Series 2589 Class GD
5.00%, due 9/15/28 437,000 444,803
Series 2600 Class MJ
5.00%, due 9/15/29 437,000 440,699
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FEDERAL HOME LOAN MORTGAGE CORPORATION
(COLLATERALIZED MORTGAGE OBLIGATIONS) (CONTINUED)
Series 1982 Class VC
6.50%, due 1/15/12 $ 655,000 $ 664,120
------------
4,304,823
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (0.9%)
2.50%, due 6/30/06 (b) 2,184,000 2,186,204
4.1308%, due 2/17/09 (b) 874,000 890,554
5.75%, due 6/15/05 874,000 892,629
------------
3,969,387
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(COLLATERALIZED MORTGAGE OBLIGATIONS) (0.3%)
Series 2003-17 Class QT
5.00%, due 8/25/27 1,031,000 1,045,625
Series 2003-32 Class PG
5.00%, due 10/25/27 437,000 443,235
------------
1,488,860
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(COLLATERALIZED MORTGAGE OBLIGATIONS) (0.3%)
Series 2003-19 Class BE
4.50%, due 11/20/28 437,000 440,511
Series 2003-50 Class PC
5.50%, due 3/16/32 874,000 902,435
------------
1,342,946
------------
Total Federal Agencies
(Cost $17,953,230) 17,935,872
------------
Total Long-Term Bonds
(Cost $156,372,862) 157,818,188
------------
<Caption>
SHARES
COMMON STOCKS (54.6%)
- -----------------------------------------------------------------------------
COMMERCIAL BANKS (1.6%)
Bank of America Corp. 75,900 3,399,561
First BanCorp 26,900 1,466,857
Silicon Valley Bancshares (a) 48,900 1,956,489
------------
6,822,907
------------
COMMERCIAL SERVICES & SUPPLIES (3.8%)
VBrink's Co. (The) 149,600 4,802,160
Cendant Corp. 88,800 1,828,392
Copart, Inc. (a) 176,800 3,284,944
Deluxe Corp. 28,700 1,093,183
IKON Office Solutions, Inc. 355,900 3,736,950
Kelly Services, Inc. Class A 58,200 1,566,453
------------
16,312,082
------------
</Table>
208 MainStay Balanced Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------
COMPUTERS & PERIPHERALS (2.4%)
Dell, Inc. (a) 22,500 $ 788,850
Imation Corp. 90,000 2,814,300
InFocus Corp. (a) 486,900 3,135,636
PalmOne, Inc. (a) 127,700 3,699,469
------------
10,438,255
------------
CONSUMER FINANCE (1.4%)
AmeriCredit Corp. (a) 166,600 3,232,040
Student Loan Corp. (The) 3,600 527,400
WFS Financial, Inc. 46,500 2,048,790
------------
5,808,230
------------
DIVERSIFIED FINANCIAL SERVICES (0.5%)
CIT Group, Inc. 55,200 2,230,080
------------
ELECTRIC UTILITIES (1.2%)
VEdison International 170,500 5,200,250
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.4%)
Tektronix, Inc. 51,300 1,555,929
------------
FOOD & STAPLES RETAILING (0.5%)
Albertson's, Inc. 43,900 1,001,359
SUPERVALU, Inc. 34,600 1,020,354
------------
2,021,713
------------
FOOD PRODUCTS (3.6%)
Hershey Foods Corp. 34,800 1,764,012
Hormel Foods Corp. 92,600 2,602,986
Kraft Foods, Inc. Class A 82,000 2,731,420
McCormick & Co., Inc. (Non-voting Shares) 57,300 2,030,139
Pilgrim's Pride Corp. Class B 162,500 4,394,000
Tyson Foods, Inc. Class A 137,300 1,990,850
------------
15,513,407
------------
HEALTH CARE EQUIPMENT & SUPPLIES (0.8%)
Bausch & Lomb, Inc. 40,100 2,444,496
Fisher Scientific
International, Inc. (a) 16,800 963,648
------------
3,408,144
------------
HEALTH CARE PROVIDERS & SERVICES (1.1%)
HealthSouth Corp. (a) 102,700 565,363
Humana, Inc. (a) 46,300 886,645
Manor Care, Inc. 46,700 1,528,958
PacifiCare Health Systems, Inc. (a) 51,700 1,841,554
------------
4,822,520
------------
</Table>
<Table>
<Caption>
SHARES VALUE
HOTELS, RESTAURANTS & LEISURE (0.9%)
Darden Restaurants, Inc. 117,200 $ 2,871,400
Outback Steakhouse, Inc. 29,300 1,159,987
------------
4,031,387
------------
HOUSEHOLD DURABLES (4.2%)
Black & Decker Corp. (The) 40,900 3,283,452
Fortune Brands, Inc. 29,800 2,170,036
M.D.C. Holdings, Inc. 23,210 1,781,368
Newell Rubbermaid, Inc. 182,100 3,926,076
NVR, Inc. (a) 2,400 1,504,800
Ryland Group, Inc. (The) 7,400 705,886
Stanley Works (The) 79,600 3,543,792
Toll Brothers, Inc. (a) 23,200 1,075,320
------------
17,990,730
------------
HOUSEHOLD PRODUCTS (1.3%)
Clorox Co. (The) 61,500 3,357,900
Energizer Holdings, Inc. (a) 50,400 2,340,072
------------
5,697,972
------------
INDUSTRIAL CONGLOMERATES (0.3%)
Alleghany Corp. (a) 5,100 1,473,390
------------
INSURANCE (1.0%)
MBIA, Inc. 22,500 1,301,850
Torchmark Corp. 59,300 3,203,386
------------
4,505,236
------------
LEISURE EQUIPMENT & PRODUCTS (0.8%)
Eastman Kodak Co. 119,000 3,603,320
------------
MACHINERY (1.0%)
Terex Corp. (a) 110,100 4,183,800
------------
METALS & MINING (2.3%)
VNucor Corp. 113,900 4,809,997
VUnited States Steel Corp. 136,700 5,019,624
------------
9,829,621
------------
MULTILINE RETAIL (1.4%)
Dillard's, Inc. Class A 103,200 2,114,568
Kmart Holding Corp. (a) 21,600 1,988,064
Neiman Marcus Group, Inc. (The) Class A 9,400 571,802
Saks, Inc. (a) 73,500 898,170
Sears, Roebuck and Co. 14,600 511,000
------------
6,083,604
------------
MULTI-UTILITIES & UNREGULATED POWER (1.5%)
Reliant Energy, Inc. (a) 417,100 4,287,788
Williams Cos., Inc. (The) 163,300 2,042,883
------------
6,330,671
------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
209
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2004 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------
OIL & GAS (7.4%)
Amerada Hess Corp. 52,500 $ 4,237,275
VBurlington Resources, Inc. 109,900 4,560,850
Overseas Shipholding Group, Inc. 64,000 3,644,800
VPremcor, Inc. (a) 117,700 4,595,008
VSunoco, Inc. 64,600 4,803,656
VTesoro Petroleum Corp. (a) 169,600 5,135,488
VValero Energy Corp. 114,800 4,932,956
------------
31,910,033
------------
PAPER & FOREST PRODUCTS (0.9%)
Louisiana-Pacific Corp. 147,900 3,625,029
------------
PERSONAL PRODUCTS (0.8%)
Estee Lauder Cos., Inc. (The) Class A 81,700 3,509,015
------------
PHARMACEUTICALS (0.5%)
Pfizer, Inc. 72,800 2,107,560
------------
REAL ESTATE (2.1%)
Equity Office Properties Trust 76,400 2,148,368
Impac Mortgage Holdings, Inc. 113,600 2,568,496
LNR Property Corp. 47,100 2,945,634
Reckson Associates Realty Corp. 45,000 1,365,750
------------
9,028,248
------------
ROAD & RAIL (1.1%)
VLaidlaw International, Inc. (a) 278,200 4,637,594
------------
SOFTWARE (2.0%)
Activision, Inc. (a) 272,100 3,940,008
Autodesk, Inc. 64,500 3,402,375
Citrix Systems, Inc. (a) 59,400 1,433,322
------------
8,775,705
------------
</Table>
<Table>
<Caption>
SHARES VALUE
SPECIALTY RETAIL (1.4%)
Barnes & Noble, Inc. (a) 15,000 $ 499,050
Circuit City Stores, Inc. 146,600 2,382,250
Home Depot, Inc. (The) 16,500 677,820
Sherwin-Williams Co. (The) 41,400 1,768,608
Zale Corp. (a) 23,100 658,812
------------
5,986,540
------------
TEXTILES, APPAREL & LUXURY GOODS (0.1%)
Reebok International Ltd. 7,700 284,900
------------
THRIFTS & MORTGAGE FINANCE (5.0%)
Astoria Financial Corp. 57,000 2,228,130
Countrywide Financial Corp. 64,000 2,043,520
Doral Financial Corp. 15,700 659,086
Fannie Mae 25,900 1,816,885
Freddie Mac 44,700 2,977,020
Fremont General Corp. 86,900 1,868,350
Independence Community
Bank Corp. 23,700 891,831
IndyMac Bancorp, Inc. 44,600 1,438,796
MGIC Investment Corp. 20,900 1,344,079
New Century Financial Corp. 39,000 2,150,850
PMI Group, Inc. (The) 49,300 1,913,826
R&G Financial Corp. Class B 43,000 1,617,660
Radian Group, Inc. 12,700 608,711
------------
21,558,744
------------
TOBACCO (0.5%)
Reynolds American, Inc. 33,800 2,327,468
------------
TRADING COMPANIES & DISTRIBUTORS (0.8%)
Grainger (W.W.), Inc. 59,600 3,491,965
------------
Total Common Stocks
(Cost $207,644,047) 235,106,049
------------
</Table>
210 MainStay Balanced Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENT (2.2%)
- -----------------------------------------------------------------------------
REPURCHASE AGREEMENT (2.2%)
Bank of New York (The)
1.65%, dated 10/29/04 due 11/1/04
Proceeds at Maturity
$9,670,329
(Collateralized by Federal National Mortgage
Association 4.15%, due 3/1/33
with a Principal Amount of
$9,812,136 and a Market Value
of $9,901,644 including accrued interest) $9,669,000 $ 9,669,000
------------
Total Short-Term Investment (Cost $9,669,000) 9,669,000
------------
Total Investments
(Cost $373,685,909) (c) 93.5% 402,593,237(d)
Cash and Other Assets,
Less Liabilities 6.5 27,822,600
---------- ------------
Net Assets 100.0% $430,415,837
========== ============
</Table>
<Table>
(a) Non-income producing security.
(b) Floating rate. Rate shown is the rate in effect at
October 31, 2004.
(c) The cost for federal income tax purposes is
$373,788,654.
(d) At October 31, 2004 net unrealized appreciation was
$28,804,583, based on cost for federal income tax
purposes. This consisted of aggregate gross unrealized
appreciation for all investments on which there was an
excess of market value over cost of $34,313,263 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $5,508,680.
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
211
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2004
<Table>
ASSETS:
Investment in securities, at value
(identified cost $373,685,909) $402,593,237
Cash 5,400
Receivables:
Fund shares sold 31,734,471
Dividends and interest 2,317,483
Other assets 37,410
------------
Total assets 436,688,001
------------
LIABILITIES:
Payables:
Investment securities purchased 5,239,039
Fund shares redeemed 537,393
Manager 246,162
NYLIFE Distributors 102,377
Transfer agent 63,237
Custodian 6,722
Accrued expenses 77,234
------------
Total liabilities 6,272,164
------------
Net assets $430,415,837
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share) 1
billion shares authorized
Class A $ 42,582
Class B 24,810
Class C 11,549
Class I 70,872
Class R1 11,955
Class R2 7,605
Additional paid-in capital 392,330,947
Accumulated net investment loss (5,773)
Accumulated undistributed net realized gain on
investments 9,013,962
Net unrealized appreciation on investments 28,907,328
------------
Net assets $430,415,837
============
CLASS A
Net assets applicable to outstanding shares $108,204,297
============
Shares of capital stock outstanding 4,258,217
============
Net asset value per share outstanding $ 25.41
Maximum sales charge (5.50% of offering price) 1.48
------------
Maximum offering price per share outstanding $ 26.89
============
CLASS B
Net assets applicable to outstanding shares $ 62,930,591
============
Shares of capital stock outstanding 2,481,001
============
Net asset value and offering price per share
outstanding $ 25.37
============
CLASS C
Net assets applicable to outstanding shares $ 29,300,654
============
Shares of capital stock outstanding 1,154,937
============
Net asset value and offering price per share
outstanding $ 25.37
============
CLASS I
Net assets applicable to outstanding shares $180,261,866
============
Shares of capital stock outstanding 7,087,199
============
Net asset value and offering price per share
outstanding $ 25.43
============
CLASS R1
Net assets applicable to outstanding shares $ 30,394,349
============
Shares of capital stock outstanding 1,195,451
============
Net asset value and offering price per share
outstanding $ 25.43
============
CLASS R2
Net assets applicable to outstanding shares $ 19,324,080
============
Shares of capital stock outstanding 760,515
============
Net asset value and offering price per share
outstanding $ 25.41
============
</Table>
212 MainStay Balanced Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2004
<Table>
INVESTMENT INCOME:
INCOME:
Interest $ 3,878,379
Dividends (a) 2,151,374
-----------
Total income 6,029,753
-----------
EXPENSES:
Manager 1,960,096
Transfer agent -- Classes A, B and C 190,237
Transfer agent -- Classes I, R1 and R2 77,186
Distribution -- Class B 168,538
Distribution -- Class C 76,443
Service -- Class A 122,021
Service -- Class B 56,180
Service -- Class C 25,481
Service -- Class R2 11,181
Service -- Service Class 9,171
Professional 86,129
Registration 56,166
Shareholder communication 48,298
Custodian 29,614
Trustees 27,317
Portfolio pricing 20,373
Shareholder Service Fee -- Class R1 6,893
Shareholder Service Fee -- Class R2 4,473
Miscellaneous 27,163
-----------
Total expenses 3,002,960
Fees paid indirectly (See Note 2(E)) (39,765)
-----------
Net expenses 2,963,195
-----------
Net investment income 3,066,558
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 8,778,292
Net change in unrealized appreciation on
investments 6,424,053
-----------
Net realized and unrealized gain on investments 15,202,345
-----------
Net increase in net assets resulting from
operations $18,268,903
===========
</Table>
(a) Dividends recorded net of foreign withholding taxes in the amount of $652.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
213
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2004 AND OCTOBER 31, 2003
<Table>
<Caption>
2004 2003
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 3,066,558 $ 2,103,504
Net realized gain on investments 8,778,292 2,537,414
Net change in unrealized
appreciation on investments 6,424,053 20,612,974
---------------------------
Net increase in net assets
resulting from operations 18,268,903 25,253,892
---------------------------
Dividends and distributions to shareholders:
From net investment income:
Class A (495,967) --
Class B (103,798) --
Class C (48,808) (1,122)
Class I (2,238,037) (1,999,587)
Class R1 (89,919) --
Class R2 (49,362) --
Service Class (75,512) (77,541)
From net realized gain on investments:
Class C (5,621) --
Class I (2,044,047) --
Service Class (294,664) --
---------------------------
Total dividends and
distributions to shareholders (5,445,735) (2,078,250)
---------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 119,218,441 --
Class B 64,952,107 --
Class C 29,648,295 353,212
Class I 102,363,134 86,550,426
Class R1 31,166,617 --
Class R2 23,330,209 --
Service Class 5,402,469 22,832,286
</Table>
<Table>
<Caption>
2004 2003
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions:
Class A $ 447,244 $ --
Class B 93,737 --
Class C 44,557 1,122
Class I 4,254,868 1,990,309
Class R1 89,919 --
Class R2 49,362 --
Service Class 369,947 77,104
---------------------------
381,430,906 111,804,459
Cost of shares redeemed:
Class A (13,522,006) --
Class B (2,986,885) --
Class C (1,162,214) (8,013)
Class I (82,099,674) (46,945,723)
Class R1 (1,588,939) --
Class R2 (4,378,134) --
Service Class (25,174,517) (4,863,174)
---------------------------
(130,912,369) (51,816,910)
---------------------------
Increase in net assets derived
from capital share
transactions 250,518,537 59,987,549
---------------------------
Net increase in net assets 263,341,705 83,163,191
NET ASSETS:
Beginning of year 167,074,132 83,910,941
---------------------------
End of year $430,415,837 $167,074,132
===========================
Accumulated undistributed net
investment income (loss) at end of
year $ (5,773) $ 263,044
===========================
</Table>
214 MainStay Balanced Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
This page intentionally left blank
215
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A CLASS B CLASS C
----------- ----------- ---------------------------
JANUARY 2, JANUARY 2, DECEMBER 30,
2004** 2004** YEAR 2002**
THROUGH THROUGH ENDED THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2004 2004 2004 2003
Net asset value at beginning of period $ 24.45 $ 24.46 $ 24.08 $20.27
-------- ------- ------- ------
Net investment income 0.19 0.08 0.13 0.15(f)
Net realized and unrealized gain (loss) on
investments 0.96 0.93 1.62 3.76
-------- ------- ------- ------
Total from investment operations 1.15 1.01 1.75 3.91
-------- ------- ------- ------
Less dividends and distributions:
From net investment income (0.19) (0.10) (0.14) (0.10)
From net realized gain on investments -- -- (0.32) --
-------- ------- ------- ------
Total dividends and distributions (0.19) (0.10) (0.46) (0.10)
-------- ------- ------- ------
Net asset value at end of period $ 25.41 $ 25.37 $ 25.37 $24.08
======== ======= ======= ======
Total investment return (a) 4.70%(b) 4.13%(b) 7.30% 19.32%(b)
Ratios (to average net
assets)/Supplemental Data:
Net investment income 0.99%+ 0.24%+ 0.24% 0.78%+
Net expenses 1.34%+# 2.09%+# 2.09%# 1.98%+#
Expenses (before reimbursement) 1.34%+# 2.09%+# 2.09%# 2.03%+#
Portfolio turnover rate 42% 42% 42% 51%
Net assets at end of period (in 000's) $108,204 $62,931 $29,301 $ 372
</Table>
<Table>
* The Fund changed its fiscal year end from December 31 to
October 31.
** Commencement of Operations.
# Includes transfer agent fees paid indirectly which amounted
to 0.02%, 0.05%, 0.02% and 0.09% of average net assets for
the years or periods ended October 31, 2004, October 31,
2003, October 31, 2002 and October 31, 2001, respectively,
and custodian fees and other expenses paid indirectly which
amounted to 0.01% of average net assets for the year ended
December 31, 2000.
+ Annualized.
(a) Total return is calculated exclusive of sales charges. Class
I, Class R1 and Class R2 are not subject to sales charges.
(b) Total return is not annualized.
(c) Less than one cent per share.
(d) Restated.
(e) As required, effective January 1, 2001, the Fund has adopted
the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing premium on debt
securities. The effect of this change for the ten months
ended October 31, 2001 is shown below. Per share ratios and
supplemental data for periods prior to January 1, 2001 have
not been restated to reflect this change in presentation.
</Table>
<Table>
<Caption>
CLASS I
-------
Decrease net investment income ($0.02)
Increase net realized and unrealized gains and losses 0.02
Decrease ratio of net investment income (0.09%)
</Table>
<Table>
(f) Per share data based on average shares outstanding during
the period.
</Table>
216 MainStay Balanced Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS I CLASS R1 CLASS R2
- ----------------------------------------------------------------------------------- ----------- -----------
JANUARY 1, JANUARY 2, JANUARY 2,
2001 2004** 2004**
THROUGH YEAR ENDED THROUGH THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31, DECEMBER 31, OCTOBER 31, OCTOBER 31,
2004 2003 2002 2001* 2000 1999 2004 2004
$ 24.07 $ 20.41 $ 20.78 $ 20.82 $ 19.53 $ 21.37 $ 24.45 $ 24.45
-------- -------- ------- ------- ------- ------- ------- -------
0.34 0.38(f) 0.48 0.45(e) 0.55 0.58 0.23 0.18
1.68 3.67 0.00(c) (0.08)(e) 1.29 (0.68) 0.98 0.97
-------- -------- ------- ------- ------- ------- ------- -------
2.02 4.05 0.48 0.37 1.84 (0.10) 1.21 1.15
-------- -------- ------- ------- ------- ------- ------- -------
(0.34) (0.39) (0.44) (0.41) (0.55) (0.58) (0.23) (0.19)
(0.32) -- (0.41) -- -- (1.16) -- --
-------- -------- ------- ------- ------- ------- ------- -------
(0.66) (0.39) (0.85) (0.41) (0.55) (1.74) (0.23) (0.19)
-------- -------- ------- ------- ------- ------- ------- -------
$ 25.43 $ 24.07 $ 20.41 $ 20.78 $ 20.82 $ 19.53 $ 25.43 $ 25.41
======== ======== ======= ======= ======= ======= ======= =======
8.45% 20.13% 2.18% 1.80%(b) 9.64% (0.36%) 4.96%(b) 4.71%(b)
1.42% 1.78% 2.30% 2.59%+(e) 2.77% 2.61% 1.32%+ 1.07%+
0.91%# 0.99%# 0.96%# 1.03%+#(d) 0.95%# 0.94% 1.01%+# 1.26%+#
0.91%# 1.03%# 1.02%# 1.05%+#(d) 0.95%# 0.94% 1.01%+# 1.26%+#
42% 51% 62% 48% 73% 33% 42% 42%
$180,262 $147,519 $83,906 $64,086 $65,309 $77,169 $30,394 $19,324
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com
217
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
SERVICE CLASS++
---------------------------------------
NOVEMBER 1, JULY 1,
2003 2002*
THROUGH YEAR ENDED THROUGH
JANUARY 9 OCTOBER 31, OCTOBER 31,
2004 2003 2002
Net asset value at beginning of period $ 24.09 $ 20.41 $21.41
------- ------- ------
Net investment income 0.03 0.34(c) 0.11
Net realized and unrealized gain (loss) on
investments 1.00 3.68 (1.03)
------- ------- ------
Total from investment operations 1.03 4.02 (0.92)
------- ------- ------
Less dividends and distributions:
From net investment income (0.08) (0.34) (0.08)
From net realized gain on investments (0.32) -- --
------- ------- ------
Total dividends and distributions (0.40) (0.34) (0.08)
------- ------- ------
Net asset value at end of period $ 24.72 $ 24.09 $20.41
======= ======= ======
Total investment return (a) 4.28%(b) 19.93% (4.30%)(b)
Ratios (to average net
assets)/Supplemental Data:
Net investment income 0.94%+ 1.53% 2.05%+
Net expenses 1.18%+# 1.24%# 1.21%+#
Expenses (before reimbursement) 1.18%+# 1.28%# 1.27%+#
Portfolio turnover rate 42% 51% 62%
Net assets at end of period (in 000's) $ 0 $19,183 $ 5
</Table>
<Table>
* Commencement of Operations.
# Includes transfer agent fees paid indirectly which amounted
to 0.02%, 0.05% and 0.02% of average net assets for the
years or periods ended January 9, 2004, October 31, 2003 and
October 31, 2002, respectively.
+ Annualized.
++ Service Class shares ceased operations on January 9, 2004.
(a) Total return is calculated exclusive of sales charges.
Service Class is not subject to sales charges.
(b) Total return is not annualized.
(c) Per share data based on average shares outstanding during
the period.
</Table>
218 MainStay Balanced Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND BUSINESS:
Eclipse Funds Inc. (the "Company"), was incorporated in the state of Maryland on
September 21, 1990. Eclipse Funds (the "Trust"), a Massachusetts business trust,
was established on July 30, 1986. The Company and the Trust (collectively the
"Funds") are registered as open-end management investment companies under the
Investment Company Act of 1940, as amended, ("Investment Company Act") and are
comprised of twelve separate investment portfolios (individually referred to as
a "Fund").
The Funds commenced operations on the dates indicated below:
<Table>
<Caption>
COMMENCEMENT
OF OPERATIONS FUNDS (THE COMPANY)
January 2, 1991 All Cap Growth, All Cap Value, S&P
500 Index, Cash Reserves, Indexed
Bond, Intermediate Term Bond, Short
Term Bond and Asset Manager Funds
---------------------------------------------------------
May 3, 2004 Floating Rate Fund
---------------------------------------------------------
</Table>
<Table>
<Caption>
COMMENCEMENT
OF OPERATIONS FUNDS (THE TRUST)
January 12, 1987 Small Cap Opportunity Fund
---------------------------------------------------------
May 1, 1989 Balanced Fund
---------------------------------------------------------
December 27, 1994 Mid Cap Opportunity Fund
---------------------------------------------------------
</Table>
On October 28, 2003, the Tax Free Bond Fund ceased operations. On December 30,
2003, the Tax-Managed Equity Fund ceased operations. On January 29, 2004, the
International Broad Market and the International Equity Funds ceased operations.
On October 29, 2004, the Mid Cap Core Fund ceased operations. These Funds were
formerly portfolios of the Company.
Effective January 1, 2004, each series of Eclipse Funds Inc. and Eclipse Funds
are now marketed as "MainStay Funds".
Each Fund offers one or more of the following six classes of shares as
indicated: Class A, Class B, Class C, Class I, Class R1 and Class R2 shares. The
Cash Reserves Fund also offers another class of shares, the Sweep Shares Class.
<Table>
<Caption>
FUNDS CLASSES OFFERED
Balanced Fund Class A, Class B, Class C,
Class I, Class R1 and Class
R2 shares
-----------------------------------------------------------
All Cap Growth, All Cap Class A, Class B, Class C
Value, Mid Cap Opportunity, and Class I shares
Small Cap Opportunity,
Floating Rate, Intermediate
Term Bond and Asset Manager
Funds
-----------------------------------------------------------
S&P 500 Index, Indexed Bond Class A and Class I shares
and Short Term Bond Funds
-----------------------------------------------------------
Cash Reserves Fund Class I and Sweep Shares
Class shares
-----------------------------------------------------------
</Table>
Class A shares are offered at net asset value per share plus an initial sales
charge. No sales charge applies on investments of $1 million or more (and
certain other qualified purchases) in Class A shares, but a contingent deferred
sales charge is imposed on certain redemptions of such shares within one year of
the date of purchase. Class B shares and Class C shares are offered without an
initial sales charge, although a declining contingent deferred sales charge may
be imposed on redemptions made within six years of purchase of Class B shares
and a 1% contingent deferred sales charge may be imposed on redemptions made
within one year of purchase of Class C shares. The Class I, Class R1 and Class
R2 shares and the Sweep Shares Class are offered at net asset value without
imposition of a front-end sales charge or a contingent deferred sales charge.
Distribution of Class A, Class B, Class C, Class R1 and Class R2 shares each
commenced on January 2, 2004, except with respect to the Class C shares of Mid
Cap Opportunity Fund, Small Cap Opportunity Fund and Balanced Fund, the L Class
shares of which commenced operations on December 30, 2002 and were redesignated
as the Class C shares on January 1, 2004. Each Fund's No-Load Class shares were
redesignated as the Class I shares on January 1, 2004. Each Fund's (except the
Floating Rate Fund, which was not in existence) Service Class shares ceased
operations on January 9, 2004.
Each class of shares bears similar voting (except for issues that relate solely
to one class), dividend, liquidation and other rights and conditions except that
the classes are subject to different distribution fee rates. Class A, Class B,
Class C and Class R2 shares and the Sweep Shares Class each bear distribution
and/or service fee payments under distribution and service plans pursuant to
Rule 12b-1 under the Investment Company Act. In addition, the Class R1 and R2
shares and the Sweep Shares Class each bear service fee payments under
shareholder service plans.
The investment objectives for each of the Funds are as follows:
The ALL CAP GROWTH FUND seeks long-term growth of capital. Dividend income, if
any, is a consideration incidental to the Fund's objective of growth of capital.
The ALL CAP VALUE FUND seeks maximum long-term total return from a combination
of capital growth and income.
The MID CAP OPPORTUNITY FUND seeks high total return.
The S&P 500 INDEX FUND seeks to provide investment results that correspond to
the total return performance (reflecting reinvestment of dividends) of common
stocks in the aggregate, as represented by the S&P 500(R) Index.
The SMALL CAP OPPORTUNITY FUND seeks high total return.
The CASH RESERVES FUND seeks a high level of current income while preserving
capital and maintaining liquidity.
www.mainstayfunds.com 219
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The FLOATING RATE FUND seeks to provide high current income.
The INDEXED BOND FUND seeks to provide investment results that correspond to the
total return performance of fixed income securities in the aggregate, as
represented by the Citigroup Broad Investment Grade ("BIG") Bond Index.
The INTERMEDIATE TERM BOND FUND seeks to maximize total return, consistent with
liquidity, low risk to principal and investment in debt securities.
The SHORT TERM BOND FUND seeks to maximize total return, consistent with
liquidity, preservation of capital and investment in short-term debt securities.
The ASSET MANAGER FUND seeks to maximize total return, consistent with certain
percentage constraints on amounts allocated to each asset class, from a
combination of common stocks, fixed income securities, and money market
investments.
The BALANCED FUND seeks high total return.
The ability of issuers of debt securities held by the Funds to meet their
obligations may be affected by economic developments in a specific industry or
region.
There are certain risks involved in investing in foreign securities that are in
addition to the usual risks inherent in domestic instruments. These risks
include those resulting from future adverse political and economic developments
and possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. Foreign securities may also be less liquid
and more volatile than U.S. securities. There may also be difficulty in invoking
legal protections across borders. In addition, investment in emerging market
countries presents risks in greater degree than those presented by investment in
foreign issuers in countries with developed securities markets and more advanced
regulatory systems.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES:
The Funds prepare their financial statements in accordance with U.S. generally
accepted accounting principles and follow the significant accounting policies
described below:
(A) SECURITIES VALUATION. Equity securities are valued at the latest quoted
sales prices as of the close of trading on the New York Stock Exchange
(generally 4:00 p.m. Eastern time) on the valuation date; such securities not
traded on the valuation date are valued at the mean of the latest quoted bid and
asked prices. Prices are taken from the primary market in which each security
trades. Debt securities are valued at prices supplied by a pricing agent or
brokers selected by the Fund's Manager, whose prices reflect broker/dealer
supplied valuations and/or electronic data processing techniques if such prices
are deemed by the Funds' Manager to be representative of market values at the
regular close of business of the Exchange. Loans are valued at the average of
bid quotations obtained from a pricing service. Options and futures contracts
are valued at the last sale price on the market where such options or futures
contracts are principally traded. Temporary cash investments acquired with over
60 days to maturity are valued using the latest bid prices or using valuations
based on a matrix system (which considers such factors as security prices,
yields, maturities, and ratings), both as furnished by independent pricing
services. Other temporary cash investments are valued at amortized cost, which
approximates market value. Pursuant to Rule 2a-7 of the Investment Company Act,
portfolio securities of Cash Reserves Fund are valued at their amortized cost,
which approximates market value in order to maintain a net asset value of $1.00
per share, although there is no assurance that it will be able to do so.
Securities for which market quotations are not readily available are valued by
methods deemed by the Board of Directors and/or the Board of Trustees to
represent fair value. Reasons for which securities may be valued in this manner
include, but are not limited to, trading for a security has been halted or
suspended, a security has been de-listed from a national exchange, or trading on
a security's primary market is temporarily closed at a time when under normal
conditions it would be open. As of October 31, 2004, the Funds did not hold any
securities that were fair valued. Foreign currency forward contracts are valued
at their fair market values determined on the basis of the mean between the last
bid and asked prices based on dealer or exchange quotations.
Certain events, which may occur in the U.S. or abroad, and which may include but
are not limited to natural disasters, armed conflicts, governmental actions or
other developments not tied directly to the securities markets, may occur
between the time that foreign markets close, on which securities held by the
Funds principally trade, and the time at which the Funds' NAVs are calculated.
Should the Funds conclude that such events may have affected the fair value of
securities since the last price reported on the local foreign market, the Funds
may, pursuant to procedures adopted by the Company's Board of Directors and/or
the Trust's Board of Trustees, adjust the value of the local price to reflect
the impact on the price of such securities as a result of such events.
(B) FEDERAL INCOME TAXES. Each of the Funds is treated as a separate entity for
federal income tax purposes. The Funds' policy is to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of the taxable income to the shareholders of
each Fund within the allowable time limits. Therefore, no federal income or
excise tax provision is required.
Investment income received by a Fund from foreign sources may be subject to
foreign income taxes. These foreign income taxes are withheld at the source.
(C) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. For the Cash Reserves and Floating Rate
220 MainStay Funds
Funds, dividends are declared daily and paid monthly and capital gain
distributions, if any, are declared and paid annually. For the Indexed Bond,
Intermediate Term Bond and Short Term Bond Funds, income dividends are declared
and paid monthly and capital gain distributions, if any, are declared and paid
annually. For the Balanced Fund, income dividends are declared and paid
quarterly and capital gain distributions, if any, are declared and paid
annually. Each of the other Funds intends to declare and pay, as a dividend,
substantially all of its net investment income at least once a year and net
realized capital gains no more than once a year. Income dividends and capital
gain distributions are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax differences" are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax basis
treatment; temporary differences do not require reclassification.
The following table discloses the current year reclassifications between
accumulated undistributed net investment income (loss), accumulated
undistributed net realized gain (loss) on investments and paid-in capital
arising from permanent differences; net assets at October 31, 2004, are not
affected.
<Table>
<Caption>
ACCUMULATED
ACCUMULATED UNDISTRIBUTED
UNDISTRIBUTED NET REALIZED ADDITIONAL
NET INVESTMENT GAIN (LOSS) ON PAID-IN
INCOME (LOSS) INVESTMENTS CAPITAL
All Cap Growth Fund $ 792,555 $ -- $ (792,555)
-------------------------------------------------------------------
All Cap Value Fund 915 -- (915)
-------------------------------------------------------------------
Mid Cap Opportunity
Fund 19 2,709 (2,728)
-------------------------------------------------------------------
S&P 500 Index Fund (178,417) 178,417 --
-------------------------------------------------------------------
Small Cap Opportunity
Fund (181,695) 181,695 --
-------------------------------------------------------------------
Cash Reserves Fund -- -- --
-------------------------------------------------------------------
Floating Rate Fund 16,137 -- (16,137)
-------------------------------------------------------------------
Indexed Bond Fund 665,039 (665,039) --
-------------------------------------------------------------------
Intermediate Term
Bond Fund 92,056 (92,056) --
-------------------------------------------------------------------
Short Term Bond Fund 103,395 84,391 (187,786)
-------------------------------------------------------------------
Asset Manager Fund 175,778 (175,778) --
-------------------------------------------------------------------
Balanced Fund (233,972) 233,972 --
-------------------------------------------------------------------
</Table>
The reclassifications for the Funds are primarily due to paydown gain (loss),
real estate investment trusts gain (loss), acquisition adjustments, foreign
currency gain (loss), reclassification of distributions, return of capital
distributions, the expiration of capital loss carryforwards, premium
amortization adjustments, excise tax payments and net operating losses.
(D) SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Funds record 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.
Discounts and premiums on securities, other than short-term securities,
purchased for all Funds are accreted and amortized, respectively, on the
constant yield method over the life of the respective securities or, in the case
of a callable security, over the period to the first date of call. Discounts and
premiums on short-term securities are accreted and amortized, respectively, on
the straight line method.
Investment income and realized and unrealized gains and losses on investments of
a Fund are allocated to separate classes of shares based upon their relative net
assets on the date the income is earned or realized and unrealized gains and
losses are incurred.
(E) EXPENSES. Expenses with respect to the Funds 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 expenses incurred under the Shareholder Services
Plans and the Distribution Plans) are allocated to separate classes of shares
based upon their relative net assets on the date the expenses are incurred. The
expenses borne by each Fund, including those of related parties to the Funds,
are shown on each Fund's Statement of Operations.
New York Life Investment Management LLC ("NYLIM") had directed certain portfolio
trades to brokers who agreed to pay a portion of the expenses for the Mid Cap
Opportunity, Small Cap Opportunity and Balanced Funds. This arrangement ended on
April 8, 2004. For the year ended October 31, 2004, each of these Fund's
expenses (transfer agent fees and expenses) were reduced by $3,310, $42,247 and
$39,765, respectively, under these arrangements. The credit balances remaining
as of April 8, 2004 were $2,877, $63,486 and $772 for the Mid Cap Opportunity,
Small Cap Opportunity and Balanced Funds, respectively, and are included on the
Statement of Operations under net realized and unrealized gain (loss) on
investments.
(F) USE OF ESTIMATES. The preparation of financial statements in accordance
with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
(G) PURCHASED AND WRITTEN OPTIONS. Certain Funds may write covered call and put
options on their portfolio securities or foreign currencies. Premiums are
received and are recorded as liabilities. The liabilities are
www.mainstayfunds.com 221
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
subsequently adjusted to reflect the current value of the options written.
Premiums received from writing options which expire are treated as realized
gains. Premiums received from writing options which are exercised or are
canceled in closing purchase transactions are added to the proceeds or netted
against the amount paid on the transaction to determine the realized gain or
loss. By writing a covered call option, in exchange for the premium, a Fund
foregoes the opportunity for capital appreciation above the exercise price
should the market price of the underlying security or foreign currency increase.
By writing a covered put option, a Fund, in exchange for the premium, accepts
the risk of a decline in the market value of the underlying security or foreign
currency below the exercise price. 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, in a segregated account
with its custodian. When writing a covered call option, the Funds, in return for
the premium on the option, give up the opportunity to profit from a price
increase in the underlying securities above the exercise price, but, as long as
the obligation as a writer continues, have retained the risk of loss should the
price of the underlying security decline. After writing a put option, a Fund may
incur a loss 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.
Certain Funds may purchase call and put options on their portfolio securities or
foreign currencies. A Fund may purchase call options to protect against an
increase in the price of the security or foreign currency it anticipates
purchasing. A 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. A 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 exposure to loss for any
purchased option is limited to the premium initially paid for the option (see
Note 7).
(H) LOANS AND COMMITMENTS. The Floating Rate Fund makes loans and loan
assignments ("loans"), which 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 which 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 London InterBank Offered Rate (LIBOR).
The loans made by the Fund are generally readily marketable, but may be subject
to some restrictions on resale. The Fund may be contractually obligated to
receive approval from the agent bank and/or borrower prior to sale.
The Fund assumes the credit risk of the borrower. In the event that the borrower
becomes 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.
The Fund also makes subordinated loans. The primary risk arising from such loans
is the potential loss in the event of default by the borrower. As of October 31,
2004, the Fund held 1.06% of its net assets in subordinated loans.
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 recorded in
memorandum accounts (see Note 6.)
(I) FUTURES CONTRACTS. A futures contract is an agreement to purchase or sell a
specified quantity of an underlying instrument at a specified future date and
price, or to make or receive a cash payment based on the value of a securities
index, foreign currency or interest rate. 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. A Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments are known as
"variation margin". When the futures contract is closed, the Fund records a
realized gain or loss equal to the difference between the proceeds from (or cost
of) the closing transaction and the Fund's basis in the contract. Futures
contracts are used for hedging purposes or to seek to enhance returns (see Note
5).
(J) REPURCHASE AGREEMENTS. The Fund's custodian takes possession of the
collateral pledged for investments in 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.
222 MainStay Funds
(K) FOREIGN CURRENCY TRANSACTIONS. The books and records of the Funds are kept
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at
the mean between the buying and selling rates last quoted by any major U.S. bank
at the following dates:
(i) market value of investment securities, other assets and liabilities -- at
the valuation date,
(ii) purchases and sales of investment securities, income and expenses -- at the
date of such transactions.
The assets and liabilities of each Fund are presented at the exchange rates and
market values at the end of the year. 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 recorded on
each Fund's books and the U.S. dollar equivalent amount actually received or
paid. Net currency gains or losses from valuing foreign currency denominated
assets and liabilities, other than investments, at valuation date exchange rates
are reflected in unrealized foreign exchange gains or losses.
(L) MORTGAGE DOLLAR ROLLS. A mortgage dollar roll ("MDR") is a transaction in
which a Fund sells mortgage-backed securities ("MBS") from its portfolio to a
counterparty from whom it simultaneously agrees to buy a similar security on a
delayed delivery basis. The MDR transactions of a Fund are classified as
purchase and sale transactions. The securities sold in connection with the MDRs
are removed from the portfolio and a realized gain or loss is recognized. The
securities the Funds have agreed to acquire are included at market value in the
Portfolio of Investments and liabilities for such purchase commitments are
included as payables for investments purchased. The Fund maintains a segregated
account with its custodian containing securities from its portfolio having a
value not less than the repurchase price, including accrued interest. MDR
transactions involve certain risks, including the risk that the MBS returned to
the Fund at the end of the roll, while substantially similar, could be inferior
to what was initially sold to the counterparty.
(M) SECURITIES LENDING. Each Fund may lend its securities to broker-dealers and
financial institutions. The loans are collateralized by cash or securities at
least equal at all times to the market value of the securities loaned. The Fund
may bear the risk of delay in recovery of, or loss of rights in, the securities
loaned should the borrower of the securities experience financial difficulty.
The Fund receives compensation for lending its securities in the form of fees or
it retains a portion of interest on the investment of any cash received as
collateral. The Fund also continues to receive interest and dividends on the
securities loaned, and any gain or loss in the market price of the securities
loaned that may occur during the term of the loan will be for the account of the
Fund (see Note 7).
(N) REDEMPTION FEE. Effective May 3, 2004, the Floating Rate Fund imposed a
2.00% redemption fee on redemptions (including exchanges) of the Fund's shares
made within 60 days of their date of purchase. The redemption fee is designed to
offset brokerage commissions and other costs to the Fund associated with short-
term trading and is not assessed on shares acquired through the reinvestment of
dividends or distributions paid by the Fund. The redemption fee may not apply to
redemptions of certain benefit plan accounts such as 401(k) plans, section 529
qualified tuition plans, or on redemptions of shares held at the time of death
or the initial determination of a permanent disability of a shareholder. The
redemption fees are included in the Statement of Changes in Net Assets' shares
redeemed amount and also as part of additional paid-in capital on the Statement
of Assets and Liabilities. The redemption fees paid to the Fund for the year
ended October 31, 2004 totaled $47,683.
NOTE 3 -- FEES AND RELATED PARTY TRANSACTIONS:
(A) MANAGER AND SUBADVISOR. NYLIM (or the "Manager"), an indirect wholly-owned
subsidiary of New York Life, serves as manager and provides management,
administrative and fund accounting services to the Funds under Management
Agreements. MacKay Shields LLC ("MacKay Shields"), a registered investment
adviser and an indirect wholly-owned subsidiary of New York Life, serves as
subadvisor to the All Cap Growth, All Cap Value, Intermediate Term Bond and
Short Term Bond Funds under a Sub-Advisory Agreement with the Manager. The Mid
Cap Opportunity, S&P 500 Index, Small Cap Opportunity, Cash Reserves, Floating
Rate, Indexed Bond, Asset Manager and Balanced Funds are advised by NYLIM
directly, without a subadvisor.
The Funds pay the Manager a monthly fee for the services performed and
facilities furnished at an annual rate of average daily net assets of that Fund
as follows:
<Table>
All Cap Growth Fund .85%
- ----------------------------------------------------------
All Cap Value Fund .85%
- ----------------------------------------------------------
Mid Cap Opportunity Fund .90%
- ----------------------------------------------------------
S&P 500 Index Fund .50%
- ----------------------------------------------------------
Small Cap Opportunity Fund 1.00%
- ----------------------------------------------------------
Cash Reserves Fund .50%
- ----------------------------------------------------------
Floating Rate Fund .60%
- ----------------------------------------------------------
Indexed Bond Fund .50%
- ----------------------------------------------------------
Intermediate Term Bond Fund .75%
- ----------------------------------------------------------
Short Term Bond Fund .60%
- ----------------------------------------------------------
Asset Manager Fund .65%
- ----------------------------------------------------------
Balanced Fund .75%
- ----------------------------------------------------------
</Table>
www.mainstayfunds.com 223
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Pursuant to the terms of the Sub-Advisory Agreement between the Manager and the
Subadvisor, the Manager pays the Subadvisor a monthly fee at an annual rate of
average daily net assets of the Company's Funds as follows:
<Table>
All Cap Growth Fund .25%
- ----------------------------------------------------------
All Cap Value Fund .25%
- ----------------------------------------------------------
Intermediate Term Bond Fund .20%
- ----------------------------------------------------------
Short Term Bond Fund .15%
- ----------------------------------------------------------
</Table>
The Manager voluntarily agreed (contractually agreed for the S&P 500 Index Fund)
to assume a portion of the Fund's operating expenses for the following Funds to
the extent the total expenses (excluding service fees and distribution fees) on
an annualized basis exceed the indicated percentages:
<Table>
All Cap Growth Fund .93%
- ----------------------------------------------------------
All Cap Value Fund .94%
- ----------------------------------------------------------
Mid Cap Opportunity Fund 1.04%
- ----------------------------------------------------------
S&P 500 Index Fund .30%
- ----------------------------------------------------------
Small Cap Opportunity Fund 1.19%
- ----------------------------------------------------------
Cash Reserves Fund .50%
- ----------------------------------------------------------
Floating Rate Fund .90%
- ----------------------------------------------------------
Indexed Bond Fund .50%
- ----------------------------------------------------------
Intermediate Term Bond Fund .75%
- ----------------------------------------------------------
Short Term Bond Fund .60%
- ----------------------------------------------------------
Asset Manager Fund .83%
- ----------------------------------------------------------
Balanced Fund .94%
- ----------------------------------------------------------
</Table>
In connection with these voluntary expense limitations and contractual waiver,
the Manager assumed the following expenses, which are shown on each Fund's
Statement of Operations, for the year ended October 31, 2004:
<Table>
All Cap Growth Fund $ 194,726
- -----------------------------------------------------------
All Cap Value Fund 183,259
- -----------------------------------------------------------
Mid Cap Opportunity Fund 126,156
- -----------------------------------------------------------
S&P 500 Index Fund 3,188,303
- -----------------------------------------------------------
Small Cap Opportunity Fund 0
- -----------------------------------------------------------
Cash Reserves Fund 516,731
- -----------------------------------------------------------
Floating Rate Fund 0
- -----------------------------------------------------------
Indexed Bond Fund 370,987
- -----------------------------------------------------------
Intermediate Term Bond Fund 302,744
- -----------------------------------------------------------
Short Term Bond Fund 181,458
- -----------------------------------------------------------
Asset Manager Fund 648,477
- -----------------------------------------------------------
Balanced Fund 0
- -----------------------------------------------------------
</Table>
It was not necessary for the Manager to reimburse the Small Cap Opportunity,
Floating Rate and Balanced Funds for expenses for the year ended October 31,
2004.
These voluntary expense limitations may be terminated or revised at any time.
The contractual expense waiver is in effect through December 31, 2004. There is
no guarantee that this waiver will continue after this date.
(B) DISTRIBUTOR. NYLIFE Distributors serves as the Funds' distributor and
principal underwriter (the "Distributor") to the Class A, Class B, Class C,
Class R2 and the Sweep Shares Class of all Funds offering such shares, pursuant
to a Distribution Agreement.
(C) SALES CHARGES. The Funds were advised by the Distributor that the amount of
sales charges retained on sales of Class A shares was $446,120 for the year
ended October 31, 2004. The Funds were also advised that the Distributor
retained contingent deferred sales charges on redemptions of Class A, Class B
and Class C shares of $22,612, $71,451 and $19,677, respectively, for the year
ended October 31, 2004.
(D) DISTRIBUTION AND SERVICE FEES. The Company and the Trust, on behalf of the
Funds, each has a Distribution Agreement with the Distributor. The Funds, with
respect to Class A, Class B, Class C and Class R2 shares and the Sweep Shares
Class shares of the Cash Reserves Fund have adopted distribution and service
plans (the "Plans") in accordance with the provisions of Rule 12b-1 under the
Investment Company Act. The Plans provide that distribution and service fees
payable thereunder are payable to the Distributor regardless of the amounts
actually expended by the Distributor for distribution of the Funds' shares and
service activities.
Pursuant to the Class A Plan and Class R2 Plan, the Distributor receives a
monthly fee from each applicable Fund at an annual rate of 0.25% of the average
daily net assets of the Fund's Class A and Class R2 shares, respectively, which
is an expense of the Class A and Class R2 shares of the Fund for distribution or
service activities as designated by the Distributor. Pursuant to the Class B and
Class C Plans, each applicable Fund pays the Distributor a monthly fee, which is
an expense of the Class B and Class C shares of the Fund, for distribution
activities as designated by the Distributor, at the annual rate of 0.75% of the
average daily net assets of the Fund's Class B and Class C shares, respectively.
The Class B and Class C Plans provide that the Class B and Class C shares of the
Funds also incur a monthly fee, which is an expense of the Class B and Class C
shares of the Funds for service activities as designated by the Distributor, at
the annual rate of 0.25% of the average daily net asset value of the Class B or
Class C shares of the Funds, respectively. Pursuant to the Sweep Shares Class
Plan for the Cash Reserves Fund, the Distributor, NYLIFE Securities Inc., an
indirect wholly-owned subsidiary of New York Life, or any other broker-dealer or
other financial institution, is entitled to receive a monthly fee, which is an
expense of the Sweep Shares Class Plan of the Cash Reserves Fund for
distribution or service activities as designated by the Distributor, at an
annual rate of 0.25% of the average daily net assets of the Fund's Sweep Shares
Class for account sweep and other distribution-related and shareholder services.
224 MainStay Funds
In accordance with the Shareholder Services Plans for the Class R1 and Class R2
shares and the Sweep Shares Class shares, the Manager has agreed to provide,
through its affiliates or independent third parties, various shareholder and
administrative support services to shareholders of the Class R1 and Class R2
shares and the Sweep Shares Class 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 and R2 shares and at an annual rate of 0.25% of the average daily net assets
attributable to the Sweep Shares Class shares of the Cash Reserves Fund.
(E) TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. NYLIM
Service Company LLC ("NYLIM Service"), an affiliate of NYLIM, is the Funds'
transfer, dividend disbursing and shareholder servicing agent. NYLIM Service has
entered into an agreement with Boston Financial Data Services ("BFDS"), pursuant
to which BFDS will perform certain of the services for which NYLIM Service is
responsible. Transfer agent expenses accrued to NYLIM Service, for the year
ended October 31, 2004 were as follows:
<Table>
All Cap Growth Fund $202,026
- -----------------------------------------------------------
All Cap Value Fund 157,855
- -----------------------------------------------------------
Mid Cap Opportunity Fund 53,805
- -----------------------------------------------------------
S&P 500 Index Fund 204,573
- -----------------------------------------------------------
Small Cap Opportunity Fund 174,085
- -----------------------------------------------------------
Cash Reserves Fund 67,446
- -----------------------------------------------------------
Floating Rate Fund 65,786
- -----------------------------------------------------------
Indexed Bond Fund 57,910
- -----------------------------------------------------------
Intermediate Term Bond Fund 105,730
- -----------------------------------------------------------
Short Term Bond Fund 40,127
- -----------------------------------------------------------
Asset Manager Fund 614,664
- -----------------------------------------------------------
Balanced Fund 267,423
- -----------------------------------------------------------
</Table>
(F) INDEPENDENT DIRECTORS AND TRUSTEES FEES. Effective January 1, 2004,
non-interested Directors and Trustees are paid an annual retainer of $62,000
plus reimbursement for travel and out-of-pocket expenses. The Lead Independent
Director/Trustee and the Audit Committee Chair each receive an additional annual
retainer of $10,000. The retainers are paid in the aggregate for the Company and
the Trust.
(G) CAPITAL. At October 31, 2004 affiliates and employees of New York Life
owned a significant number of shares of the Funds with the following values and
percentages of net assets as follows:
<Table>
All Cap Growth Fund $ 225,943,136 83.5%
- -----------------------------------------------------------
All Cap Value Fund 86,912,313 65.8
- -----------------------------------------------------------
Mid Cap Opportunity Fund 18,381 0.1
- -----------------------------------------------------------
S&P 500 Index Fund 1,094,267,043 86.7
- -----------------------------------------------------------
Small Cap Opportunity Fund 66,121,486 27.6
- -----------------------------------------------------------
Cash Reserves Fund 181,868,508 35.8
- -----------------------------------------------------------
Floating Rate Fund 70,214,586 18.4
- -----------------------------------------------------------
Indexed Bond Fund 217,790,257 85.0
- -----------------------------------------------------------
Intermediate Term Bond Fund 107,247,241 64.5
- -----------------------------------------------------------
Short Term Bond Fund 76,695,937 76.2
- -----------------------------------------------------------
Asset Manager Fund 216,681,505 69.1
- -----------------------------------------------------------
Balanced Fund 142,995,352 33.2
- -----------------------------------------------------------
</Table>
From time to time, a Fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the Fund.
(H) OTHER. Pursuant to a contract between the Funds and the Office of the
General Counsel of NYLIM ("OGC"), the cost of legal services provided to the
Funds by OGC are charged to the Funds. For the year ended October 31, 2004,
these fees, which are included in Professional fees shown on the Statement of
Operations, were as follows:
<Table>
All Cap Growth Fund $ 29,567
- -----------------------------------------------------------
All Cap Value Fund 14,265
- -----------------------------------------------------------
Mid Cap Opportunity Fund 2,407
- -----------------------------------------------------------
S&P 500 Index Fund 113,911
- -----------------------------------------------------------
Small Cap Opportunity Fund 20,631
- -----------------------------------------------------------
Cash Reserves Fund 46,933
- -----------------------------------------------------------
Floating Rate Fund 11,021
- -----------------------------------------------------------
Indexed Bond Fund 23,182
- -----------------------------------------------------------
Intermediate Term Bond Fund 16,087
- -----------------------------------------------------------
Short Term Bond Fund 9,567
- -----------------------------------------------------------
Asset Manager Fund 29,520
- -----------------------------------------------------------
Balanced Fund 29,127
- -----------------------------------------------------------
</Table>
NOTE 4 -- FEDERAL INCOME TAX:
As of October 31, 2004, the components of accumulated earnings on a tax basis
were as follows:
<Table>
<Caption>
ACCUMULATED
CAPITAL UNREALIZED TOTAL
ORDINARY AND OTHER APPRECIATION ACCUMULATED
INCOME GAINS (LOSSES) (DEPRECIATION) GAIN (LOSS)
All Cap Growth Fund $ -- $ (52,834,924) $ 39,988,840 $(12,846,084)
- -------------------------------------------------------------------------------------------------------------------------
All Cap Value Fund 1,345,037 (18,758,279) 16,142,357 (1,270,885)
- -------------------------------------------------------------------------------------------------------------------------
Mid Cap Opportunity Fund 161,905 1,156,265 3,864,261 5,182,431
- -------------------------------------------------------------------------------------------------------------------------
</Table>
www.mainstayfunds.com 225
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<Table>
<Caption>
ACCUMULATED
CAPITAL UNREALIZED TOTAL
ORDINARY AND OTHER APPRECIATION ACCUMULATED
INCOME GAINS (LOSSES) (DEPRECIATION) GAIN (LOSS)
S&P 500 Index Fund $12,428,343 $ (26,155,652) $ 59,912,985 $ 46,185,676
- -------------------------------------------------------------------------------------------------------------------------
Small Cap Opportunity Fund 17,781,133 22,831,399 31,651,518 72,264,050
- -------------------------------------------------------------------------------------------------------------------------
Cash Reserves Fund -- (2,708) -- (2,708)
- -------------------------------------------------------------------------------------------------------------------------
Floating Rate Fund -- (229,008) 1,191,191 962,183
- -------------------------------------------------------------------------------------------------------------------------
Indexed Bond Fund 1,482,270 (3,518,018) 5,216,982 3,181,234
- -------------------------------------------------------------------------------------------------------------------------
Intermediate Term Bond Fund 197,180 (9,485,611) 3,182,340 (6,106,091)
- -------------------------------------------------------------------------------------------------------------------------
Short Term Bond Fund -- (2,075,651) (188,908) (2,264,559)
- -------------------------------------------------------------------------------------------------------------------------
Asset Manager Fund 4,704,485 (54,216,036) 39,774,397 (9,737,154)
- -------------------------------------------------------------------------------------------------------------------------
Balanced Fund 24,415 9,086,519 28,804,583 37,915,517
- -------------------------------------------------------------------------------------------------------------------------
</Table>
The difference between book basis and tax basis unrealized appreciation
(depreciation) is primarily due to wash sale loss deferrals, premium
amortization, real estate investment trusts basis adjustments and mark-to-market
of futures contracts.
At October 31, 2004, for federal income tax purposes, capital loss
carryforwards, as shown in the table below, were available to the extent
provided by regulations to offset future realized gains of each respective Fund
through the years indicated. To the extent that these loss carryforwards are
used to offset future capital gains, it is probable that the capital gains so
offset will not be distributed to shareholders.
<Table>
<Caption>
CAPITAL LOSS
AVAILABLE AMOUNT
THROUGH (000'S)
All Cap Growth Fund 2009 $24,144
2010 17,488
2011 2,904
2012 8,299
- ----------------------------------------------------------
$52,835
- ----------------------------------------------------------
All Cap Value Fund 2010 $11,887
2011 6,872
- ----------------------------------------------------------
$18,759
- ----------------------------------------------------------
S&P 500 Index Fund 2010 $26,156
- ----------------------------------------------------------
Cash Reserves Fund 2012 $ 3
- ----------------------------------------------------------
Floating Rate Fund 2012 $ 229
- ----------------------------------------------------------
Indexed Bond Fund 2007 $ 1,620
2008 1,793
2009 105
- ----------------------------------------------------------
$ 3,518
- ----------------------------------------------------------
Intermediate Term Bond Fund 2007 $ 4,927
2008 3,661
2010 898
- ----------------------------------------------------------
$ 9,486
- ----------------------------------------------------------
</Table>
<Table>
<Caption>
CAPITAL LOSS
AVAILABLE AMOUNT
THROUGH (000'S)
Short Term Bond Fund 2005 $ 192
2006 63
2007 572
2008 758
2009 159
2010 35
2012 297
- ----------------------------------------------------------
$ 2,076
- ----------------------------------------------------------
Asset Manager Fund 2010 $ 9,702
2011 44,514
- ----------------------------------------------------------
$54,216
- ----------------------------------------------------------
</Table>
The All Cap Value, S&P 500 Index, Indexed Bond, Intermediate Term Bond and Asset
Manager Funds utilized $14,119,554, $11,390,033, $283,342, $1,361,903 and
$30,703,508, respectively, of capital loss carryforwards during the year ended
October 31, 2004. In addition, the Short Term Bond Fund had $515,836 of capital
loss carryforwards that expired.
The MainStay Short Term Bond Fund (formerly the Eclipse Short Term Bond Fund)
acquired $420,163 in capital loss carryforwards as a result of the acquisition
of the Eclipse Ultra Short Duration Fund. There were no capital loss
carryforwards acquired by the MainStay Intermediate Term Bond Fund (formerly the
Eclipse Bond Fund) as a result of the acquisition of the Eclipse Core Bond Plus
Fund (see Note 8).
Dividends to shareholders from net investment income and distributions to
shareholders from net realized gains shown in the Statement of Changes in Net
Assets for the years ended October 31, 2004 and October 31, 2003 represent
tax-based distributions of ordinary income and net long-term capital gain,
respectively, except for the Funds for
226 MainStay Funds
which the tax components of the distributions are shown below.
<Table>
<Caption>
2004 2003
---------------------------- -------------
TAX-BASED TAX-BASED
DISTRIBUTIONS TAX-BASED DISTRIBUTIONS
FROM DISTRIBUTIONS FROM
ORDINARY FROM LONG- ORDINARY
INCOME TERM GAINS INCOME
Small Cap Opportunity
Fund $ 422,312 $ 8,952,827 $ 0
- ------------------------------------------------------------------
Cash Reserves Fund 2,455,778 0 3,289,749
- ------------------------------------------------------------------
Balanced Fund 3,948,204 1,497,531 0
- ------------------------------------------------------------------
</Table>
NOTE 5 -- FINANCIAL INVESTMENTS:
The S&P 500 Index Fund's, Indexed Bond Fund's and Asset Manager Fund's use of
futures contracts involves, to varying degrees, elements of market risk in
excess of the amount recognized in the Statement of Assets and Liabilities. The
contract or notional amounts and variation margin reflect the extent of 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 are conducted through regulated exchanges which
minimize counterparty credit risks.
The S&P 500 Index Fund invests in stock index futures contracts to maintain cash
reserves while remaining fully invested, to facilitate trading, or to reduce
transaction costs. The Indexed Bond Fund invests in contracts for the future
delivery of debt securities in order to attempt to maintain cash reserves while
remaining fully invested, to facilitate trading, or to reduce transaction costs.
The Asset Manager Fund has entered into contracts for the future delivery of
debt securities and invests in stock index futures contracts to rebalance the
Fund's portfolio composition and risk profile to meet asset class constraints.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES:
As of October 31, 2004, the Floating Rate Fund had unfunded loan commitments
pursuant to the following loan agreements:
<Table>
<Caption>
UNFUNDED
BORROWER COMMITMENT
Graham Packaging Co., LLC, due 10/7/11 $ 234,637
- -------------------------------------------------------
Jostens IH Corp., due 10/4/11 94,828
- -------------------------------------------------------
Venetian Casino Resort, LLC, due 6/15/11 409,091
- -------------------------------------------------------
$ 738,556
- -------------------------------------------------------
</Table>
These commitments are available until the maturity date of the respective
security.
NOTE 7 -- FUND SECURITIES LOANED AND WRITTEN OPTIONS:
As of October 31, 2004, the following Funds had securities on loan and received
collateral as follows:
<Table>
<Caption>
MARKET
VALUE OF
SECURITIES
ON LOAN COLLATERAL
All Cap Growth Fund $ 6,637,296 $ 6,904,050
- ----------------------------------------------------------
All Cap Value Fund 0 561,368
- ----------------------------------------------------------
S&P 500 Index Fund 25,508,054 26,575,475
- ----------------------------------------------------------
Indexed Bond Fund 35,940,734 36,377,348
- ----------------------------------------------------------
Intermediate Term Bond Fund 8,112,185 8,596,341
- ----------------------------------------------------------
Short Term Bond Fund 19,151,256 19,937,707
- ----------------------------------------------------------
Asset Manager Fund 20,684,830 20,847,025
- ----------------------------------------------------------
</Table>
The cash collateral received for securities on loan was used to purchase highly
liquid short-term investments in accordance with the lending procedures of the
Funds. Pursuant to Rule 2a-7, securities purchased with collateral received are
valued at amortized cost.
During the year ended October 31, 2004, the All Cap Value Fund had the following
transactions in Written Options:
<Table>
<Caption>
NUMBER OF
ALL CAP VALUE FUND CONTRACTS PREMIUM
Options outstanding at October 31,
2003 0 $ 0
- ----------------------------------------------------------
Options -- written (855) (101,940)
- ----------------------------------------------------------
Options -- buybacks 483 60,716
- ----------------------------------------------------------
Options -- exercised 118 16,460
- ----------------------------------------------------------
Options -- expired 254 24,764
- ----------------------------------------------------------
Options outstanding at October 31,
2004 0 $ 0
- ----------------------------------------------------------
</Table>
NOTE 8 -- FUND ACQUISITIONS:
(A) On December 11, 2003, MainStay Short Term Bond Fund (formerly Eclipse Short
Term Bond Fund) acquired the assets, including the investments, and assumed the
identified liabilities of Eclipse Ultra Short Duration Fund.
This reorganization was completed after shareholders approved the plan on
September 24, 2003. The aggregate net assets of MainStay Short Term Bond Fund
immediately before the acquisition was $35,809,687 and the combined net assets
after the acquisition was $110,548,775.
The acquisition was accomplished by a tax-free exchange of the following:
<Table>
<Caption>
SHARES VALUE
Eclipse Ultra Short Duration Fund
No-Load Class 7,456,363 $74,520,760
- -----------------------------------------------------------
Service Class 21,691 218,328
- -----------------------------------------------------------
</Table>
www.mainstayfunds.com 227
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In exchange for the Eclipse Ultra Short Duration Fund shares and net assets,
MainStay Short Term Bond Fund issued the following number of shares:
<Table>
<Caption>
SHARES
No-Load Class 7,983,823
- ---------------------------------------------------------
Service Class 23,275
- ---------------------------------------------------------
</Table>
Eclipse Ultra Short Duration Fund's net assets after adjustments for any
permanent book-to-tax differences at the acquisition date were as follows, which
include the following amounts of capital stock, unrealized appreciation,
accumulated net realized loss and temporary book-to-tax differences:
<Table>
<Caption>
TEMPORARY
TOTAL NET CAPITAL UNREALIZED ACCUMULATED NET BOOK-TO-TAX
ASSETS STOCK APPRECIATION REALIZED LOSS DIFFERENCES
Eclipse Ultra Short Duration
Fund $74,739,088 $75,334,518 $78,654 $(420,163) $(253,921)
- --------------------------------------------------------------------------------------------------------------------------
</Table>
(B) On December 11, 2003, MainStay Intermediate Term Bond Fund (formerly Eclipse
Bond Fund) acquired the assets, including the investments, and assumed the
identified liabilities of Eclipse Core Bond Plus Fund.
This reorganization was completed after shareholders approved the plan on
September 24, 2003. The aggregate net assets of MainStay Intermediate Term Bond
Fund immediately before the acquisition was $123,809,905 and the combined net
assets after the acquisition was $150,603,301.
The acquisition was accomplished by a tax-free exchange of the following:
<Table>
<Caption>
SHARES VALUE
Eclipse Core Bond Plus Fund 2,614,400 $26,793,396
---------------------------------------------------------
</Table>
In exchange for the Eclipse Core Bond Plus Fund shares and net assets, MainStay
Intermediate Term Bond Fund issued the following number of shares:
<Table>
<Caption>
SHARES
No-Load Class 2,713,657
---------------------------------------------------------
</Table>
Eclipse Core Bond Plus Fund's net assets after adjustments for any permanent
book-to-tax differences at the acquisition date were as follows, which include
the following amounts of capital stock, unrealized appreciation and temporary
book-to-tax differences:
<Table>
<Caption>
TEMPORARY
TOTAL NET CAPITAL UNREALIZED BOOK-TO-TAX
ASSETS STOCK APPRECIATION DIFFERENCES
Eclipse Core Bond Plus Fund $26,793,396 $26,387,302 $312,011 $94,083
--------------------------------------------------------------------------------------------------------------------
</Table>
NOTE 9 -- CUSTODIAN:
The Bank of New York is custodian of cash and securities of each Fund of the
Company and Trust. Custodial fees are charged to each Fund based on the market
value of securities in each Fund and the number of certain cash transactions
incurred by each Fund.
NOTE 10 -- LINE OF CREDIT:
The Funds, and certain affiliated funds, with the exception of the Cash Reserves
Fund, maintain a line of credit of $160,000,000 with a syndicate of banks in
order to secure a source of funds for temporary purposes to meet unanticipated
or excessive shareholder redemption requests. The Funds pay a commitment fee, at
an annual rate of .075% of the average commitment amount, regardless of usage,
to The Bank of New York, which acts as agent to the syndicate. Such commitment
fees are allocated among the Funds based upon net assets and other factors.
Interest on any revolving credit loan is charged based upon the Federal Funds
Advances rate. There were no borrowings on the line of credit during the year
ended October 31, 2004.
228 MainStay Funds
This page intentionally left blank
229
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended October 31, 2004, purchases and sales of securities, other
than securities subject to repurchase transactions and short-term securities,
were as follows:
<Table>
<Caption>
ALL CAP ALL CAP MID CAP S&P 500
GROWTH FUND VALUE FUND OPPORTUNITY FUND INDEX FUND
-------------------- -------------------- ------------------ -------------------
PURCHASES SALES PURCHASES SALES PURCHASES SALES PURCHASES SALES
U.S. Government securities $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
- ------------------------------------------------------------------------------------------------------------------
All others 140,396 242,954 70,003 116,633 27,762 8,983 231,257 26,732
- ------------------------------------------------------------------------------------------------------------------
Total $140,396 $242,954 $70,003 $116,633 $27,762 $8,983 $231,257 $26,732
- ------------------------------------------------------------------------------------------------------------------
<Caption>
SMALL CAP
OPPORTUNITY FUND
--------------------
PURCHASES SALES
U.S. Government securities $ -- $ --
- --------------------------
All others 310,228 263,854
- --------------------------
Total $310,228 $263,854
- --------------------------
</Table>
NOTE 12 -- CAPITAL SHARE TRANSACTIONS (IN 000'S):
Transactions in capital shares were as follows:
<Table>
<Caption>
ALL CAP GROWTH FUND
----------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS I SERVICE CLASS+
------- ------- ------- ----------- ----------- -------------------------------
JANUARY 2, 2004* YEAR ENDED YEAR ENDED NOVEMBER 1, 2003 YEAR ENDED
THROUGH OCTOBER 31, OCTOBER 31, THROUGH OCTOBER 31,
OCTOBER 31, 2004 2004 2003 JANUARY 9, 2004 2003
Shares sold 786 198 31 1,736 3,014 20 228
- ---------------------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment
of dividends and distributions -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
786 198 31 1,736 3,014 20 228
- ---------------------------------------------------------------------------------------------------------------------------------
Shares redeemed (92) (8) (2) (6,663) (4,625) (602) (305)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 694 190 29 (4,927) (1,611) (582) (77)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MID CAP OPPORTUNITY FUND
-----------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS C CLASS I
------- ------- ------- ------- ------------------ -----------
JANUARY 2, 2004* YEAR ENDED DECEMBER 30, 2002* YEAR ENDED
THROUGH OCTOBER 31, THROUGH OCTOBER 31,
OCTOBER 31, 2004 2004 OCTOBER 31, 2003 2003
Shares sold 298 259 220 398 --(a) 373
- ---------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of
dividends and distributions -- -- --(a) 5 --(a) 14
- ---------------------------------------------------------------------------------------------------------------------
298 259 220 403 --(a) 387
- ---------------------------------------------------------------------------------------------------------------------
Shares redeemed (18) (10) (6) (266) (--) (2,909)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 280 249 214 137 --(a) (2,522)
- ---------------------------------------------------------------------------------------------------------------------
<Caption>
MID CAP OPPORTUNITY FUND
--------------------------------
SERVICE CLASS+
--------------------------------
NOVEMBER 1, 2003 YEAR ENDED
THROUGH OCTOBER 31,
JANUARY 9, 2004 2003
Shares sold 1 --(a)
- ------------------------------------
Shares issued in reinvestment of
dividends and distributions --(a) --(a)
- ------------------------------------
1 --(a)
- ------------------------------------
Shares redeemed (1) (--)
- ------------------------------------
Net increase (decrease) --(a) --(a)
- ------------------------------------
</Table>
<Table>
<Caption>
SMALL CAP OPPORTUNITY FUND
-----------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS C CLASS I
------- ------- ------- ------- ------------------ -----------
JANUARY 2, 2004* YEAR ENDED DECEMBER 30, 2002* YEAR ENDED
THROUGH OCTOBER 31, THROUGH OCTOBER 31,
OCTOBER 31, 2004 2004 OCTOBER 31, 2003 2003
Shares sold 1,473 874 311 6,894 --(a) 9,363
- --------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of
dividends and distributions --(a) -- --(a) 538 -- 108
- --------------------------------------------------------------------------------------------------------------------
1,473 874 311 7,432 --(a) 9,471
- --------------------------------------------------------------------------------------------------------------------
Shares redeemed (148) (63) (11) (7,065) (--)(a) (9,026)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 1,325 811 300 367 --(a) 445
- --------------------------------------------------------------------------------------------------------------------
<Caption>
SMALL CAP OPPORTUNITY FUND
--------------------------------
SERVICE CLASS+
--------------------------------
NOVEMBER 1, 2003 YEAR ENDED
THROUGH OCTOBER 31,
JANUARY 9, 2004 2003
Shares sold 9 59
- -----------------------------------
Shares issued in reinvestment of
dividends and distributions 4 --(a)
- -----------------------------------
13 59
- -----------------------------------
Shares redeemed (79) (1)
- -----------------------------------
Net increase (decrease) (66) 58
- -----------------------------------
</Table>
<Table>
<Caption>
FLOATING RATE FUND
----------------------------------------
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
MAY 3, 2004* THROUGH OCTOBER 31, 2004
Shares sold 26,911 4,259 8,981 228
- --------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of dividends and distributions 130 27 38 2
- --------------------------------------------------------------------------------------------------------
27,041 4,286 9,019 230
- --------------------------------------------------------------------------------------------------------
Shares redeemed (1,615) (475) (467) (1)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) 25,426 3,811 8,552 229
- --------------------------------------------------------------------------------------------------------
</Table>
* Commencement of Operations.
+ Service Class ceased operations on January 9, 2004.
(a) Less than one thousand shares.
230 MainStay Funds
<Table>
<Caption>
FLOATING RATE INDEXED BOND INTERMEDIATE TERM SHORT TERM ASSET MANAGER
FUND FUND BOND FUND BOND FUND FUND
------------------ -------------------- -------------------- -------------------- --------------------
PURCHASES SALES PURCHASES SALES PURCHASES SALES PURCHASES SALES PURCHASES SALES
$ -- $ -- $277,468 $230,244 $250,833 $243,161 $124,824 $ 86,906 $ 91,303 $ 77,558
- ------------------------------------------------------------------------------------------------------------------
370,315 7,156 10,729 3,956 71,435 60,723 31,443 48,975 162,965 176,278
- ------------------------------------------------------------------------------------------------------------------
$370,315 $7,156 $288,197 $234,200 $322,268 $303,884 $156,267 $135,881 $254,268 $253,836
- ------------------------------------------------------------------------------------------------------------------
<Caption>
BALANCED
FUND
--------------------
PURCHASES SALES
$ 8,426 $ 4,300
- ---
314,826 103,752
- ---
$323,252 $108,052
- ---
</Table>
<Table>
<Caption>
ALL CAP VALUE FUND
--------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS I SERVICE CLASS+
------- ------- ------- ---------------- ---------------- ------------------------------------
JANUARY 2, 2004* NOVEMBER 1, 2003
THROUGH YEAR ENDED YEAR ENDED THROUGH YEAR ENDED
OCTOBER 31, 2004 OCTOBER 31, 2004 OCTOBER 31, 2003 JANUARY 9, 2004 OCTOBER 31, 2003
842 315 83 1,925 3,321 37 123
- ------------------------------------------------------------------------------------------------------------
-- -- -- 172 169 4 4
- ------------------------------------------------------------------------------------------------------------
842 315 83 2,097 3,490 41 127
- ------------------------------------------------------------------------------------------------------------
(99) (9) (11) (7,122) (3,578) (521) (106)
- ------------------------------------------------------------------------------------------------------------
743 306 72 (5,025) (88) (480) 21
- ------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
S&P 500 INDEX FUND
------------------------------------------------------------------------------
CLASS A CLASS I CLASS I SERVICE CLASS+
---------------- ----------- ----------- -------------------------------
JANUARY 2, 2004* YEAR ENDED YEAR ENDED NOVEMBER 1, 2003 YEAR ENDED
THROUGH OCTOBER 31, OCTOBER 31, THROUGH OCTOBER 31,
OCTOBER 31, 2004 2004 2003 JANUARY 9, 2004 2003
13,266 12,887 13,440 652 4,927
- ----------------------------------------------------------------------------------
-- 382 384 81 83
- ----------------------------------------------------------------------------------
13,266 13,269 13,824 733 5,010
- ----------------------------------------------------------------------------------
(2,530) (7,821) (7,611) (8,845) (3,195)
- ----------------------------------------------------------------------------------
10,736 5,448 6,213 (8,111) 1,815
- ----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
CASH RESERVES FUND
-------------------------------------------------------------------------------------
SWEEP SHARES SWEEP SHARES
CLASS I CLASS CLASS I CLASS SERVICE CLASS+
-------- ------------ -------- ------------ --------------------------------
NOVEMBER 1, 2003 YEAR ENDED
YEAR ENDED YEAR ENDED THROUGH OCTOBER 31,
OCTOBER 31, 2004 OCTOBER 31, 2003 JANUARY 9, 2004 2003
506,073 136,262 490,605 97,732 2,796 29,010
- -----------------------------------------------------------------------------------------
1,742 544 2,250 932 6 85
- -----------------------------------------------------------------------------------------
507,815 136,806 492,855 98,664 2,802 29,095
- -----------------------------------------------------------------------------------------
(482,326) (148,842) (601,715) (117,116) (20,300) (23,256)
- -----------------------------------------------------------------------------------------
25,489 (12,036) (108,860) (18,452) (17,498) 5,839
- -----------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
INDEXED BOND FUND
------------------------------------------------------------------------------
CLASS A CLASS I CLASS I SERVICE CLASS+
---------------- ----------- ----------- -------------------------------
JANUARY 2, 2004* YEAR ENDED YEAR ENDED NOVEMBER 1, 2003 YEAR ENDED
THROUGH OCTOBER 31, OCTOBER 31, THROUGH OCTOBER 31,
OCTOBER 31, 2004 2004 2003 JANUARY 9, 2004 2003
6,085 5,664 10,323 466 2,464
- ----------------------------------------------------------------------------------
98 577 540 14 70
- ----------------------------------------------------------------------------------
6,183 6,241 10,863 480 2,534
- ----------------------------------------------------------------------------------
(1,840) (4,342) (5,482) (3,312) (1,330)
- ----------------------------------------------------------------------------------
4,343 1,899 5,381 (2,832) 1,204
- ----------------------------------------------------------------------------------
</Table>
www.mainstayfunds.com 231
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- CAPITAL SHARE TRANSACTIONS (IN 000'S) (CONTINUED):
<Table>
<Caption>
INTERMEDIATE TERM BOND FUND
------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS I SERVICE CLASS+
------- -------- ------- ----------- ----------- --------------------------------
JANUARY 2, 2004* YEAR ENDED YEAR ENDED NOVEMBER 1, 2003 YEAR ENDED
THROUGH OCTOBER 31, OCTOBER 31, THROUGH OCTOBER 31,
OCTOBER 31, 2004 2004 2003 JANUARY 9, 2004 2003
Shares sold 948 313 114 4,199 2,538 12 244
- ---------------------------------------------------------------------------------------------------------------------------------
Shares issued in connection
with acquisition of Core
Bond Plus Fund (b) -- -- -- 2,714 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment
of dividends and
distributions 15 3 1 469 502 4 22
- ---------------------------------------------------------------------------------------------------------------------------------
963 316 115 7,382 3,040 16 266
- ---------------------------------------------------------------------------------------------------------------------------------
Shares redeemed (153) (42) (21) (5,453) (3,041) (603) (289)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 810 274 94 1,929 (1) (587) (23)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SHORT TERM BOND FUND
---------------------------------------------------------------------------------
CLASS A CLASS I CLASS I SERVICE CLASS+
---------------- ----------- ----------- -------------------------------
JANUARY 2, 2004* YEAR ENDED YEAR ENDED NOVEMBER 1, 2003 YEAR ENDED
THROUGH OCTOBER 31, OCTOBER 31, THROUGH OCTOBER 31,
OCTOBER 31, 2004 2004 2003 JANUARY 9, 2004 2003
Shares sold 2,158 2,000 1,782 25 26
- ---------------------------------------------------------------------------------------------------------------------------------
Shares issued in connection with acquisition
of Ultra Short Duration Fund (b) 23 7,984 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of dividends
and distributions 10 100 88 --(a) 2
- ---------------------------------------------------------------------------------------------------------------------------------
2,191 10,084 1,870 25 28
- ---------------------------------------------------------------------------------------------------------------------------------
Shares redeemed (1,628) (3,598) (2,037) (84) (48)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 563 6,486 (167) (59) (20)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ASSET MANAGER FUND
-----------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS C CLASS I
------- ------- ------- ------- ------------------ -----------
JANUARY 2, 2004* YEAR ENDED DECEMBER 30, 2002* YEAR ENDED
THROUGH OCTOBER 31, THROUGH OCTOBER 31,
OCTOBER 31, 2004 2004 OCTOBER 31, 2003 2003
Shares sold 5,079 1,655 268 2,819 4 3,718
- --------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of
dividends and distributions -- -- --(a) 437 -- 493
- --------------------------------------------------------------------------------------------------------------------
5,079 1,655 268 3,256 4 4,211
- --------------------------------------------------------------------------------------------------------------------
Shares redeemed (676) (53) (15) (6,750) (--) (19,261)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 4,403 1,602 253 (3,494) 4 (15,050)
- --------------------------------------------------------------------------------------------------------------------
<Caption>
ASSET MANAGER FUND
--------------------------------
SERVICE CLASS+
--------------------------------
NOVEMBER 1, 2003 YEAR ENDED
THROUGH OCTOBER 31,
JANUARY 9, 2004 2003
Shares sold 72 1,233
- -----------------------------------
Shares issued in reinvestment of
dividends and distributions 53 37
- -----------------------------------
125 1,270
- -----------------------------------
Shares redeemed (3,132) (399)
- -----------------------------------
Net increase (decrease) (3,007) 871
- -----------------------------------
</Table>
<Table>
<Caption>
BALANCED FUND
----------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS R1 CLASS R2 CLASS C CLASS I
------- ------- ------- ------- -------- -------- ------------------ -----------
JANUARY 2, 2004* YEAR ENDED JANUARY 2, 2004* DECEMBER 30, 2002* YEAR ENDED
THROUGH OCTOBER 31, THROUGH THROUGH OCTOBER 31,
OCTOBER 31, 2004 2004 OCTOBER 31, 2004 OCTOBER 31, 2003 2003
Shares sold 4,783 2,597 1,184 4,080 1,255 933 15 4,059
- --------------------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of
dividends and distributions 18 4 2 172 4 2 --(a) 93
- --------------------------------------------------------------------------------------------------------------------------------
4,801 2,601 1,186 4,252 1,259 935 15 4,152
- --------------------------------------------------------------------------------------------------------------------------------
Shares redeemed (543) (120) (46) (3,293) (64) (174) (--)(a) (2,134)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 4,258 2,481 1,140 959 1,195 761 15 2,018
- --------------------------------------------------------------------------------------------------------------------------------
<Caption>
BALANCED FUND
-------------------------------
SERVICE CLASS+
-------------------------------
NOVEMBER 1, 2003 YEAR ENDED
THROUGH OCTOBER 31,
JANUARY 9, 2004 2003
Shares sold 222 1,003
- --------------------------------
Shares issued in reinvestment of
dividends and distributions 15 3
- --------------------------------
237 1,006
- --------------------------------
Shares redeemed (1,033) (210)
- --------------------------------
Net increase (decrease) (796) 796
- --------------------------------
</Table>
* Commencement of Operations.
+ Service Class ceased operations on January 9, 2004.
(a) Less than one thousand shares.
(b) On December 11, 2003 and pursuant to shareholder approval, the assets and
liabilities of the Eclipse Core Bond Plus Fund were acquired by the Eclipse
Bond Fund which was subsequently renamed MainStay Intermediate Term Bond
Fund. Also on December 11, 2003 and pursuant to shareholder approval, the
assets and liabilities of the Eclipse Ultra Short Duration Fund were
acquired by the Eclipse Short Term Bond Fund which was subsequently renamed
MainStay Short Term Bond Fund.
232 MainStay Funds
NOTE 13 -- OTHER MATTERS:
NYLIM and mutual funds that NYLIM advises have received requests for information
from various government authorities and regulatory bodies regarding market
timing, late trading, operations, fees, expenses, and other matters. NYLIM and
the funds it advises are cooperating fully in responding to these requests. To
date, substantially all of the costs associated with these and other regulatory
matters have been borne by NYLIM. Except as described below, neither NYLIM nor
the funds advised by it have any reason to believe that they have been targeted
as the subject of any governmental or regulatory enforcement action.
The SEC Staff has raised concerns relating to a guarantee provided to
shareholders of the MainStay Equity Index Fund and the fees and expenses of that
Fund, as well as the related guarantee disclosure to Fund shareholders.
Discussions have been held with the SEC concerning a possible resolution of this
matter. These discussions are continuing, but there can be no assurance at this
time as to the outcome of these efforts. The MainStay Equity Index Fund is not a
portfolio of the Eclipse Funds Inc. or the Eclipse Funds.
www.mainstayfunds.com 233
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Eclipse Funds Inc. and the Board of
Trustees and Shareholders of Eclipse Funds:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Eclipse Funds Inc., comprising the MainStay
All Cap Growth, MainStay All Cap Value, MainStay S&P 500 Index, MainStay Cash
Reserves, MainStay Floating Rate, MainStay Indexed Bond, MainStay Intermediate
Term Bond, MainStay Short Term Bond and MainStay Asset Manager Funds, and
Eclipse Funds, comprising the MainStay Mid Cap Opportunity, MainStay Small Cap
Opportunity and MainStay Balanced Funds, (collectively, the "Funds") as of
October 31, 2004, and the related statements of operations for the year or
period then ended, and the statements of changes in net assets and the financial
highlights for each of the two years or periods in the period then ended. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for the periods presented through October 31, 2002 were audited by
other auditors, whose report dated December 17, 2002, 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
also 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, 2004 by correspondence with the custodian and
brokers. As to securities purchased or sold but not yet received or delivered,
we performed other appropriate auditing procedures. 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 each
of the portfolios constituting Eclipse Funds Inc. and Eclipse Funds as of
October 31, 2004, the results of their operations for the year or period then
ended, and the changes in their net assets and their financial highlights for
each of the two years or periods in the period then ended in conformity with
U.S. generally accepted accounting principles.
KPMG SIG
Philadelphia, Pennsylvania
December 28, 2004
234 MainStay Funds
BOARD MEMBERS AND OFFICERS
The Board Members oversee the Funds, the Manager, and the Subadvisor.
Information pertaining to the Board Members and Officers is set forth below.
Each Board Member serves until his/her successor is elected and qualified or
until his/her resignation, death, or removal. 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.
<Table>
<Caption>
NUMBER OF FUNDS OTHER
POSITION(S) WITH IN FUND COMPLEX DIRECTORSHIPS
NAME AND COMPANY & LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
DATE OF BIRTH TRUST TIME SERVED DURING PAST 5 YEARS BOARD MEMBER BOARD MEMBER
-----------------------------------------------------------------------------------------------------------------------
INDEPENDENT BOARD MEMBERS OF THE COMPANY & TRUST
LAWRENCE GLACKEN Director 14 Years Retired. 12 None
10/22/27 Trustee (Company)
5 Years
(Trust)
-----------------------------------------------------------------------------------------------------------------------
ROBERT P. Director 14 Years Retired. 12 None
MULHEARN Trustee (Company)
3/11/47 5 Years
(Trust)
-----------------------------------------------------------------------------------------------------------------------
SUSAN B. Director 14 Years President, Strategic Management 12 Director,
KERLEY(1) Trustee (Company) Advisors LLC. SSB/Citi Mutual
8/12/51 5 Years Funds.
(Trust)
-----------------------------------------------------------------------------------------------------------------------
PETER MEENAN(2) Director 3 Years Consultant; President & Chief 12 Trustee, The
12/5/41 Trustee (Company & Executive Officer of Vantagepoint
Trust) Babson-United, Inc., 2000-2004; Funds.
Head of Global Funds, Citicorp,
1995-1999.
-----------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
NUMBER OF FUNDS OTHER
POSITION(S) WITH IN FUND COMPLEX DIRECTORSHIPS
NAME AND COMPANY & LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
DATE OF BIRTH TRUST TIME SERVED DURING PAST 5 YEARS OFFICER OFFICER
-----------------------------------------------------------------------------------------------------------------------
OFFICERS (WHO ARE NOT BOARD MEMBERS) OF THE COMPANY & TRUST
GARY E. President Since May Chief Executive Officer, Chairman, 53 None
WENDLANDT 24, 2004 and Manager, New York Life
10/8/50 Investment Management LLC
(including predecessor advisory
organizations) and New York Life
Investment Management Holdings
LLC; Executive Vice President, New
York Life Insurance Company;
Executive Vice President and
Manager, NYLIFE LLC; Chairman,
McMorgan & Company LLC; Manager,
MacKay Shields LLC; Executive Vice
President, New York Life Insurance
and Annuity Corporation; Chairman,
President and Chief Executive
Officer, and Trustee, The MainStay
Funds (22 portfolios); Chairman,
Chief Executive Officer, and
Director, MainStay VP Series Fund,
Inc. (19 portfolios); Executive
Vice President and Chief
Investment Officer, MassMutual
Life Insurance Company (1993 to
1999).
-----------------------------------------------------------------------------------------------------------------------
</Table>
1. Ms. Kerley has been designated the Lead Independent Trustee/Director.
2. Mr. Meenan has been appointed Chairman of the Audit Committees.
INFORMATION ON THIS PAGE HAS NOT BEEN AUDITED.
www.mainstayfunds.com 235
<Table>
<Caption>
NUMBER OF FUNDS OTHER
POSITION(S) WITH IN FUND COMPLEX DIRECTORSHIPS
NAME AND COMPANY & LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
DATE OF BIRTH TRUST TIME SERVED DURING PAST 5 YEARS OFFICER OFFICER
-----------------------------------------------------------------------------------------------------------------------
OFFICERS (WHO ARE NOT BOARD MEMBERS) OF THE COMPANY & TRUST
PATRICK G. BOYLE Executive Vice 11 Years Senior Managing Director, New York 12 New York Life
11/24/53 President (Company) Life Investment Management LLC, Trust Company;
1 Year (including predecessor advisory Madison Capital
(Trust) organizations); Senior Vice Funding LLC
President, Pension Department, New
York Life Insurance Company.
-----------------------------------------------------------------------------------------------------------------------
JEFFERSON C. Senior Vice 9 Years Senior Managing Director, New York 34 None
BOYCE President (Company) Life Investment Management LLC
9/17/57 5 Years (including predecessor advisory
(Trust) organizations); Senior Vice
President, New York Life Insurance
Company; Manager, NYLIFE
Distributors LLC; Senior Vice
President, The MainStay Funds.
-----------------------------------------------------------------------------------------------------------------------
PATRICK J. Treasurer and 9 Years Managing Director, New York Life 59 None
FARRELL Chief Financial (Company) Investment Management, LLC
9/27/59 and Accounting 5 Years (including predecessor advisory
Officer (Trust) organizations); Treasurer and
Chief Financial and Accounting
Officer and Assistant Secretary,
The MainStay Funds and MainStay VP
Series Fund, Inc.; Principal
Financial Officer and Assistant
Treasurer, McMorgan Funds.
-----------------------------------------------------------------------------------------------------------------------
ALISON H. Vice President-- Since Managing Director and Chief 53 None
MICUCCI Compliance September Compliance Officer, New York Life
12/16/65 29, 2004 Investment Management LLC (June
2003 to present); Vice President--
Compliance, The MainStay Funds and
MainStay VP Series Fund, Inc.;
Senior Managing Director--
Compliance, NYLIFE Distributors
LLC; Deputy Chief Compliance
Officer, New York Life Investment
Management LLC (September 2002 to
June 2003); Vice President and
Compliance Officer, Goldman Sachs
Asset Management (November 1999 to
August 2002).
-----------------------------------------------------------------------------------------------------------------------
MARGUERITE E. H. Secretary Since Managing Director and Associate 53 None
MORRISON September General Counsel, New York Life
3/26/56 29, 2004 Investment Management LLC (since
June 2004); Secretary, The
MainStay Funds and MainStay VP
Series Fund, Inc.; Managing
Director and Secretary, NYLIFE
Distributors LLC; Chief Legal
Officer -- Mutual Funds and Vice
President and Corporate Counsel,
The Prudential Insurance Company
of America (2000 to June 2004).
-----------------------------------------------------------------------------------------------------------------------
RICHARD W. Tax Vice 8 Years Vice President, New York Life 53 None
ZUCCARO President (Company) Insurance Company; Vice President,
12/12/49 5 Years New York Life Insurance and
(Trust) Annuity Corporation, NYLIFE
Insurance Company of Arizona,
NYLIFE LLC, and NYLIFE Securities,
Inc.; Tax Vice President, New York
Life International, LLC, MainStay
VP Series Fund, Inc., and The
MainStay Funds.
-----------------------------------------------------------------------------------------------------------------------
</Table>
INFORMATION ON THIS PAGE HAS NOT BEEN AUDITED.
236 MainStay Funds
FEDERAL INCOME TAX INFORMATION -- UNAUDITED
The Funds are required by the Internal Revenue Code to advise shareholders
within 60 days of the Funds' fiscal year end (October 31, 2004) as to the
federal tax status of dividends paid by the Funds during such fiscal year.
Accordingly, the following Funds paid long-term capital gain distributions of:
<Table>
<Caption>
Mid Cap Opportunity Fund $ 109,583
- ----------------------------------------------------------
Small Cap Opportunity Fund 8,952,827
- ----------------------------------------------------------
Balanced Fund 1,497,531
- ----------------------------------------------------------
</Table>
A portion of the dividends paid by the following Funds during the fiscal year
ended October 31, 2004 which are not designated as capital gain distributions
should be multiplied by the following percentages to arrive at the amount
eligible for qualified dividend income and for the corporate dividend-received
deduction.
<Table>
<Caption>
QDI% DRD%
All Cap Value Fund 100.0% 100.0%
- ---------------------------------------------------------
S&P 500 Index Fund 100.0 100.0
- ---------------------------------------------------------
Small Cap Opportunity Fund 9.5 9.5
- ---------------------------------------------------------
Asset Manager Fund 61.2 61.7
- ---------------------------------------------------------
Balanced Fund 57.5 51.2
- ---------------------------------------------------------
</Table>
In January 2005, shareholders will receive an IRS Form 1099-DIV or substitute
Form 1099, as to the federal tax status of the distributions received by
shareholders in calendar year 2004. The amounts that will be reported on such
1099-DIV 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 Funds' fiscal year
end October 31, 2004.
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that New York Life Investment
Management LLC (NYLIM) uses to vote proxies related to the Funds' securities is
available without charge, upon request, (i) by calling 1-800-MAINSTAY
(1-800-624-6782); (ii) by visiting the Funds' website at www.mainstayfunds.com;
and (iii) on the Securities and Exchange Commission's ("SEC") website at
www.sec.gov.
The Funds are required to file with the SEC their proxy voting records for each
Portfolio for the 12-month period ending June 30 on Form N-PX. The most recent
Form N-PX or relevant Portfolio proxy voting record is available free of charge
upon request by calling 1-800-MAINSTAY (1-800-624-6782), visiting the Funds'
website at www.mainstayfunds.com, or on the SEC's website at www.sec.gov.
SHAREHOLDER REPORTS AND QUARTERLY PORTFOLIO DISCLOSURE
Each 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 Funds' Form N-Q
is available without charge, on the SEC's website at www.sec.gov and may be
available by calling NYLIM at 1-800-MAINSTAY (1-800-624-6782). You can obtain
copies of Form N-Q by (i) 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); (ii) sending your request and a duplicating
fee to the SEC's Public Reference Room, Washington, DC 20549-0102; or (iii)
sending your request electronically to publicinfo@sec.gov.
INFORMATION ON THIS PAGE HAS NOT BEEN AUDITED.
www.mainstayfunds.com 237
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 All Cap Growth Fund
MainStay All Cap Value Fund
MainStay Blue Chip Growth Fund
MainStay Capital Appreciation Fund
MainStay Common Stock Fund
MainStay Equity Index Fund(1)
MainStay MAP Fund
MainStay Mid Cap Growth Fund
MainStay Mid Cap Opportunity Fund
MainStay Mid Cap Value Fund
MainStay Research Value Fund
MainStay S&P 500 Index Fund
MainStay Small Cap Growth Fund
MainStay Small Cap Opportunity Fund
MainStay Small Cap Value Fund
MainStay Value Fund
INCOME FUNDS
MainStay Cash Reserves Fund
MainStay Diversified Income Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Money Market Fund
MainStay Short Term Bond Fund
MainStay Tax Free Bond Fund
BLENDED FUNDS
MainStay Asset Manager Fund
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Strategic Value Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay Global High Income Fund
MainStay International Bond Fund
MainStay International Equity Fund
1. Closed to new purchases as of January 1, 2002.
2. An affiliate of New York Life Investment Management LLC.
MANAGER
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
Parsippany, New Jersey
SUBADVISORS
MACKAY SHIELDS LLC(2)
New York, New York
FUND ASSET MANAGEMENT, L.P.
d/b/a Mercury Advisors
Plainsboro, New Jersey
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JENNISON ASSOCIATES LLC
New York, New York
MARKSTON INTERNATIONAL, LLC
White Plains, New York
LEGAL COUNSEL
DECHERT LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
(NEW YORK LIFE INVESTMENT MANAGEMENT LLC LOGO)
- ------------------------------------------------
/Not FDIC insured. / No bank guarantee. / May lose value.
NYLIFE DISTRIBUTORS LLC, 169 LACKAWANNA AVENUE,
PARSIPPANY, NEW JERSEY 07054
This report may only be distributed when preceded or accompanied
by a current Fund prospectus.
www.mainstayfunds.com SEC File Number: 811-04847 (Eclipse Funds)
(C) 2004 by NYLIFE Distributors LLC. All rights reserved.
SEC File Number: 811-06175 (Eclipse Funds Inc.)
NYLIM-AO6023 (RECYCLE LOGO) MS11g-12/04
FORM N-CSR
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"). There were no
amendments to the Code during the period covered by the report. 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 at least
one audit committee financial expert serving on its Audit Committee. The Audit
Committee financial expert is Peter Meenan. Mr. Meenan is "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 each of the last two fiscal years for
professional services rendered by KPMG LLP 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 those fiscal
years were $72,383 for 2004 and $72,200 for 2003.
(b) Audit Related Fees
The aggregate fees billed for the fiscal year ended October 31, 2004
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 $7,500.
The aggregate fees billed for the fiscal period ended October 31, 2003
for assurance and related services by PricewaterhouseCoopers LLP 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 $14,190.
(c) Tax Fees
The aggregate fees billed: (i) during the fiscal year ended October 31,
2004 for professional services rendered by KPMG for tax compliance, tax advice,
and tax planning were $19,250 and (ii) during the fiscal period ended October
31, 2003 for professional services rendered by KPMG for tax compliance, tax
advice, and tax planning were $18,000. These services primarily included
preparation of federal, state and local income tax returns. Additionally,
services included the preparation of excise tax returns and excise tax
distribution requirements.
(d) All Other Fees
The aggregate fees billed during the last two fiscal years for products
and services provided by KPMG, other than the services reported in paragraphs
(a) through (c) of this Item, were $0 for 2004 and $0 for 2003.
(e) Pre-Approval Policies and Procedures
(1) The Registrant's Audit 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 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 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
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
Committee if it is to be provided by the independent accountant. The
Procedures also permit the Audit 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 Committee,
subject to the ratification by the full Audit Committee no later than
its next scheduled meeting. To date, the Audit 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 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 that were attributed 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, 2004 and October 31, 2003 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 for
each of the last two fiscal years of the Registrant were approximately
$0 for 2004 and $0 for 2003.
(h) The Registrant's Audit Committee of the Board of Trustees has considered
whether the provision of non-audit services that were 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 investment adviser that provides ongoing services to the
Registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining KPMG's independence.
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. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At a meeting held on June 24, 2004, the Nominating Committee of the
Registrant adopted policies for considering Board Member candidates. The
Committee may consider nominations from shareholders of the Registrant. Each
eligible shareholder or shareholder group may submit no more than one candidate
each calendar year, and recommendations should be forwarded to the attention of
the Registrant's Secretary.
A shareholder's submission to the Secretary of the Registrant must
include: (a) contact information for the nominating shareholder or shareholder
group; (b) a certification from the nominating shareholder which provides the
number of shares which the person or group has: (i) sole power to vote or direct
the vote; (ii) shared power to vote or direct the vote; (iii) sole power to
dispose or direct the disposition of such shares; and (iv) shared power to
dispose or direct the disposition of such shares. In addition the certification
shall provide that the shares have been held continuously for at least two years
as of the date of the nomination; (c) the candidate's contact information and
the number of applicable Registrant shares owned by the candidate; (d) all
information regarding the candidate that would be required to be disclosed in
solicitations of proxies for elections of trustees required by Regulation 14A
under the Securities Exchange Act of 1934, as amended; and (e) a notarized
letter executed by the candidate, stating his or her intention to serve as a
candidate and be named in the Registrant's proxy statement, if so designated by
the Nominating Committee and the Registrant's Board.
It shall be in the Nominating Committee's sole discretion whether to
seek corrections of a deficient submission or to exclude a candidate from
consideration.
ITEM 10. CONTROLS AND PROCEDURES.
(a) Based on an evaluation of the 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 11. EXHIBITS.
(a)(1) Code of Ethics
(b)(1) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2 under the Investment Company Act of 1940.
(b)(2) Certifications of principal executive officer and principal financial
officer as required by Section 906 of the Sarbanes-Oxley Act of 202.
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.
ECLIPSE FUNDS
By: /s/ Gary E. Wendandt
---------------------------------
GARY E. WENDLANDT
President
Date: January 7, 2005
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/ Gary E. Wendandt
---------------------------------
GARY E. WENDLANDT
President
Date: January 7, 2005
By: /s/ Patrick J. Farrell
---------------------------------
PATRICK J. FARRELL
Treasurer and
Chief Financial and Accounting Officer
Date: January 7, 2005
EXHIBIT INDEX
(a)(1) Code of Ethics
(b)(1) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2 under the Investment
Company Act of 1940.
(b)(2) Certification of principal executive officer and principal
financial officer as required by Section 906 of the Sarbanes-Oxley Act
of 2002.